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Arianna Simpson is a general partner at Andreessen Horowitz, one of the top venture capital firms investing in tech, games, and crypto.
From her perch, Simpson has a broad view of the investment landscape, and it has led her to investments in a variety of cryptocurrency and game companies including Irreverent Labs. She believes in the power of decentralization enabled by blockchain technology, and she also believes that will lead us to the metaverse.
A16z, as the firm is known, has both a $600 million dedicated gaming fund as well as a $4.5 billion cryptocurrency fund. Simpson is deploying that money, but we’re also in the midst of a crypto downturn and hardcore gamer resistance to NFTs. That makes this business feel a lot riskier than it was just a few months ago. But Simpson is seasoned in this space. She “fell down the crypto rabbit hole” a decade ago, as she was following the talent in the space. She has been through multiple crypto winters, and in an interview with GamesBeat, she said A16z is prepared to take a long-term view of the market.
I talked with her to get a download on the intersection of crypto and gaming, her view of gamers who are receptive to non-fungible tokens (NFTs), why players should get a share of the proceeds from games, and why A16z founders, Marc Andreessen and Ben Horowitz, saw an opportunity in this space and doubled down with sector-specific funds to invest in the market. That conviction hasn’t changed despite multiple rollercoaster cycles in the market.
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Here’s an edited transcript of our interview.
GamesBeat: When did you start first getting interested in this space? How did you come upon crypto and the gaming connection?
Arianna Simpson: I fell down the crypto rabbit hole nearly a decade ago. I first got interested in 2013, following a trip around southern Africa. I spent some time in six countries, including Zimbabwe. I saw the aftermath of the rampant hyperinflation they’d experienced. Obviously it had devastated the economy and forced them to switch over to the U.S. dollar to stabilize the economy. It forced them to take drastic measures.
When I came back to the U.S. I was talking about this with a friend who mentioned bitcoin in connection to that being deflationary, as opposed to something that could hyperinflate. That sent me down a long journey. Obviously the space now is so much more than just bitcoin. But that was the initial catalyst. The deeper I went, the more interesting I found it. It’s such a rich design space that brings together so many areas, from cryptography to game theory to computer science and a lot more.
The game space, that was actually one of the core theses of my fund. Before I joined A16z I started a fund called Autonomous Partners. I was already very interested in the game landscape. I made a number of investments in that category out of it, including Mythical and Flow, the blockchain. I had connected with the Dapper Labs team. They deserve a lot of credit for having kicked off this idea of NFTs as part of a game experience, which of course many other teams have taken and extended and built upon.
I’ve been deep down the NFT and game spaces for a long time. It’s been incredible to see how they’ve really started to capture mainstream attention. That was the phenomenon of 2021. I’m very excited about where we’ll go from here. The reality is, we’re still just scratching the surface. We view web3 games as something that can be a huge catalyst to bring tens if not hundreds of millions of people into the web3 space. They’re perfectly suited. Game environments often lead the trends of technology. We’ve seen this time and time again. Having the ability to bring people in through a lower-stakes environment and educate them about the principles that they need to learn in order to thrive in this ecosystem is really exciting. I continue to be very excited about the future of this category.
GamesBeat: I know A16z had an early background in crypto too, but were you surprised in some ways that a major venture capital firm like this would dive into something like crypto the way it has? How did they reason that this was the right thing to focus on?
Simpson: The firm, and specifically Mark (Andreessen) and Ben (Horowitz) and Chris (Dixon), deserve a huge amount of credit for being willing to take what at the time felt like a huge risk and dive fully into the space. Most VC peers did not do that. Certainly not at that point in time. The willingness to set up dedicated stand-alone funds and put a stake in the ground was one thing that made me want to join A16z. I wasn’t looking for a job, but it really made them stand out compared to most of their VC peers.
The conviction the firm has had over many cycles and many years about this category I think is really unique among the large VC platforms. It’s allowed us to work with the best founders. Founders want to know that their investors have a conviction about the space. They’re not going to flitter in and out of the category depending on what happens in the market on any given day. Certainly a lot of credit to Mark and Ben and Chris for having seen it early. That’s what made me want to join and be a part of it.
