Steve Cho, Partner at Mechanism Capital, on Web3 VC funding and the Current Crypto Market Landscape

Steve Cho, Partner at Mechanism Capital, on Web3 VC funding and the Current Crypto Market Landscape

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In an exclusive interview with cryptonews.com, Steve Cho, Head of Mechanism Play and Partner at Mechanism Capital, talks about the state of the Web3 gaming industry, the current crypto market landscape and its impact on VC funding for crypto projects.

About Steve Cho

Steve Cho co-heads up Mech Play, a web3 gaming fund for Mechanism Capital.  Before Mechanism, Steve was focused on growing the games business for the App Store.  He was the subject matter expert on NFTs and blockchain technologies for the store and helped inform and educate other parts of Apple as well, including App Review, Apple Pay, and Apple Music, to name a few.  He also focused on User Generated Content experiences and performance marketing.  Before Apple, Steve led business development efforts at two startups, both in mobile ad technology.  In 2013, it was at his first startup, Kiip, where he discovered Bitcoin, and has been coin collecting ever since.

Steve Cho gave a wide-ranging exclusive interview which you can see below, and we are happy for you to use it for publication, provided there is a credit to www.cryptonews.com. 

Highlights Of The Interview

  • The current crypto market landscape and its impact on VC funding for crypto projects and Web3 gaming companies
  • Strategies for navigating the bear market and identifying opportunities for investment in the Web3 gaming space
  • The state of the Web3 gaming industry
  • Challenges for web3 gaming companies¬†
  • Stories from working at Apple

 

 

 

Full Transcript Of The Interview

Matt Zahab 
Ladies and gentlemen, welcome back to the Cryptonews Podcast. We are buzzing as always and today my guest is coming in hot from beautiful sunny Las Vegas, Nevada. We’d love to see it. Today we have Steve Cho on the show.¬†Head of Mechanism Play and Partner at Mechanism Capital. Steve Cho¬†heads up¬†Mech Play a Web3 gaming fund for Mechanism Capital. Prior to Mechanism, Steve was focused on growing the games business for the App Store.¬†Ever heard of the App Store folks? He was the subject matter expert on NFTs and blockchain tech for the store and helped inform and educate other parts of Apple, as well as including App Review, Apple Pay and Apple Music to name a few.¬†¬†He also focused on user generated content experiences and performance marketing. Before Apple, Steve led business development efforts at two startups, both in the mobile ad tech space. In 2013, it was at his first startup, Kiip, where he discovered Bitcoin and has been collecting ever since.¬†Probably is a nice bag, we’d love to see it. Pumped to have you on. Steve cho welcome to show my friend.¬†

Steve Cho 
Matt thanks for having me. This is definitely an honor and a pleasure to be on the show and I really appreciate this opportunity. Never thought my career would take me twists and turns, all these different places to wind up to actually be on a podcast in regards to talking about just Cryptocurrencies and NFTs and just Web3 gaming. So yeah, really cool to have this experience. 

Matt Zahab 
I love that. I appreciate the kind words, man, for the listeners who are also viewers and are watching this on YouTube or one of the lovely video platforms that our world has to offer. Steve is wearing a sick shirt that I complimented him on as soon as we first locked eyes on the recording screen. Beautiful riverside.fm it is the, Steve, what emoji is that? How would you even explain that emoji? And a little follow up give the backstory to how you got that as well. 

Steve Cho 
These shirts are actually available if you go visit an Apple campus, the main campus that you probably want to visit, I would say the two that actually would have it would be the old Apple campus.¬†Right? And then there’s Apple Park. And those two stores, in my opinion, have the best choice collection of these shirts. This shirt is the head explode emoji. I wish I could tell you that every day worked at Apple.¬†It was just a calm and nice experience, because everything just seems calm that way. But in terms of the people that work there, we work really hard, and I think we really put a lot of passion in what we do.¬†So this head exploding thing probably happened more than often every day for me, but in a very good way, because then it just allowed me to continue to compose my thoughts, compose what I was thinking, and come back the next day to work to have my head explode again.¬†Yeah.

Matt Zahab 
Walk me through sort of the whole Apple journey. We’ve had a couple of guests on the show, worked for and with Apple, which is pretty cool. I have one buddy who works for Apple. He absolutely loves it.¬†He said the perks are like nothing he’s ever seen in his life. He said it’s absolute bananas. You get treated like royalty. Yes, you need to work hard, but the cult that they sort of make with you working there and the community and everything else, I’ve heard so many cool, interesting, crazy bonkers insert a multitude of different words, stories.¬†Steve, I’d love if you could tell me a couple of stories about your time and journey working at Apple and some of the cool stuff that you and your teams built as well.¬†

