Transcript: Liron Shapira: Web3 Critique, Founder & Early Investor in Coinbase

Host: Hey everyone. Welcome to the show.

Guest: Hey Naraj. Good to be here.

Host: Uh so you're obviously now well known for being a Web3 critic, I guess.

Uh but I sort of started to talk about, we can start the conversation to talk, you know, what you did before this because I think most people are recognizing you as, you know, the prime primary deep Web3 and Web3 use cases.

Uh but you've done a bunch of stuff, right? Like you uh I think you're also one of your companies is backed by Y. See, you've done a company before that.

Uh so talk to me a little bit about your background and you know, before actually getting vital on Twitter.

Guest: Sure. Yeah, so my background begins in Israel. I moved to the US when I was four. So, uh, you know, I'm pretty much American, but I know Hebrew. Um, went to college at UC Berkeley. I've been a lifelong programmer.

So I got into programming at age nine. Just started, you know, messing around, uh, with basic, uh, the programming language. I studied computer science at UC Berkeley. Um, and funny enough, I actually did a bunch of, uh, electives in cryptography.

So that was kind of foreshadowing my crypto obsession. Um, and then right out of college, uh, I had a real job, uh, as an engineer for a couple of years.

Um, and then I started a company called Quixy, uh, when I was only 21, didn't really know what I was doing, um, but we were extremely good at fundraising.

So I got firsthand experience raising a ton of money, kind of getting ahead of our skis, uh, more money than we deserved. Um, by the end, we got a strategic partnership with Alibaba. We were making 20 million a year.

We raised 170 million total in investment, which these days it's like, oh yeah, everybody's raising 171. But at the time it was like very unusual. Um, and we basically just lit the money on fire and failed. We had nothing to show for it.

Um, and I was there for six years. So that was kind of my first experience in startups. It was a, you know, pretty unique ride. Usually, you know, bad ideas, bad execution doesn't get you that far. Uh, in my case, it did.

Um, and so I kind of know what it's like doing a company that's like the inside of the Titanic when it's kind of doomed to fail and everybody's kind of like still thinking it's not.

Um, so, so that was my first startup experience, um, and then I got out of there, um, in 2016. And for my next company, I still, uh, had a chip on my shoulder and I wanted to do another startup.

So I founded Relationship Hero, uh, which is still going actually, relationshiphero.com. We do relationship coaching. Um, and that's a very different business. It's actually a profitable business. Uh, we have over 100 full-time coaches.

Um, we we've served hundreds of thousands of clients. So it's it's very different. The the scale is uh um it's high single digit million.

So it's still, you know, relatively small scale, but it's like a real business and it's on a nice growth trajectory. Um, so that's my day job right now.

And obviously I've I've taken a lot of time, um, in in these last couple months to really focus on my crypto skepticism. So it's almost like uh um uh partial sabbatical.

Um, but uh, I think, you know, I think the tide is turning and there's not that much more crypto skepticism to do.

Host: So, uh, you mentioned quick city, right? Your first company. Like you, I mean, you're being candid about like there wasn't a big use case and you've, you know, you've not done a good job in terms of uh on your team or the company uh in terms of like using that funding uh and you were ahead of your skis. Where you, when did you realize that?

Guest: Yeah, when did I realize we got ahead of our skis? Um, you know, the realization takes kind of time to dawn, right?

I mean, by the end of the journey, I was like, wow, you know, really the last couple years, like when did the idea stop making sense? Right? Like you got to do a post-mortem, you're like, wow.

And and different people in the company reached the conclusion at different times, right? So like I, you know, Quicky, we officially shut down in 2017. I left the company in 2016.

The time when I'm like, wow, this really didn't make sense goes all the way back to 2015. So, um, you know, these these things take time and uh, different, you know, different components come into play.

So, for example, I had the realization of like, wow, we have, uh, way too many employees for like the level of valuation we've achieved, which is a theme you're now seeing in crypto space, right?

As you're seeing a lot of funding and a lot of employees, um, and a lot of investment without uh the demand.