GamesBeat: As far as the appeal of it at first, was it the argument around decentralization, or did other things play a role in the attraction, the idea that this was the thing to invest in?
Simpson: In our business we are, to some extent, reactive. We have to look at where great entrepreneurs are going. Even in the early days there were pockets of that. Brian Armstrong with Coinbase, and eventually many others. Even then, while it was certainly a novel category, you had really good founders who were super excited about the technology. Again, our investment radar is somewhat thesis-driven, but also very driven by talent. As founders, top founders, were choosing the crypto space, we’ve always viewed that as the critical thing to consider.
GamesBeat: You mentioned where trading is. Has it been, I don’t know, two winters for crypto that you’ve been in? How many winters have you gone through, and how do you look at each of these winters as far as crypto goes overall?
Simpson: The length of cycles has certainly increased over time. Back in the 2013 period, there were multiple cycles within a year. Then, of course, that timeline has extended outward. The most important piece is staying focused on the technology and not paying too much attention to the cycles. We’ve seen that many of the best businesses – and this is true in both technology more broadly and crypto or web3 specifically – were started during periods of market instability. We view it as an opportunity to focus on the tech. One of the challenges with crypto is there is a ticker, in a way that there isn’t in early-stage startups. That can be distracting. But in reality, periods in which the price activity is muted can be really great opportunities to just focus on building.
If I compare where we are now to the 2018 downturn, we’re in a completely different universe in terms of what’s actually built. In 2018 a lot of things were underway, a lot of Layer 1s being built, a lot of infrastructure being built, much more so than applications. The infrastructure had to come first. There wasn’t much that a person could do in the space yet. Now we’re in a completely different place. Many protocols have been launched. Hundreds, thousands of applications are live and usable. Games, wallets, all sorts of things. In my mind, that’s the progress that matters. We’ve seen a huge amount of that progress.
We also published a State of Crypto report, which you might have seen. We mapped out, using data, the various parts of the cycle. While it might look like they’re chaotic cycles of volatility, they’re actually very predictable. Each part of the cycle has its specific role, especially–the periods of price action upward attract people into the space. They attract investors. There’s a lot of enthusiasm. When that tide washes out, some people leave, but they were probably not the builders anyway. They may have been speculators. A lot of the core talent stays in the space. That allows us to set up for the next wave of building, and eventually price appreciation as more value is created. But the cycles are very important. The most important thing to focus on is building the technology, and obviously, that doesn’t happen overnight.
GamesBeat: It’s interesting to see how you can have confidence in the developers who are moving into the space. They either have this background in crypto, or they have the background in games. That’s a good thing to bet on. If there’s anything uncertain about the category, these great teams, veteran talent, seem like they’re worth betting on. When did you start to see that happening, people from the game side realizing that this was something they wanted to move into?
Simpson: The wave really picked up during 2021. There had been a few founders from a more traditional game background who’d expressed interest in NFTs and web3 games prior to that. But in terms of when it really started to hit critical volume, that was early 2021. We’ve certainly seen it pick up from there. It’s been very exciting to just map the migration of talent. It’s not everybody in the game industry yet, but the percentage of founders who express an interest or already were actively building Web3 components into their games increased dramatically. Again, we think that’s an important trend to keep an eye on. We’ve been investing in many of those teams since then.
GamesBeat: I thought it was interesting how that could put pressure on the rest of the industry. There’s pressure on CEOs at the bigger companies to say, “Don’t leave, we’re going to explore this area too.” When I interviewed Bobby Kotick at Activision Blizzard, he said one of the reasons they sold to Microsoft was that they were having a hard time getting talent, keeping talent, hiring the thousands of people that they needed for the games where they had committed to production. It’s interesting that something like this particular blockchain gaming trend could come back and affect the mainstream.
Simpson: Oh, yeah. We definitely think that the whole play and earn notion is going to have a significant effect on traditional game entities, whether it’s publishers or large game makers. At this point the cat is out of the bag. We think that players should be capturing some of the value they create. While there’s still some iteration that needs to be done on these models, and we haven’t arrived at the perfect architecture for everything, that core idea, that the players who have created these worlds and created these communities and built so much value should share in that value, we think that’s a super important idea.