Steve Cho 
Yeah, no. Happy to do so. So maybe where I should start is kind of my Apple journey in terms of how I even got into Apple.¬†Right? Because I think a lot of people wonder, like, how do I get into Apple? Or what is the process for that? The reality was it was really¬†the people that I know. When I look back at my career, like when I got into my first startup back in 2013, it was really kind of a journey of not necessarily I could do all these things and build these things, but an understanding of the people that around me and how talented they were and working together to make all this happen.¬†And it wasn’t until I started at Kiip in 2013 that I had a biz dev lead over there. His name was Mark Hickey and he’s going to love this call because he’s over at Devolver now, VP of Mobile. But this guy literally brought me in into this startup, this mobile ad technology startup that was focused on rewarding users in these in game moments when you score like highly in the game.¬†And basically what happened was that he ended up leaving that role and ended up at Apple. And because he ended at Apple, what gave me the opportunity was even though at my first startup I had good success, in my second startup I had good success in both cases.¬†Both those startups actually, ironically enough, failed, which happens all the time to most startups. So when I look back at that, I see the fact that as my journey went, although I was at two great mobile technology startups, both failing, when I looked at kind of what happened and my parents especially looked at it said, you know what?¬†I don’t know if all that startup stuff was really worth it, but what they didn’t factor in and what I actually learned to value was although I wasn’t getting paid and I never made the IPO money that a lot of people do in startups.¬†What I ended up was with a group of very talented people that helped me throughout my career. That’s why I tell people the success I’ve had so far isn’t because of what I’ve done, it’s because of the people around me that made me successful.¬†And it just so happened that it was back at my last startup, Lootsy, which was a great startup, great team, we were in the process of winding down Lootsy. And it just so happened that at that point I didn’t know what I was going to do next.¬†And I knew that I wanted to do something really big. So I called up Mark over at Apple and I told him, hey look, is there a role there for me? He said, you know what you’ve been asking me all this time, there is something on my team did you want to interview?¬†So I applied for the role just like everyone else does and luckily got a chance to interview. Meanwhile, I’m not going to tell you how many interviews later. But a lot of the years later, I got lucky enough to actually get the role and work at the App Store on that business management team.¬†So even to get even started, it was something that wasn’t something that I applied just online. It’s a relationship that I had at a startup that had failed a while back ago that ended up coming back to actually reward me with something really big in terms of that opportunity.¬†Yeah. As far as the work, I’ll tell you what it’s like. So a lot of people wonder, like, when you get to Apple, what’s it like. And I could tell you this as much as we talk, especially on the overall presentation side, WDC, you’re going to hear a lot more about this privacy, security, safety, about the user, that maniacal focus of the user.¬†I got to tell you, it’s definitely real. All that is real. And that’s what I learned when I got there, is the reason why the product is so good. The services are great, people trust it is because deep down inside, when we looked at all this stuff at a very, I’d say macro level, but also very much at the device level.¬†And I can’t talk too much about at the device level, but the device level, you got to think about what I mean by privacy when we think about just maybe even advertising, what that means. Right? That is so core to what we are.¬†And I say we because I get back to that mode, but what they are, because at the end of the day, it really does come down to user. And I learned that that is probably one of the biggest success things about Apple is that what they’re saying on the outside is exactly what’s happening on the inside.¬†So I really appreciated that and I thought working in that role that I was at, it was definitely the best job my entire life, period. Yeah, it was that great. You wanted a funny story though, right?¬†

Matt Zahab 
Yeah, give me some.

Steve Cho 
I can’t believe I’m going to say this, but I’m going to say this, and I know this is going to come back to bite me, but it’s okay. Let’s go for it. I’m going to give you a good one. So typically people at Apple are very punctual, I think Apple Park especially, you’re coming to this headquarters, right?¬†I remember this one time, though, I had a dentist appointment and from Apple Park to the Apple Park garage, and I don’t think I’m giving away anything privately. I think I’m going to get arrested or something’s going to happen to me, but it literally is that¬†walk is like could be a 10¬†to 15 minutes walk, right? So I don’t want to do the walk because there’s a hill to it. So I got a scooter and I’d scoot on down to get there as fast as I could. But that day I came in fast shouldn’t¬†be late, really late. 10:30 I’m coming in hot to Apple Park and building three. They’re all marked on the thing. But I remember when I got the door, there was someone there. I’m thinking, okay, not a big deal.¬†Like, I’m just scoot on in, right? So this guy opens this door for me, and as I’m going through, I noticed who it is. It’s Tim Cook. And he’s looking at me. I don’t think he honestly probably didn’t mind the time.¬†But literally at 10:30, I’m telling you, no one’s coming to. Like, by that time, everyone’s working, right? So it’s definitely one of those embarrassing moments in my life. Always have something happen to me.¬†Again with Tim Cook in regards to an elevator, when I was coming kind of late as well, and that was at Mac cafe. I did not get fired, just so you know I left.¬†

Matt Zahab 
Me personally I probably would have been sweating like crazy. I would have been nervous as hell seeing big Timmy C. opening the door for you. Did you say thanks? Hey, Timmy. Thanks, bud. Appreciate it. 

Steve Cho 
The first time it happened so fast because I actually had not really gotten off my scooter yet.¬†I just scooted through. I’m like, oh, man, that was bad. And then I went back and I was talking about it with my coworkers. Oh, my God, I can’t believe that happened. But the second one, it was an elevator.¬†I remember I was walking out of it. And then he was kind of, like walking kind of in at the same time. And then that was another awkward exchange. I thought, oh, and I had the scooter with me. I wonder if that’s a guy with a scooter.¬†But all jokes aside, I don’t think anyone really minds it’s just as an employee, obviously, to see someone like that walk through the hallways, there’s some really amazing people. They’re influential, visionary leaders at Apple, and to actually have them there sitting with you, literally, if you’re sitting at the cafe at Apple, what happens is literally you could have any of these exactly like Tim Cook probably sitting right near you or having a conversation.¬†They’re very much there, which is really nice to have.¬†

Matt Zahab 
Tell me about some of the perks. Because, again, you hear these stories online. You see the stuff on Twitter, free dinners, lunches, breckies, the whole nine yards. You hear about employees, like, sleeping in their cars and just living at Apple HQ the whole time, so they never even have to pay rent. How good are the perks working at Apple? 

Steve Cho 
So I can’t say that I know anyone that actually slept in their car to do that.¬†I’m not sure if you could really get away with that, but let’s just say hypothetically can happen. But I could say on the rest of the actual things around the perks, the interesting about working at Apple, at least from my experience, was I thought we were very good at being mindful of just expenses and costs.¬†I think Apple came from at a point where there was a dire time for the company, and because of that dire time where Apple was probably, like, in a position where they really did feel the actual knife to the throat. Right?¬†About the longevity of the company, it changed the understanding of what it meant to be mindful about expenses. So as a result, everything really you kind of have to pay for there. Right? But I think it’s reflective of the fact that because of that, when you kind of look at now the economic downturn, you wonder why Apple seems to have still the staying power in terms of just overall value and stock price.¬†It’s because of, I think, those lean times, they know how to opex that really nicely. Right? I’m not saying that we didn’t get perks. Like, there are things, obviously, you could get once in a while for doing certain things, right?¬†There’s fitness challenges and stuff that people get. But on the most part, do we have to pay for our food? Yes, we pay for our food. Was the food at a fair price? I think Apple thinks it’s a fair price.¬†That’s all that matters. So from my perspective, a lot of that was that I don’t know if there was any super perks. Of course there’s an employee discount, but then you’d have to talk to an employee. I’m no longer employed there.¬†