So, you know, it's a lot of the experiences in my life, both from Quicky and from angel investing are now feeding into, uh, my observations of crypto.

Host: So let's talk about the angel investing. At what point did you start, um, angel investing?

Guest: Um, I actually started doing angel investing back when I was at Quicky, and, uh, really funny story, my first angel investment was, uh, a company you may have heard of called Coinbase. That was that was the 2012 seed.

Um, so, you know, I always make fun of Chris Dickson for having like the flimsiest investment thesis, but he hit the Midas list for his investment in Coinbase, number one in the Midas list, and I obviously did pretty well personally as a small angel investor.

So I always think it's kind of like Harry and Voldemort where it's like, okay, I I got the same, uh, angel investing powers, but, uh, but but we went our separate ways after that.

Host: This is interesting, right? Because I don't know how much, like you have what, 23, 22k Twitter followers. I don't know how many people realize that you were one of, uh, the angel investors in Coinbase.

Like, I think the hate you might be receiving, everyone is like, you know, he doesn't know shit, like he's not an investor in anything. That sort of hate I'm sure you're getting right now.

Uh, but I was a little surprised when I was doing research for this conversation that, hey, you're an investor in Coinbase and I think you're also an investor in Wire, which is another, uh, crypto That's right. Yeah. Uh-huh.

Which yeah, and they just exited to Bolt. Um, and uh, when I, you know, even before I invested in Coinbase, I was actually tweeting in 2011, um, about how great Bitcoin is and how I I had a little joke.

I'm like, oh my god, the US dollar just crashed 30% relative to Bitcoin. So I was doing it before everybody was doing that. Uh, but I'm such a natural contrarian, right?

So as soon as everybody else started kind of having the same memes, then I was over it. I'm like, okay, wait, now I need to go to the other.

I'm like a, I'm like a very big natural contrarian and and my comfort zone is like identifying a cluster of people who I just think are like very wrong and then like telling them they're wrong.

Like, so obviously, you know, people have called me a troll. I don't think that's fair because, you know, I don't, uh, I don't go cheap, right? So I have like a standard to my arguments.

But one thing that may strike them as trollish is I do like calling people wrong, right? Like, but only if I actually think that they are wrong. So, um, yeah, so that's that's a big thing I'm doing on Twitter these days.

Host: So, uh, I mean, before we jump into crypto, you did a YC company what, 2017 or 2016, right?

Guest: Um, yeah, yeah, we did a YC Summer, uh, 2017. So that's Relationship Hero. So we started in Y Combinator and and we've been going, uh, for a few years. We, we've raised, uh, a seed round after that. So 4 million total.

Uh, we're pre-series A, but we're already profitable and the growth isn't so explosive that we want to dump a bunch of capital on it. We're still, and that's that's really when you want to raise.

So we're kind of in the, uh, um, we're just like a real business, which is very unexciting to VCs, right? And but there's the hope is that instead of just like growing very slowly, we'll just hit on some vectors, right?

Some new marketing channels where the growth accelerates and then it becomes a matter of like dumping working capital in where it's almost like a guaranteed return. We might even do it as a loan instead of as a, um, you know, equity investment.

Host: So right now, where does the business stand, um, in terms of revenue or um, how profitable is it?

Guest: So it's high single digit revenue and the the profit is, um, you know, some some fraction of that. I mean, you know, I don't want to disclose too much detail, but it's, um, yeah, it's, you know, it's like a typical profit margin.

It's not like insanely high or low. It's like, you know, the coaching business, um, fundamentally has pretty good margins and then it just comes down to like what is your marketing channel.

And our marketing channels are basically just Google and Facebook. So it's it's heavily just like an operations play. Like we just like optimize the operations, um, of of just like hiring coaches and helping them match to the right people to coach.

Um, yeah, I mean, it's it's just funny without without the complexity of the VC world. It's like, yeah, I just like have a simple business and it just like makes money the way traditional businesses do.

Um, and it's like, you know, it's we're kind of we kind of pulled over to the side of the VC highway, right? Because VC's kind of like a highway. It's kind of like a rocket launcher and we're we're currently uh, you know, retooling.

