What is Madrona Venture Labs?
Madrona Venture Labs (MVL) is a startup studio housed inside of Madrona Venture Group in Seattle. We have a really cool charter that offers fun and very challenging work. We (the MVL team and the talented entrepreneurs we work with) think up ideas for new companies that are aligned with Madrona Venture Group’s investing thesis. We then systematically vet those ideas against a number of market, customer and product criteria. Although we often pivot the ideas along the verification path, in the end we kill most of the ideas because we simply can’t find the right magic of space/team/opportunity. But that’s OK because there are tons of other ideas, opportunities and technologies to pursue.
At Madrona Labs, we’re interested in a number of technology tracks. For example, machine learning is a big area for us. Madrona has a long history of investing in machine learning technology, often in collaboration with University of Washington faculty. Some of us in Labs have co-founded and worked on machine learning driven products and startups. This includes price forecasting, text-mining and computer vision. Additionally, we know lots of ML/AI folks in town and AI/ML startup investing continues to be very active.
Leveraging this background, we decided to throw a weekend hack-a-thon event as a way to connect with the community and see if we could entice some data scientists and aspiring entrepreneurs to come up with some cool AI/ML startup ideas. We were very fortunate to get connected to TiE Seattle who had similar interests and co-hosted the event with us. The event went well and was a lot of fun! We met some great people including participants, mentors, judges and sponsors. And perhaps most rewarding, some great ideas came out of it.
In addition to AI/ML, MVL’s current technology tracks include voice applications and blockchain. We were tracking blockchain back in 2016 but our interest really started to heat up this past Spring. In addition to fluctuating cryptocurrencies and ICOs dominating the tech headlines, another nudge was signals from the investor community there was interest in blockchain startups. It seemed intriguing enough that in June, MVL and TiE Seattle committed to making our next GoVertical workshop be focused on blockchain.
But honestly, we didn’t know a lot about blockchain beyond the 20k foot conceptual introductions and the sometimes blinding media hype. So what is blockchain? It’s easy to learn that blockchain concepts originated from the bitcoin platform. But we wondered how can we learn more?
It is not hard to do some searches on Google and YouTube and get a definition like this one:
Blockchain is a decentralized peer-to-peer network that records signed transactions in a secure, immutable shared digital ledger.
That’s quite a mouthful — there’s a lot of density packed into that sentence! Let’s look at some of these words more carefully to see what they mean:
- Decentralized and peer-to-peer suggest that no one is in charge and has complete control over computing resources. A group of participants is willing to collaborate in an online environment to accomplish a task that historically was controlled by a centralized entity or intermediary
- Records suggested that we’re storing information, like in a database.
- Signed and secure implies that cryptography, a science and technology that has been around for years is a central component. A related concept, identity, is key to being sure precisely who wants to store and access information in the blockchain
- Transactions suggest an event has occurred, perhaps between 2 parties who are exchanging value. Those 2 parties want a secure record of what transpired.
- Immutable means that there might be a lack of trust between those parties. The mechanics of the transaction should be ‘cast in stone’ — no party should be able to change or hack it.
- Shared refers back to decentralized and peer-to-peer. No single party is in control and responsibility for maintaining the information stored on the ledger (database) is shared among the group of participants.
- Digital ledger refers back to blockchain being a form of a database. But in this case a database of sequential events or transactions.
For those of you familiar with computing concepts, you’ll recognize this definition sounds like fancy, specialized database. And somehow, no one is entirely in charge of this database because none of the users trust each other entirely (or at all). Overall, blockchain is a community database with a variety of constraints that ensure all of the participants behave themselves.
In our research, we saw variations of this definition over and over again in explanatory news articles, blog posts, YouTube videos and white papers (we’ve collected some of the better ones here). If you’re like us, we hoped understanding some applications would help. So what exactly can a blockchain be used for?