Matt Zahab 
Got you. I feel you, Steve. Well, hey, it’s crazy. You hear some of the stories online. Again,¬†got a buddy who works for Facebook, and I think he’s at the Palo Alto office or one of them like that right now.¬†But he says you don’t pay for anything. He said, you know, every meal is paid for. You need new iPhone, boom. Get like anything you want, they just give it to you. So perhaps it’s different at Apple, but I mean that would be a treat and a half because if you add that up sorry, interrupt you’re saving, let’s say each meal is, you know, let’s say you’re spending something very basic, $50 a day on food like that’s, 1500 bucks a month like that’s¬†a good amount of coin right there you know.¬†

Steve Cho 
It is. And the only comment I would make on that and I have to tell you on my part, I still hold Apple stocks. So my thing is that what I’m really happy about with Apple is that right now I don’t think to date they’ve actually laid off anyone yet.¬†And there’s a reason it goes back to Opex, it goes back to planning, it goes back to choices. I think the other startups, I’m not going to name whichever ones, but there’s obviously big startups out there that have done really well at unicorn level.¬†I think what happened during that time period, they hired a lot. They took on a lot of talent. And because they took on all that talent at a certain time of the economy, what they’re forced to do is realize the fact that by vetting all that great talent that they have, now they’re having to get rid of that talent in terms of laying them off.¬†And that’s the unfortunate part. That’s like in my opinion that’s the planning that typically needs to happen and then be able to handle those employees in a way where basically everything’s cost effective so you could keep your current talent pools even more important.¬†Talent is king with startups or even big business.¬†

Matt Zahab 
Very true. And again, not that this is a binary question, but if it was, what would you rather have, guaranteed job security or free meals? I feel like anyone would take the former, not the latter.¬†So interesting. Anyways, enough about Apple. Let’s jump into Web3. This is a¬†Cryptonews Pod, so I digress. Let’s do it. Jump into deep end here. By the time this episode airs, it’s going to be mid to late May and hasn’t been a whole lot of news over the last couple of months.¬†It’s been sort of chill. Really nothing¬†that¬†pops off the top of my head¬†besides Pepe. Pepe obviously blew up. We had some BLUR news as well. I feel like those have sort of been the two biggest not narratives, but at least headlines for crypto this year.¬†You and the team at Mechanism obviously do a lot of specialization in the Web3 gaming area. Before we get into some nitty gritty, I’d love if you could just sort of riff off your current crypto market landscape, some of the trends and cool things that you and the team have your eye on, and then we’ll sort of uniquely dive into each of those and we’ll see where the combo takes us.¬†¬†

Steve Cho 
Yeah. So the area that I focus in on Mechanism, obviously from my perspective so I actually left Apple January of 2022. That’s when I joined Mechanism. And when I joined Mechanism, I was specifically brought on as a venture partner, general partner, specifically covering the Web3 gaming space.¬†So the area that I’m probably a comment is going to be more applicable to that than anything around crypto. And I could tell you where I kind of see things around Web3 gaming and around crypto specifically, is I think we’re in a period where a lot of people are building.¬†There’s a lot of building, and also from a perspective of a capitalization standpoint, probably a lot of interest in potentially bridge rounds and things like that. I think this is a very interesting time period because we haven’t really seen, in my opinion, anything that’s significant coming from Web3 gaming outside of the actual digital phenomenon that was Axie Infinity and several other games that probably followed after that. Right? The reality is, if you take a look at that trend and we apply that to, let’s say, gaming just in general, even free to play gaming for mobile, right?¬†The App Store itself, when you look at even then, for them, when that actual phenomenon occurred, it was very much something where it was isn’t just one game that did it. It wasn’t just angry birds. It was game after game.¬†Basically, when I say if this was like we’re just talking, I’d say it’s like one banger after a banger. It was that many games I had to do. It was probably Angry Birds, Candy Crush Saga.¬†Probably like something like a Clash Royale and so on and so forth.¬†

Matt Zahab 
Subway surfer,¬†yeah. Classics. Wow. For Web3 to pop off, you think that’s one of the things we need the most is we need like legit bangers being released.¬†It’s like anything else in life. You need momentum. And like right now there’s no momentum.¬†

Steve Cho 
That shows you there’s a market, right?¬† If that is proven out, that all of a sudden you see one Web3 game be successful than the next and the next, generating what we saw back in 2021, which was billions of dollars of sales volume and trades.¬†Right? That is what gets the eye of it. So question was back like in 2021 when I was still working at Apple, the reason why all of a sudden there’s this interest in learning more about NFT probably. Right?¬†And there’s a reason for learning more about Blockchain is when you see hundreds of billions of dollars of sales volume happening on the Internet, it peaks an interest. Right? So the question is, when you look at Web3 gaming, we need that phenomenon back.¬†We need that kind of transaction volume. We need games that actually make sense of that way and not games that probably resemble more things that are probably more in Ponzanomics and tokenomics, but more something that’s enduring value.¬†Right? We want games that can stay. Not only stay, but hold that value. And exactly what I think one of your other podcasters had mentioned in a previous podcast is we want fun games. So it’s got to be fun too, right?¬†So if you think it’s got to be fun, it’s got to be able to hold its value. It’s got to have something where it’s not even just fun for the game. It’s how do you find fun in the NFTs? Finding fun in the game is one thing. Right?¬†So I think that’s where we are right now. I think there’s a lot of really good development in Web3 gaming happening. I’m really excited about that part. And I think what we’re at right now is it’s just a matter of time and the right experimentation for someone to get it right, where now they’ve made a game that makes a lot of sense with NFTs.¬†And these NFTs make the game more fun, but not only make it more fun, but at the same time economically for the user, it makes sense for them to actually have it as well. There’s value that’s attached to it.¬†Right? And it can’t be just collectibles. It could be that there’s other things that this could be applied to that makes the user understand why this is necessary for this game. And I think that’s where we’re kind of the cycle.¬†I think what we’re seeing is back in 2021, what we saw was just all these crypto native gamers or crypto native people. Speculating we saw these gamers that were probably interested in it. But what we’re seeing is we’re seeing a convergence not only of the actual users that would potentially want to participate in the Web3 game, but also in terms of the talent, the teams.¬†It used to be just Web3 crypto native teams, right? And then you had the established¬†Web2.0¬†free to play gaming teams trying to make a Web3 game. But what we’re seeing is the talent actually converging too, working together to actually come up with a really good title.¬†And I think that’s the most exciting part, seeing that kind of come together moment because I think at the end it won’t be Web3 games. I don’t think it’d be Web2 games, I think it just be called games again.¬†