Now, as players become more familiar with the fact that this is possible and this is a new paradigm, we think it’s going to put significant pressure on more traditional entities in the game world to adopt a more favorable model. They won’t all have the same model. There are many forms this could take. But that core idea is critical.
GamesBeat: The one area where I have confusion and doubt right now is, who are the gamers? Throughout 2021 I was thinking that blockchain gaming was going to be the stepping stone to the metaverse. You could use all of those technologies for things like identity and interoperability of assets, and those were necessary ingredients to create a metaverse. But then we ran into that buzzsaw back in December with gamers objecting to Ubisoft’s NFTs in Rainbow Six. [They also] started shouting down other announcements around NFT games for traditional gamers.
Who, then, loves NFTs and who hates them? Asians seemed to embrace the experimentation in some markets, the same way they did with free-to-play, whereas traditional gamers in the west, hardcore gamers, they feel betrayed by free-to-play. They feel that loot boxes are all that came of it. I look at the whole market and see how free-to-play is more than half of gaming. It infiltrated every single piece of gaming, from mobile to consoles, and we have 10 times more players than we used to have. These, to me, are good things. But to this segment of people who are very loud, they see free-to-play and now blockchain games as evil things.
It was strange to see the Philippines embrace play-to-earn first. I don’t know whether the audience that’s embracing it and the audience that’s not–which one has more weight to it? I can see that if there are mainstream characteristics in the players that are embracing it now, then it’s a matter of time before NFT games become the mainstream. But if there are quirks about these gamers – they’re crypto freaks who want to dodge taxes by putting their money into NFTs – there are certain behaviors here that a small group, not a mainstream one–maybe it’s never going to go mainstream. If it’s just the people who won’t blink an eye at paying $10,000 for a piece of land in a virtual world, that’s not the kind of activity that’s going to go mainstream.
All that is to say, what do you think is the audience that is interested in this now? What is the audience that can take off and grow into the millions and tens of millions?
Simpson: You make a great point, which is that new form factors, new models, are often not embraced by core gaming communities. As you pointed out, there’s quite a bit of precedent for this. That hasn’t prevented some of these models from reaching massive scale, like in the case of free-to-play. I think this train is headed for the station, and it’s not really going to stop at this point.
There is a very vocal cohort of people who have expressed reservations about NFTs, and in many cases they’re very unfounded in their criticisms. They either don’t fully understand them or just have a very skewed lens through which they look. But they’re very much in the minority. There’s a huge universe of people out there who are already starting to see the benefits of this model and welcome it. I don’t think it’s a small universe of only very crypto-native people. In fact, if you look at–Axie Infinity was the Web3 game that rose to mainstream scale first. They reached millions of players. That’s not just a couple of guys who are crypto insiders. They had a huge scale, and most of their players were new to crypto.
That just shows that while there’s certainly a ton of room to go from here, we’re on the right track. Games are a vehicle to bring people into the space, rather than something that’s just appealing to a small self-referential universe of people. There are definitely haters, but I think the important thing, the most important thing, is that there are millions of people who have already demonstrated a very strong interest in Web3 games. That’s where we’re focused, and that’s where our portfolio companies are focused as well.
GamesBeat: The interesting part of the discussion, too, is that some game developers continue to resist. Their arguments are sometimes more technical. It’s about things like, well, everyone says this is about decentralization, but why are so many centralized entities involved here, like OpenSea? If OpenSea went out of business 90 percent of the NFTs out there would be worthless. If you get into some of these discussions with game developers and they need convincing, how does that discussion go?
Simpson: Most of the founders that we come in contact with are already excited about Web3. Obviously, I’m on the crypto team, so there’s a sort of filter before they get to me. But in general, we’ve seen very open minds to this new model and a willingness to experiment. Games, despite some sub-sectors of the gamer community that might be more averse to change–games are an ideal playground for testing new technologies and iterating. Many of the Web 2.0 founders who’ve built games before see the potential here, and that’s what brings them into the space.