Host: So are you planning uh, to stay that way or at some point you want to raise capital and go towards the venture ray or like however big or small do you want to keep it profitable and you know, just sort of the, um, what the MFM way.

Guest: Um. Yeah, my first million.

Host: Yeah.

Guest: Yeah, I know we both listen to that podcast. Um, so I want to pursue whatever I see as the opportunity and it's it's not clear the exact path from here to a billion dollars.

So I know that in therapy, you see multi-billion dollar companies, like Better Help is really the giant in the space. Um, they're a multi-billion dollar, uh, company that's already within, you know, Teledoc, right?

So they really break out their financials, but, um, you know, they're very big. I I think they're profitable.

Um, so there's not a clear path for Relationship Hero to get to Better Help because the, uh, the size of the market, even though therapy is, uh, uh, like a, um, $10 billion market in the US. It's like huge, huge market.

Like 30 million Americans go to therapy. Um, so relationship coaching just turns out to just be a much tinier, tinier market.

Um, you know, there's, I mean, it's funny because I I can brag that Relationship Hero is the number one company in the relationship coaching space, but the asterisk is the space is like very tiny.

Host: This is purely interpersonal relationships, like, you know, if you're looking, you know, to get a partner, like what kind of relationship or is it just like? Because in general counseling or like, um, what Better Help does is for all psychological issues, right? Um, what does relationship or the coaches on Relationship Hero do?

Guest: So it it's it's funny that people ask that and I, oh relationship coaching, that's interesting because it's it's actually on some level we kind of know what it is, right?

So imagine that you, um, just, uh, broke up with your significant other. So obviously you've got a lot of emotions you want to process and you're wondering like what to do, like should you text them again, right?

Should you get back together after some time? Should you try to move on? How do you move on? So all these questions come up. And who do you turn to?

Host: Yeah, I mean, your friends, family, or go to Better Help.

Guest: Exactly, right. So I mean, our number one competition really is just like friends, family, whoever's around, Google.

Um, and so, so we are basically like, you know, we talk to you like a friend, but it's a friend who's had like all the right background, uh, and like seen, you know, a thousand cases like yours, and the advice is just more likely to actually be good advice.

Uh, and then, you know, so that's how we differentiate from your friend is we're just, you know, friends tend to give you like, you know, bad advice. I mean, if you have certain good friends who are reliable, great.

Uh, but friends have like all these biases and then they get themselves involved. Um, so that's, yeah, so we differentiate with your friends. And then we differentiate with a therapist because a therapist is is going to be more like inner work, right?

Like how, you know, look inside yourself, how are you going to be okay with this? Uh, how do you process this?

Whereas we have more of an outer focus where we'll be like, okay, so breakups often play out like this and here's like some tactics that work for clients in a similar situation.

Here's like, yeah, and like yes, we will do like some inner work exercises if that's what you want to do, but the domain that we help with isn't just, um, how you feel and your mind, it's also the the courtship.

So it's a, you know, it's a two-player game, uh, to do courtship. So we, we do a lot of stuff with like communication skills and uh, and practical, tactical advice of like just what to do.

Host: So, um, what is the business model? I mean, the one obvious business model is you help connect with, uh, customers and coaches and then you take a percentage model, is that the business model?

Guest: Exactly, yeah. So it's it's actually a platform. So the coaches, uh, actually just they do their own coaching. So we hire coaches who have had, uh, some professional success with their own coaching business.

Um, and we just streamline their operations and their marketing. Uh, we basically send them clients, we match clients to the right coaches. Um, and then we take a net commission of 15%.

So that's basically, um, our our target profit margin, um, after deducting, uh, a bunch of costs.

So, uh, for example, like we'll try to attribute the marketing costs, which are very significant and we'll try to subtract those from the the revenue that coach brings in. And then after we do that, um, as a net commission, uh, we target 15%.