Matt Zahab 
Good point. You got my head spin a little here. You said a couple of lines that I have somewhat heard before, but you articulated them in a great way. We’ll get to those in a second. Walk me through you and the team’s workflow in regards to investing in a Web3 gaming startup.¬†Startup or not, let’s gas startup there’s company XYZ, company A to Z, heck, whatever, is now launching a Web3 game. What do you guys look for? Maybe if you could touch on some of the non obvious stuff, like obviously the founding team, how quickly they can go to market, the TAM, the whole nine yards.¬†But if you could touch on some non obvious stuff that you look for within these teams, that’d be lovely.¬†

Steve Cho 
Okay, great. Yeah. So I think everything you just said right now definitely for me, and I would say for the rest of our partners and Mechanism, I think talent team trumps all.¬†Having a team that has not just the talent, but the experience, some grit obviously, definitely helps. You have to have that and that creativity to be able to pivot on a dime. I think that’s another key piece.¬†So there’s all this thing around teams that we could talk about, but let’s just. Set that aside and talk about what are the other nuances. Right? Well, if you think about kind of where we are with just a Web3 game, right?¬†You still are left with and beset with the exact same issues you would have with the Web2.0¬†game one is Live Operations, live¬†ops, which is something that they talk about free to play all the time.¬†Right? That’s something that free to play companies are perfectly efficient at doing, which is a live operation of an actual game. The care and feeding of a live game. That’s a forever franchise that is not going to see a sequel ever.¬†Right? Number one.¬†Number two, and understanding how you would typically advertise for the game. I get an understanding community look at actually actually did a great job with the community. And I’m not saying community isn’t a way that you can’t do that you shouldn’t do for Web3 games.¬†Obviously, discovery for Web3 games in that regard makes sense. But I think the other bit is how do you effectively advertise? How do you actually pay for advertising.¬†Right?¬†In midst of everything that’s happening, even with ATT, that Apple has gone ahead and released in terms of that framework for privacy, my feeling is that, if anything, now more than ever for gaming itself, not just Web3 gaming, but all gaming, performance marketing is kind of at a point where it’s not what it used to be.¬†And as a result of that, what you’re seeing is gaming suffering. Right? If you look at overall gaming revenues over the past, I’d say a few years, a lot of the actual analysts predict a decline largely because of probably that.¬†Right? So I think having someone on your team that’s an effective performance marketer or someone that’s a viral or social marketer, I think makes a lot of sense and understanding how to get that discovery because I think you can make a fun game, and I think the App Store proves this to you as well.¬†You can make a fun game, but you still need to get it discovered, right? Yeah. Just how many millions of games? I saw an estimate that said that there would be more than 4000 decentralized applications released every month soon enough.¬†And that’s crazy. 4000¬†dApps? Are you kidding me? So if we kind of compound that over a period of time, I mean¬†one game, you rise above the others. I think understanding performance marketing, understanding social viral marketing, being able to come up with creative ways to be able to articulate that example.¬†I know that in terms of one year game in particular that I can think of off the top of my head, they came up with their own little Hyper casual game that they had people play, right?¬†To even get whitelisted for an NFT.¬†That’s clever, right? Things like that get kind of gets it going. So I think that type of out of box thinking is important. That’s what I look for. The other thing I look for as well is a very good head on understanding what I call the ingame economy and obviously the extensible, the token economy that obviously is fungible that’s out there on the Internet and being able to map that together, right?¬†So that way the ingame economy still is fun and it works. And there isn’t too much that needs to happen here to potentially dilute your token or do something that’s not necessarily in your best interest in terms of preserving the value of the token, in terms of the actual token that you would typically sell, or buy on the exchange.¬†I think in that regard, that’s the other thing that you need to kind of map up that’s a tokenomics of it. It’s a lot harder than a normal project because what you’re literally doing is taking an in game economy and an out of game economy or out of game token and trying to figure out the emissions and syncs and all these different things to make it actually work properly.¬†Hard stuff.¬†

Matt Zahab 
That’s bananas. But you just listed off ten different things there, Steve. It’s like, how do you sort of if you were to almost have a list and again, this is a shitty nuanced question on my end for you here, but if you were to list them, like even one to ten or let’s simplify it one to three, like team being, I assume, number one, what’s after team?¬†Is it like the performance marketing? Is it the sort of exterior economy token? Is it the total addressable market? Is it sort of the viral loops? Like, again, very nuanced shitty question, but what are what’s sort of the order of importance?¬†What’s the pecking order there?¬†

Steve Cho 
I think for me, it would come down to definitely a team and then after that would probably be the product. Understanding better the actual game itself. The reason why is that you could have an amazing team.¬†And their thesis could be that this type of game would be successful. But the reality is, in terms of Mechanism, we have a general understanding where we think Web3 gaming could be very successful in certain areas, but not every area of gaming I think will be successful in Web3.¬†That’s my feeling. And as a result of that, I think product direction is important, and I think obviously not only product direction, but also vision. Right? So a very good vision toward where this is headed.¬†Right? So the thing about vision is what I find important about that, that allows you to pivot, right? And that allows you to be able to kind of understand the road ahead. So I do look for that. I look for the team.¬†I look for great, strong vision, and I look for product. And around product, I would say the area of product I’m looking for probably more accurately around that is specific types of game styles, game mechanics.¬†And at the same time, I’m also looking for potentially any traction. So if this is something that they’re already kind of like working out, they have some early numbers free to play it’s a page from them.¬†It’s retention D1,¬†D7,¬†D30, D180, if it gets that far. But my point is it is very much kind of both that you’re kind of evaluating at the same time.¬†Yeah.