I’ve had so many conversations with founders who built major games in their prior lives before coming into web3, and now they say, “This is the obvious answer. I can’t think of anything else. It just makes so much sense. This solves so many problems.” Having the ability to own your assets–while it’s true that if OpenSea were to go away, that might impact that market briefly, the fact that I still control my sword or whatever NFT asset I have regardless of what’s happening because I own the keys on-chain, that’s an important shift. A lot of savvy game founders understand that. That’s one of the factors bringing them into the space now.
GamesBeat: As far as the kind of things that might be beyond entrepreneurs’ control, things like regulation or what’s allowed or what’s not allowed in the United States, whether things are classified as securities or gambling, or whether companies just don’t want to give up some of their revenue stream–do you think that we’re going to get to a place where there’s a more free market for blockchain game companies than there is right now?
Simpson: There are certainly some regulatory gray areas remaining. With our founders, we’ve seen that they want to be compliant. They’re looking for clear rules of the road that they can follow. The challenge–this is why we’ve built a large regulatory team geared toward working with policymakers and helping get them up to speed. We spend all day thinking about this space. They have many considerations in mind. Just helping them think through the nuances of the space. A Web3 game is not going to require the same regulation as a DeFi protocol or something else entirely that is still in the space. What we’re looking for is nuanced regulation that makes appropriate distinctions and is applicable to the thing they’re trying to regulate.
From our perspective, regulation is critical. It’s welcome. It’s very important from a consumer protection perspective. But it needs to make sense. That’s why we’ve built a large team and are spending a lot of time in D.C. working with regulators and policymakers on these topics.
GamesBeat: I don’t know if you would agree with this, but I wonder if big game companies are in a position to lose in this market. It has to do with their public status. They’re concerned about regulations. They’re going to wait for clear signals before they move into this very fast. Some of these startups are becoming so valuable so quickly, though, that they’ll be out of reach of the big game companies. Their usual solution is to buy whoever wins. But in the case of mobile gaming, a developer like Supercell almost got too big for anybody to buy. Tencent was almost the only possibility. But the winners in the mobile game market were not companies like Electronic Arts. The startups that were able to move fast and weren’t worried about regulation were the ones that won in free-to-play. It feels to me like we have the same opportunity now with blockchain games.
Simpson: Definitely. We’re investing in many of these upstarts, as you might describe them. We think they’ll have the ability to understand the technology from day one. They’re very crypto-native, web3-native. They see the positive elements that this space can bring. Also – and I think this is an important concept – not just taking a game that could exist off chain and putting it on a blockchain. Rather, use the particular design constraints and opportunities that blockchain architectures offer as a novel canvas for how to design different forms of gameplay.
For example, the area of on-chain games is very new, but very exciting, because it really–what I mean by that is, a universe of games where you have battles on chain, not just assets. You incorporate the blockchain into gameplay. The logic is on chain. Smart contracts are a critical piece of the architecture. All of that comes together so that you couldn’t create the same kind of game that you would have off chain. But you can have a new, very compelling experience that is distinctly web3-native and crypto-native. We think that category is pushing the frontier of what’s possible in web3 games, but I expect that we’ll see a lot more coming out of that soon.
GamesBeat: Do you believe that the tech stack is going to get simpler for blockchain game companies? Right now it seems like it’s still pretty complex. They have a lot of choices to make around which chain to use and other things. Do you foresee that part getting simpler any time soon? Or is web3 going to be a fundamentally more complex set of technologies?
Simpson: For the sake of game founders I hope it will get simpler soon. You’re right that we see a lot of decisions that need to be made by founders who want to build a game, as to where to build it. That will, in some cases, also inform how they design the actual game. For example, Irreverent Labs chose to build on Solana. That comes with a certain set of decisions. We’re also investors in Mysten Labs, which I think is incredibly well-architected for games and entertainment use cases specifically. It has a very different programming model that was designed for this kind of use case.
The good news is that founders have an ever-increasing universe of strong, technically sound options. There’s still work to be done, no question there. We’re still in the infrastructure-building phase. But this is the case any time there’s a new area of technology. The tooling needs to be built. The infrastructure rails need to solidify. It needs to be battle-tested. In that regard, it’s happening. It just takes a little while.
