Hi Medium friends — I’ve finally made the decision to switch over to https://wenxs.substack.com/.

If you’re looking for new content from me, chances are, it won’t be here as I’m finding it hard to publish on both platforms.

Thank you for your following and support — more to come on Substack!

Wendy Xiao Schadeck

Thinking differently about VC value-add

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The VC game seems to be changing. It’s become a big enough industry with enough widely observed idiosyncrasies that it’s possible to raise an entire fund based on VC memes. One common meme is the mythical VC “value add”— seems like founders and VCs alike are trying to figure out what it actually is.

One reason is probably that increasing competition between too many funds makes it hard for founders to differentiate (however, there is plenty of competition amongst investment bankers, and the value-add to companies is definitely debatable, but they still don’t receive nearly as much meme attention).

and through them, all of us

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As Ballmer put it so energetically in the past, it always comes down to developers. Developers are always at the forefront of technology, but they haven’t always been served directly by technology. The previous paradigm of tech unicorns built their fortune on the backs of developers by convincing them to build within their walled gardens and then taking profits off the top. These tech giants subsidized the tooling as a public good since they reaped most of the value created within their gardens. Developers had plenty free tools to build with, but the experience was always what you’d expect with a public good — sufficiently working, but never mindblowingly good. …

Where Web 2.0 and Web 3.0 user value propositions are starting to converge

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The verbiage “Web 3.0” used to bother me because it implied the existence of an upgraded version of the web that we are already building towards, and as if there was a master plan to convert all users to this new web once the building was complete. This felt like predicting the future, which is not something I’m comfortable doing as a venture capitalist. Instead, to do our jobs, we have to listen closely to the builders and the users, constantly searching for signals, and based on these inputs, we use collective pattern recognition to build hypotheses about the types of changes we might see in the world. This is a bottoms up and an iterative process, and the resulting hypotheses can often be conflicting and dynamic. For me, there is no single version of Web 3.0, …

Preface: I started this post six months ago and never hit publish because I never felt it was “done”. Six months later, it’s still not “done” because health is such a complex topic, and I can only offer a sliver of insight based on my own journey rather than anything resembling comprehensive. With that disclaimer, I’m hitting publish anyway… because blog posts are supposed to be raw, personal, and only somewhat baked. Hopefully some of what I discuss will resonate with the reader.

A personal story

I have been lucky enough most of my life to have only had to marginally interact with the U.S. healthcare system — the occasional accident when I was young, but the rest of it is pretty routine. It wasn’t until I decided to have kids that I became a real “customer” in the system. I have two kids, one was born in one of the leading hospitals in Manhattan — the epitome of a private, high intervention health system, and the other was born in the NHS in London— the epitome of a public, low intervention health system. I had pretty serious complications in both instances, and luckily the babies and I are all fine in the end. The experience between my two births were polar opposites, yet both equally terrible. I didn’t feel like a customer at all, I felt like an object, having healthcare “done onto me” by many different parties, each with their own incentives and broken pieces of data, and no coherence overall. This next-level horrid customer experience, delivered by some of the best practitioners in the world, is what sent me diving down the healthcare rabbit hole. …

A shorter meditation on Meditations on Moloch by Slate Star Codex

A metaphor has been making waves in the crypto community: Moloch, a mythical demonic creature that gets people to do bad things as a collective though individual intentions may be good. For more on Moloch, go here: Meditations on Moloch by Slate Star Codex. (The rest of this blog post probably won’t make much sense to you if you haven’t read this post)

Moloch is a good metaphor for systemic failures — many of them classic economic problems (externalities, prisoner’s dilemma, etc.), others first introduced to me by Yuval Noah Harari (in his books Sapiens, Homo Deus, etc.). …

…and how protocol markets improve upon existing ones

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I discussed in our investment thesis that we believe much of the value of the web will migrate from enterprises to protocols. This is because: 1. Protocols can finally govern value transfer based on a set of business rules directly deployable on the open web 2. Digital assets can be scarce and 3. Protocols can be both more efficient and less rent-seeking at coordinating humans and machines.

What we couldn’t define at the time was how exactly the value erosion happens, and where the wedges would be created into the existing web businesses, dominated by giants.

One potential answer to this is where there are digital market failures in our society today. …

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We are still early down the path to understanding the value of crypto-networks. In fact, this is one of the main arguments for institutional capital other than early-stage funds to be sitting on the sidelines today. Early stage investors benefit from the mandate to invest into the first stages of value creation based on criteria such as market size, entrepreneurial talent, and value proposition rather than cash flows, EBITDA and other financial metrics, criteria I like to think of as being more related to assessing the opportunity rather than measuring the progress. …

Founded in 1996, Northzone has grown to be one of the most established and successful European early-stage venture funds with 7 unicorns exits and 9 IPOs, including Spotify ($28bn), iZettle ($2.2bn), and Avito ($2.7bn). We began investing at the first signs of consumer internet adoption in Europe and have continuously refined our view of technology through the dotcom bubble, the social era, and the mobile era. We are currently investing out of our $400M eighth fund and are excited to share our view on the emerging developments shaping the formation of Web 3.0.

The Evolution of the Web

The web grows when more people interact in more ways online, and this is a function of trust and technology working in tandem. The adoption of internet protocols such as TCP/IP provided a trusted basis for transmitting information, which powered the formation of the web. However, these protocols didn’t define much else. Web 1.0 was an anonymous place, where you could trust that content will get from point A to B, but there was very little trust in the content itself. The only business transactions were 1-to-many, for the access of static information, from a few large trusted content producers. …

One of the most exciting things about being a venture investor in this era of crypto is that you’re making new ground constantly. Digital economic primitives are being built for the first time; a path to destroying the GAFA moat is visible; technology stacks are being overhauled; and the future Jobs or Zuckerberg might be the guy or gal you brainstorm with on Thursdays in a Bushwick cafe.

Venture capital is also an industry where traditionally you had to learn via a long, humbling apprenticeship. So for the young, ambitious VC, the idea of carving out an ecosystem where none of the old rules apply is extremely enticing. However, before throwing all caution to the wind and completely unshackling from traditional VC wisdoms, I chant a daily mantra that the reality of what’s about to unfold in the short run lies probably somewhere in between conservative thinking and the most aspirational, and in the long run, it will probably surpass them both. Applying quantum thinking to all of this, the conflict zone in between these two versions of reality and the alternate realities that arise from that conflict is probably where I will spend most of my time as a venture investor in this era of tech. …


Wendy Xiao Schadeck

VC at Northzone

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