Matt Zahab 
Good point. And just for listeners at home, when you’re referring to D1, D7, D30, D180¬†that’s the average number of consecutive days or just average number of days that a user plays the game.¬†Right?¬†

Steve Cho 
So it’s retention. So it’s overall, like, for that specific user that came in on D0, D1, how long were you able to retain that user, yeah, and then each day would have another one.¬†

Matt Zahab 
Yeah. No, that’s very true. I want to go back in that last little spiel of yours¬†you talked about sort of the different genres or niches or types of Web3 games that could potentially be profitable and popular.¬†Do you have any particular fancy or we talk in, you know,¬†first person shooters, third person shooters, slow strategy games, sports games. What tickles your fancy the most of all of the genres of Web3 games.¬†¬†

Steve Cho 
So the part that I find fascinating right now, if you think about Web3 gaming, where we’re at right now, I am of the mindset that certain types of and this is what I think happened when we moved from Web2 to Web3.¬†I think a lot of the new emerging¬†Web3¬†startups went the route of probably derisking some sort of game model that would be very much new and very much innovative, that potentially could be of a high risk.¬†And they went with, I think is more the low hanging fruit, which is, hey, let’s go make a looter shooter. Hey, let’s make an FPS game. Hey, let’s go make a puzzle game. And why would they make these?¬†It does make a lot of sense. It’s both ways. It’s derisked them because they know that the actual TAM¬†total addressable market is there for them, probably, right. To a certain degree. Right? And we’re assuming that that market is either going to be targeting a crypto native market, it’s going to be targeting probably a gamer.¬†Right? An actual gamer with some level of overlap, of course. But then the thing is, if you copied every single one of these genres that have done really well, I would say that, yeah, you’ve derisked it.¬†Even for an investor like me, you’ve derisked it because I could actually probably see those valuations. Right? If you look at some of these free to play gaming companies like SCOPI, they exited for like $4.9 billion, which obviously the Asymmetry is there.¬†But the challenge is you’re competing those games that are on¬†Web3¬†are competing against very highly efficient, free to play games that are already doing that. Exactly.¬†

Matt Zahab 
Attention. So how are you going to grab their attention?  

Steve Cho 
If you came out with a match-three game, you’re about to go up against Candy Crush. So you’re saying that you’re going to come out with another match-three game that is going to go up against Candy Crush, but on top of that, what is your thing that going to do that’s different?¬†NFTs we’re going to make a token, but is that going to be enough? How does that kind of map through the,¬†why is it that you think that’s going to make that experience much better? And if it’s not going to make it monumentally better, then the question is, does a puzzle game really in that regards a match-three puzzle game play well for Web3?¬†And I’ll give you one more example because I think this will really kind of drive the point home. Let’s look at¬†Hyper casual for a second. There’s been talks about, hey, why don’t you raise on a¬†Hyper casual gaming company and make¬†Hyper casual games and raise on that for Web3?¬†Yeah, it kind of makes sense at first. But the question is if I told you that I was selling you an NFT bat in a¬†Hyper casual game for $28, right? The thing about HCG games is they have about two weeks of content.¬†What happens after done. After two weeks, you really want that bat still? You just pay $28 for the bat. Like, the experience has to be there are certain experiences that fit well right now with how we apply NFTs.¬†I’m not saying that someone’s going to be creative enough to say, hey, there’s a way to apply NFTs into a Hyper casual game. Someone could say, hey, we’re going to make a suite of Hyper casual games.¬†We’ll make 28 of them. We’ll make a universal currency that’s attached to each of them, make it a fungible token that now we could put out there and sell, buy, sell, right. And then it’s all kind of its own universe and we’ll put rewards behind with a rewards wall.¬†Right? That’s great. Maybe I just solved it. But the reality is this does that already exist? And if it exists, the question is, does it have to be decentralized? Is there someone centralized that’s doing that, giving out rewards?¬†Right? That’s kind of the challenge is like, I think certain game models are not as lucrative as other ones that¬†probably where it’s already established example collectible card games. So if you look at some of the CCG games out there, like God’s¬†Unchained, it gives you an example of why is it that all of a sudden the cards it was very easy for a person to understand that because they were already collecting.¬†That was already kind of in the understanding of the psychology of the user. And I think that’s the key thing is it’s that, but it’s also understanding if there’s certain types of game modes that don’t make sense, that don’t make a lot of money.¬†Right? So, I mean. I’m not sure if anyone’s come out with NFT chess, but the thing is, if, let’s say someone did, my question is, show me the highest paying chess game that’s out there top grossing right now on the charts.¬†Is it there? Like, what’s out there that’s top grossing for chess? So that’s a game right now that people play online for free. You put NFTs and maybe a token on it, would it work? Maybe someone could get to work, but to me, the opportunity isn’t there.¬†So knowing which games and kind of how they work and feel, it does make sense. Some make better sense for NFTs and tokens than others do. Yeah.¬†