Applications of blockchain
This is where things got interesting. It turns out there are lots of applications of blockchain being worked on by a number of different large companies and small startups alike. Since blockchain concepts originally came from the bitcoin implementation, you might think the applications are strictly financial in nature. But in fact, there are many blockchain applications that span a growing number of industries. Check out this list of articles and videos on blockchain applications from our workshop site. Everything from supply chain management to healthcare to media property rights are potential blockchain applications. Blockchain seems to be one of these technologies that begs the question, “Is there nothing it can’t do?”
What’s makes a good blockchain idea?
But perhaps thats a warning sign. The trap of a cool, new technology looking for an application is always a precarious situation for those pursuing it. Sure enough, a trap we fell into right away was confusing a blockchain idea for a more basic and straightforward implementation using a boring old database. There are a number of conditions that are ideally met in order for an idea to be a real blockchain idea. These include needing multiple writers in a network of participants who lack trust in each other. Disintermediation is another strong motivation for choosing a blockchain over a traditional centralized database. Benefits of eliminating a trusted intermediary might include lower costs, faster transactions and automatic reconciliation for members of the network. In any case, we found that thinking through blockchain ideas takes a little practice and time to appreciate the idiosyncrasies of blockchain and how it can benefit a novel application idea.
How does your blockchain startup make money?
So you think you have a good blockchain startup idea, but do you have a business plan? If your plan is to disintermediate some old, centralized fat cats (e.g. banks), then how do you and your new business not just become the new intermediary with your blockchain solution? How do you be a business that makes money off of a compute network that is by definition shared amongst the participants, presumably your customers? Although perhaps difficult to see now, there will no doubt be new business models that emerge as blockchain networks and technologies evolve, just as they did with the advent of the WWW. In the meantime, there are several near term business models that will be at the forefront of the current generation of blockchain startups including Software as a Service (SaaS), Flat & Transaction Fees and Cryptocurrency Speculation. Checkout these resources for more ideas on how blockchain business models may evolve.
But we’re engineers - how do we write some code?
After a while we sort of felt like, “OK, got it. Enough of this high level conceptual stuff. We’re engineers…how do we get our hands dirty and build something?!” Also, given that we’re hosting a workshop where we want teams to build prototype apps, which blockchain platforms should we support? There are many great emerging blockchain platforms to choose from, each with different strengths/weaknesses and application focus. Eventually, we decided to support and focus on two very different platforms: Ethereum and Hyperledger.
Ethereum is the premier “Dapp” (distributed app) platform. The founders of Ethereum saw that the underlying bitcoin infrastructure could be used for many different types of decentralized applications. The Ethereum platform offers key generalizable concepts like Smart Contracts which give blockchain platforms their flexibility to address a multitude of applications across a variety of business verticals. The “main” Ethereum network is public (although you can run private versions) which means anyone can join and be a miner or Dapp developer. Ethereum also has a native cryptocurrency, Ether, which is used by the transaction consensus and validation algorithms, and is rapidly gaining value alongside Bitcoin.
Alternatively, HyperLedger Fabric is a private blockchain framework that is configured as a permissioned peer-to-peer network. Unlike Ethereum, it is designed from the ground-up to support enterprise level applications and confidential business-to-business transactions. Hosted by The Linux Foundation, it is an open source collaborative project led by a number of premiere members such as Cisco, SAP, Intel and IBM.
To understand what type of blockchain platform is best for your needs, check out our page comparing Hyperledger and Ethereum to get a deeper sense of the differences between these blockchain platforms and the type of situations they support.
We’ve spent significant time getting to know the Ethereum and Hyperledger platforms. In order to lower the learning curve for aspiring blockchain enthusiasts and Dapp developers, we’ve assembled a variety of educational materials and tutorials including building some sample Dapps (eth, hyp) that you can use as a starting template for your own Dapps. Also, be sure to checkout our two companion blockchain blog posts:
On to the workshop
We’re very excited for the upcoming blockchain workshop! We‘ve found there is lots of pent up demand in the Seattle tech community for blockchain resources and like-minded blockchain enthusiasts. Even if you can’t make the workshop, we hope you find these blog posts and blockchain educational resources useful. After the event we’ll post the results from the competition and winning teams so if you’re curious, check back at the beginning of November.
Madrona Labs Team