GamesBeat: This also has a chance, through decentralization, to change the relationship between games and big tech, the middlemen of the industry that have been taking their cut. How appealing is that aspect of this opportunity?
Simpson: Absolutely. Having that control over their destiny is hugely important, and very appealing.
GamesBeat: Do you see gaming winning not only with blockchain but also with the metaverse, as opposed to any other kind of group? Whether it’s big tech companies or enterprises or brands.
Simpson: I feel like there’s a lot of overlap with all of these categories that you mention. They’re not fully the same, but there’s overlap at the margins. We think that some of the same important pillars are at the core of several of these concepts. We recently put out a piece about seven essential elements of what we would consider to be the metaverse. Things like openness and decentralization are important to what we think will be the end state of the metaverse. Obviously, some attempts are being made to launch closed metaverses, but we think the opportunity is to have open metaverses.
In the same way, people are launching games that are closed ecosystems in a more traditional form factor. We see the opportunity at the center of Web3 games, which are open and give more ownership to the communities that play. There are definitely some similarities and some overlap. In some cases, you see games living in metaverses. The lines get a bit blurry. But right now they’re all very experimental, but very exciting categories that are pushing the frontier.
The way I would also think about it is that we see web3 components as being important elements in both metaverses and web3 games. By that, I mean tokens as a part of ownership, digital identity that’s persistent, decentralization, all of these important concepts that are very native to Web3. These are integral in both a metaverse and a game context. That’s where some of the similarities and overlaps come from.
GamesBeat: If there is this battle between the lovers of Web3 and the haters, it feels like what could be decisive is how many examples we have of great game developers coming in and having big successes. I think of companies like Mythical or Forte. Paul Bettner’s company, the Wildcard Alliance. They’re all very focused on making awesome hardcore games that have this utility with NFTs. But I think back also to who won with free-to-play games, and it wasn’t Grand Theft Auto being put on mobile that won. It was Supercell. In the contrast between the folks at Axie Infinity versus the folks making these hardcore games and bringing them over, who do you think is the most interesting to watch?
Simpson: We’ve invested in both Web3-native, new to games founders, as well as founders who have a long and prestigious history in the traditional games world. I think it’s less about one versus the other. We look for people who understand what makes a great game and also understand Web3 technology enough to see both the opportunities and the constraints. This gets to what I described earlier. It’s a different design space. That means, in some ways, that it can be better, and in other ways, it can be more challenging. We’re not prioritizing one type of founder or one model over the other. Rather, we’re looking for key insights into what makes a great game, and backing teams that we believe are top-tier and will be able to deliver on that excellent game experience.
GamesBeat: Do you have pockets of expertise in different parts of the company, or do you all become more multidisciplinary, learning something about the metaverse and crypto and blockchain?
Simpson: We’re all generalists within crypto and web3, although some of us tend to focus on certain areas of the stack. I focus more on the application layer, consumer metaverse, Web3, games, things like that. If an investment comes along that’s adjacent – for example, Mysten Labs, an incredible team with a lot of technology that was very much geared toward the application layer games and companies where I spend a lot of my time – in that case it might be an infrastructure investment, but it still supports that category.
GamesBeat: I assume people would want me to ask you what you think about when we’re going to get out of this crypto winter, but I don’t know if that necessarily matters to your game plan or not.
Simpson: We really take a long-term lens. Having been in the space for a while, we’ve seen the cycles come and go. In reality, they’re very hard to predict. I’m in the business of finding great technologists and helping them build their businesses, not so much in the business of making short-term predictions. Unfortunately, I can’t be too helpful there. But the good news is that we recently announced our $4.5 billion fund. That speaks to the size of the opportunity we see here, and the fact that we’re very excited about what’s to come in this category.
GamesBeat: Is there anything else you’d like to comment on today?
Simpson: We think web3 games are one of the most exciting categories. It’s been amazing to see how powerful an engine they are to bring people into the space. I’ve spoken to many folks who said, “Oh, I first got into crypto because I started playing Axie Infinity.” It’s an important way for people to get onboarded and educated about the technology and what it can do. I’m excited to see what else comes from this category.
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