Matt Zahab 
Well said.¬†Steve, you’re buzzing. But we got to take a quick break here.¬†When we get back, we’re going to talk about some of the nuances and just sort of some of the differences between the Web3 gaming industry during COVID and Web3 gaming post COVID. Until then, huge shout out to PrimeXBT.¬†Been using them for a hot minute. They are longtime friends of¬†cryptonews.com. We love PrimeXBT¬†as they offer a robust trading system for both beginners and professional traders. It doesn’t matter if you’re a rookie or a vet, you can easily design and customize your layouts and widgets to best fit your trading style.¬†To make sure that your head does not look like the head on Steve’s shirt, the promo is available for a month after activation. It is CRYPTONEWS50, the promo code to receive 50% of your deposit credited to your trading account.¬†That can be used as an additional bonus to your open positions. Again, CRYPTONEWS50¬†all one word, CRYPTONEWS50 to receive 50% of your deposit credited to your trading account. Now back to the show with¬†Steve. Steve¬†one thing that I often think about is while being in the same fortunately beautiful office that I have for the last couple, two, three years, got this place during COVID I remembered the fun that I had in here while testing out different Web3 games and while being an absolute purebred degenerate trading NFTs.¬†I’m not even talking a little. I’m talking a¬†purebred. Not a mutt, a purebred degenerate. You cut me open, you check out that DNA. There was tons of purebred NFT trading degeneracy in there. However, this is one thing that I don’t want to say worries me.¬†Perhaps this is because of my age. I’m 28, but during COVID there wasn’t that much to do. And someone who was a decent gamer did give up of thousands of hours as a kid while gaming. Like most other boys, I feel like did, I don’t have that need anymore.¬†Perhaps this is just me. Right? Obviously, I can’t truly empathize with a lot of other people because my feet are only in my shoes. But the point I’m trying to get at is how much different are things today in regards to three years ago, two years ago, when all this stuff was popping off and everyone thought that Web3 gaming would be mainstream right now.¬†And I guess my question is, do you think that the biggest reason why everything blew up is just because we were all inside and had nothing better to do?¬†

Steve Cho 
That’s a good question. I would say that one thing that’s been proven over time.¬†If you look at gaming, it’s been pretty resilient to a lot of different things. And I know that there’s a bit of a downturn lately, but overall, gaming has consistently been resilient. It’s one of those areas where during COVID it really took off because I think a lot of people were at home.¬†Right? There wasn’t much to do. If you even look at the App Store, like, the App Store saw like record billings because of the fact that you were stuck at home on your device, probably playing a game or even on an app.¬†Right? But that being said, do I think that because of the nature of that, people probably won’t game as much and they want to be outside and do all these things? I think it’s great that people probably were done with COVID all that’s done.¬†But I think during that time period, one thing that it’s important to mention is that a lot of people not only did have idle time, but they also had probably a lot more financial¬†incentives to potentially go out there and invest.¬†Right? You saw investments go all throughout the roof, like not just crypto but all of it. Right? I mean, 2021 was a crazy year, right? So what really drove 2021 I think is a factor of macros, favorable macro things.¬†I think also the fact that a lot of eyeballs were at home, they didn’t want to go out. Right? So now you’re just engaged with screen. And that’s really kind of the name of the game, isn’t so much it’s a game or an app, it’s the fact that how much time are you engaged on my app or my game?¬†Hours of the day, because that’s a finite amount. And the final bit is the speculative aspect to that question is were you really playing those games or were you speculating more on the actual buy sell mechanic of the NFTs?¬†Because when I look at back at 2021, what I see is some games that were okay, decent, but obviously I think on the most part there was more of GameFi instead, more staking, more yielding, more buy selling of these NFTs.¬†Right? If you think about even the guilds, what the guilds were built on, scholarships, all these different things. So it’s mechanic after mechanic, and that’s fine. I think it’s great that happens.¬†But the reality is that the actual games that I think would potentially hold and preserve the value of the NFTs, I think they were yet to be seen. And I think where we’re at right now in this cycle is although now it seems like people seem to be more engaged doing other things.¬†I think it’ll come back to gaming. And I think where it’ll come back to gaming, which I think is going to be fascinating, is I think, what we haven’t seen yet. But what we’re going to see is potentially this is where it’s going to get kind of crazy.¬†But I don’t mind because I think it’s kind of core part of how I kind of see things kind of unfold. I just know that in my lifetime that when I kind of look at the things I’ll be able to explore, there isn’t a lot that I’m not knowledge about in terms of just the world.¬†Right? And then the question is, like, outside the world, what do we have? We’re like stuck on a rock. We’re stuck on this planet. I don’t think, Matt, you and I are going to go to a rocket ship with Elon Musk and¬†Richard Branson and goes to Mars. And even if we did, what are we going to find on Mars? Not much. Right? The question is, where does the mind go to potentially explore new things if we can’t go to outer space?¬†Here’s the thing about it. We are at really a very interesting time in human history in that we now have high fidelity systems. We have potentially things that we could put on our face. We now have creator tools that developers have made think about, like unreal.¬†What’s happening with Fortnite? Content creation tools allow people to create things. It’s going to allow people like you, people like me, people with AI that don’t even know how to program, to come up with ideas.¬†Ideas for what? Things, people, places, worlds, universes, anything. We’re not going to be exploring outer space. We’re going to be exploring inner space. The creativity of our minds. And I think that’s the cool part.¬†That is where it’s going to bring people back. Because all of a sudden they’re going to realize, guess what? There’s going to be a lot more content out there. It’s going to be less centralized in my opinion too.¬†I think centralized platforms are there. They’re here to stay. There are literally ten websites I go to every day. That’s pretty much it. But the reality is that content though, is going to be much more decentralized.¬†And I think I would love to see what you come up with. And the cool thing is now with AI, the best part is this. We’re now all, every single one of us, all small indie game developers or just app developers.¬†That mode is no longer there. You don’t need to probably program all that. So if you don’t need to program all that, what is stopping us? And the question then is, for a long time, what were we told?¬†Ideas are cheap. Execution is king. I don’t know, like in the future, is it potentially the people that can effectively talk to an AI, probably the best people to have their ideas come to fruition. Who knows?¬†Right? So when you take into consideration that moat, right, that moat being one of the moat,¬† one moat that gaming has always had is first party content. It’s very expensive. What I’m telling you right now is that potentially that moat could be less, the operating expenses could be less around that even the experimentation of games could be less.¬†Right? So if that helps AI is not going to only help just overall, but with games especially to be able to experiment with different types of models to do all that plus know that the content that they make doesn’t require all these different designers and engineers and they can actually make that content.¬†And you as a person could go on there and actually help to make the content as well. We’re now we’re talking about worlds, and then if you then take that as well, and then you add something like augmented reality, there’s companies probably working on augmented reality.¬†Those companies don’t need to be mentioned. But the point is, those companies, right, that make augmented reality, what is that really? What does that mean? To me, the way I look at augmented reality is taking a lot of what we consider to be digital, and I call it metaverse because I think that’s a dated word and I think it’s kind of corny.¬†It’s like, to me, it’s really an immersive Internet. That’s what we’re talking about. But an immersive Internet something you put on your face, like a VR thing, right? But what is AR, then? AR is a connective tissue between our world, the real world, and the virtual world.¬†It is a connective tissue. Imagine if you had a pair of augmented reality goggles on, and these goggles allowed you to not only see the world from that perspective, but to be able to literally track and trace and put things in terms of, like the metadata of every single thing, that there’s ten couches or there’s three TVs.¬†Matt looks like he’s grown by an inch. It could track you. So what have we done there? We’ve literally allowed the internet and potentially an AI to better understand our world, our physical world, in a very connected way.¬†To me, that stuff is exciting because what does that mean? It means that if you had an NFT, that NFT was, let’s say, a LeBron James NFT, you could put it on the side of one of these Vegas buildings¬†right now they have all these LEDs, but you don’t need that.¬†You could put your NFT on there and what happens? Your NFT at that moment, it is no longer Digital NFT JPEG. It’s on the side of one of these casinos. And as a result of that, how valuable do you think that is to you?¬†How valuable do you think that’s to someone else? All of a sudden, what augmented reality has done, in my opinion, is brought those Web3 games really close to us in a very intimate way and very much so with even when we look at VR technology.¬†So I think that’s one thing that no one ever talks about is the convergence of what’s happening, the timing of it all. We have the bandwidth, we have the fidelity, we now have the engine. Like if we go on real 3D, right, even with unity, we have the means.¬†All we need are several other different pieces to form the apparatus and also to making sure that there’s a way to do commerce outside of just even a centralized platform, but just for the Internet itself.¬†A digital money that’s a money¬†that the Internet’s money. We have that too. So what’s the last piece we’re missing then? It’s the ability to be able for us to create something or to have a digital asset and to own it, to transfer it, to know and ensure the fact that that digital asset will live far beyond maybe the game that was actually even created by a centralized platform, potentially maybe 100% on chain game that will be there forever and the content will be there forever and your value won’t be locked in there forever.¬†

Matt Zahab 
Very well said. How far out are we from seeing I mean, Apple is coming out with a VR headset. I want to say it’s in July or August. Maybe I’m wrong, maybe it’s during Apple Day in September or October, but I’ve been seeing a bunch of stuff on Twitter.¬†How far out are we from not so much VR,¬†because VR is pretty much already here and it is getting better, but how far out are we, Steve, from AR actually being a thing?¬†

Steve Cho 
That’s a very good question towards like, when will we actually see traction around it, right?¬†I think when we talk about like a device, like an augmented reality device that you’re putting on your face, it’s not so much as a device that I think is going to be the issue because you’ll see iterations of better and better devices over a period of time.¬†It’s just like what we saw with apps and games. It’s going to be the actual apps and games are on there they’re going to make the device better. Right? And how well those get integrated into society.¬†At the end of the day, we’ve seen other types of augmented reality apparatuses, I think that were really something that was more entertainment only. I would argue that any sort of apparatus was just entertainment only would be at this point, not necessarily probably the most ideal thing that anyone would want to wear all the time.¬†Right? At this point, I think we’re at the cycle where we understand where we are in terms of just overall, what the capability of device could do to enhance our lives overall. Right? No longer is there a smarter person in the room.¬†We’re all the smartest person in the room. And we’re probably all getting fed some sort of information as we conduct our day and having an insightful day. I think if anything, it makes our lives much more efficient.¬†I think if anything, if it goes that way, it goes more toward productivity. I think that would be huge. And then through all that productivity, what you’re seeing is then you’re seeing advertising, you’re seeing your actual digital items being included in this.¬†Right? And I think when that happens, all that now kind of all converges together. So for me, it isn’t one thing that will bring AR and say, that’s the thing, it’s going to be something like Pokemon, right?¬†And some piece of entertainment.¬†It’s the fact that people find it useful. An example, case in point, like my iPhone like¬†I love it. I could tell you one thing I find useful all the time is if I measure things. I love the measuring component.¬†Right? Yeah. So, I mean, that gives you an example of just overall why someone find usefulness in their device, right?¬†Beyond just downloading a game. I think if you start thinking it from that way in terms of something that you wear on your face and I’m just speaking generally, for me personally, that’s something I would probably really enjoy.¬†

Matt Zahab 
Yeah, good point there. Last question here. Steven, you’ve been on a roll here. I wish we¬†had more time, but we are getting a little tight.¬†Tips for navigating the bear market, as a VC¬†I know how tough this might be.¬†Like, everyone else always bitches and complains, oh, bear market, it’s tough. Your job is to literally inject cash into companies that you think are going to yield a good return.¬†I feel like it’s got to be harder for VCs than almost every other industry during a bear market. Yes, I’m sure we can get into the nitty gritty and we can pull on some hard strings and talk about the industries where people are losing jobs left, right and center.¬†But let’s empathize here for the VCs, it’s not easy. How do you and the team develop new strategies, new tips, new tricks to navigate this bear market and keep identifying good investment opportunities?¬†

Steve Cho 
I think you continue, you persist with your investment thesis, number one. And number two, I think the other thing is because your investment thesis is there for a reason, whether the market goes down or up, relatively speaking, your thesis is built around obviously a specific window of outlook of exactly what you think is going to happen.¬†You’re investing accordingly to that thesis. Right? And then the other thing I would say is while you’re doing that, the other thing to be mindful is you’re right. Overall, when it’s a bear market, valuations are coming down, right?¬†And valuations of not only just like of overall projects that are out there right now, they’re doing exceptionally well. Even if you look at some of the top things out there, even like¬†Bitcoin, Ethereum, everything just going down.¬†But in an actual case where there’s a big bear like that for venture capital, that’s the ironic part. I think now you’re talking about valuations coming down on seed stage or even like precede investments or even things in the growth round, right?¬†So now these valuations are coming down. So the question is, if you have an investment thesis and you’re evaluating them based upon team, product,¬†vision, expertise on specific criteria, that talent is still there, right?¬†So the talent is there. You have an investment thesis so that it just comes down to capital then. Right? So the question is the valuations are lower, then your Asymmetry is probably higher. Meaning that actually, if you’re a venture capitalist right now that has capital, that you can go out there and cut checks.¬†This is a great time to probably cut checks because this is a time where basically a lot of those valuations are lower. It’s great. The asymmetry is even better, but at the same time, the risk is higher.¬†You’re right. This big bear was a different type of bear. I wouldn’t say it was a bear. It was like literally, like, think about we got a correction, then we had the whole thing happen with just overall insolvencies.¬†¬†When you look at some of the venture capital Web3¬†venture capital firms that are out there,¬†Terra Luna. Right? So we had the whole thing that happened with that. Right?¬†

Matt Zahab 
That was like a year ago. Can you believe that was a year ago? 

Steve Cho 
Then we had FTX. No, this isn’t a bear. This was like literally a bear. And then after that, then they came with a shotgun and made sure they got rid of us after that.¬†So it kept on going to finally, this last thing, SVB, the insolvency of potential USDC. Are you kidding me? Like, what’s the next one you just mentioned, Ledger?¬†We are literally seeming to find these things and the terrible, challenging part of the past, a lot of this just seemed like rumors, but gosh darn, some of these things did come true and it really hurt the industry.¬†So the question, I think for an investor that’s out there right now in a bear market, this is a question I would have for you. And I hate giving investment guidance because I’ve lost a lot of money doing this.¬†I made money, but I’ve lost money like we all have, right? So I think at the end of day, everyone should invest based upon their investment thesis of how they approach it. But I would think that next year, if we see that many cataclysmic things, and that’s what it took to get BTC down to where it went to, then fine, then you should probably just stay off and probably maybe even sell.¬†Right? But the reality is, I think we just really got to a point where we saw literally doom gloom and gloom. And I think what’s ahead of us is with all these shakeouts and all these different things have happened, I think we got to a good pretty good low.¬†Could things go lower? Sure they can. Could they go higher? Yeah. But I think right now, if you’re in it for the long term, I mean, what’s the difference between¬†a Bitcoin probably at 25, 27, 24, even down to like, 17 if you’re in it for the $500,000 payout later on?¬†I don’t know, you tell me.¬†

Matt Zahab 
Just a speed bump. Very true. Steve, you were on fire man. This is a great epi. I can’t wait to listen to this one and¬†darn we only got to buzz for about 50 minutes here.¬†We barely scratched the surface. Non negotiable¬†you must come on for round two. So we’ll make that happen over the next couple of months. But I really appreciate you coming on. Thank you so much. Before you go, can you please let our listeners know where they can find you and Mechanism online and on socials?¬†

Steve Cho 
Yeah, great. So, yeah, obviously Mechanism, it’s easy to find me. I would say probably the best way to engage with me is probably on Twitter. It’s at¬†@stevencho. So it’s my first name, my last name.¬†Yeah. So you could just add me on Twitter. And for Mechanism overall, Mechanism¬†Capital also has their own twitter handle. I don’t know it off the top of my head, though. I’m going to have to probably find it.¬†Do you have it there?¬†

Matt Zahab 
Yeah. @MechanismCap. So¬†Mechanism M-‚Ā†E-‚Ā†C-‚Ā†H-‚Ā†A-‚Ā†N-‚Ā†I-‚Ā†S-‚Ā†M Mechanism. And then cap¬†C-‚Ā†A-‚Ā†P all one¬†word. Mechanism Capital. I’ll include everything in these show notes as always, folks.¬†

Steve Cho 
Great. Yeah. And the other thing is this,¬†so I try and remain helpful out to everyone out there in crypto, and I’ll tell you the reason why. I think we’re at a point where I think we all agree that we handle a lot of adversity, and I think right now this is a good time for us to kind of all come together.¬†So my whole thing is this. We all have to help each other. We really do. This is the time. So if I could be helpful to you based upon my experience and what you hear on the show, feel free to reach out.¬†You can reach me at Twitter. The other thing is I’m actually giving you my email as well. It’s [email¬†protected] So reach out and let’s talk. And I’m happy to help you with any of the things and topics that I talked about today outside of probably Tim Cook and me being late twice.¬†

Matt Zahab 
I love it. Steve, you’re the man. Appreciate you coming on and can’t wait for round two.¬†

Steve Cho 
Matt, thanks a lot for this opportunity. It’s been a pleasure to be on your show. Thank you so much.¬†

Matt Zahab 
Folks¬†what an episode from Steve Cho from Mechanism¬†Capital. He was dropping knowledge bombs left, right, and center. Some crazily large topics distilled into small bite sized ideas on the¬†Web3¬†XVC¬†landscape, which we love to see.¬†Also, some great stories from Apple and the Big Dog, Timmy C himself. Again, huge shout out to Steve and the team, great episode. To listeners, love you guys. Thank you as always. To my team, love you guys so much.¬†Thank you for everything you do. Truly appreciate it and could not be here without you.¬†To Justas¬†my amazing sound editor appreciate you bro. And to the listeners, love you guys again, keep on growing those bags.¬†Bye for now and we’ll talk soon. ¬†



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