So at the end of the day, it's it's a good deal for the coaches because sure we skim out 15%, right? That's the the take rate, the Web2 take rate. Um, but all the stuff that we streamline, um, it really is worth it.

I mean because they they really get to focus, uh, on the coaching and on the stuff that they're good at. Um, so, so it is a nice win-win.

Host: All right. So, so your primary focus is getting coaches more customers and the space that you focus on is relationships.

Guest: Exactly, right.

So if you're a professional relationship coach, uh, if you've managed to succeed as a business, which is hard to do because the market is small, but there are people who have the talent who have really high, you know, customer reviews, right?

And who it's their lifelong passion. And if if that's you, if that's your career, well then, uh, you can partner up with a number one relationship coaching platform and and have, uh, a relatively stable customer base.

Host: So I wanted to ask one more MFM sort of a question, which is, um, so right now I'm assuming, you know, you're like fire, which is like the financial independent uh retire because I think in one of the conversations I had, like you're not really worried about your employment, you know, as more people.

That's why that, which gives you a little bit independence in terms of making these claims and, you know, directly attacking the crypto use cases like most people who do it in, you know, hidden circles.

Um, so, uh, where do you, like how do you manage your personal wealth today? Like where do you, where are you investing?

Guest: Um, yeah, so I think it's fair to say I'm I'm, uh, you know, fire, uh, like if, uh, like it's fair to say I never need to work again.

Um, you know, realistically, uh, I probably will, but, uh, but yeah, I mean, you know, my angel investings gone well. Ironically enough, you know, the Coinbase, some some crypto stuff.

Um, so yeah, so, so and that's that's why it's like it's I mean it is a lot of freedom to be like, look, I don't feel like working for the next year and it's like fine, right? And right now I'm I've got two young kids. Um, and so that's nice.

Um, but in terms of, yeah, where I put my money. So, uh, it's not super creative and I don't think it should be. So there's, uh, a couple guides I recommend. Um, like Remi's book is very solid.

Um, you know, I will teach you to be rich, you're from there.

Host: Yeah.

Guest: Um, yeah, so, you know, basically the advice he gives is like, you know, Vanguard, right? That's uh, it's it's really hard to do better. So I've got, um, index funds. I use Wealthfront.

Uh, I don't know if it's necessarily better than Vanguard, but it's what I've been using. Um, you know, and it just puts my money in Vanguard essentially.

Um, so I've got a lot of stocks, diversefied all over the world, um, and, you know, different bonds, municipal bonds, whatever. Just like standard stuff, um, and then, but then the question is like the the fun part.

So it's like I have, um, 85% of my money in the like, I I don't think I'm going to beat the market. So just like diversify across the market. And the other 15% is like, okay, now I'm going to try to beat the market.

And then, and so far, uh, taken as a whole, that 15%, I've been failing. Taken as a whole.

It's like I have some stuff I'm like, man, I'm so clever, I made so much money on this, but then I have some other stuff I'm like, oh, oh man, like this worked out so badly.

Like I put a bunch of my money in Russian index funds and right now that money's just like disappeared. It's like I don't have access to that money right now. And I don't know if I ever will.

Host: Why did you put in Russian index funds? Like what was the piece there?

Guest: Um, it was, you know, there was an investor that I really trust who was hyping it up who I I still think had some good points. Um, and uh, you know, and it was kind of contrarian, right?

Like I I don't really hear many people talking about it, which makes me think like that that's like a sign that it's undervalued the way I think.

Um, and also like the PE multiples were really attractive and um, so, I mean, it seemed pretty good and, you know, if if the if they hadn't, uh, attacked Ukraine, right? Then like I think that, you know, the portfolio would be looking pretty strong.

Um, but yeah, I mean, I I really, I really got hit hard on Russia, which is why like at the end of the day. So, you know, I did like a post-mortem. I'm like, man, how could I lose so much money on Russia?

Like it was it was literally like 10 to 15% of my portfolio and which may have like vaporized. Um, and uh, the post-mortem was just like, well, look, I mean, at least I was smart to, to, you know, not put more than that, right?

It's like at least I, uh, you know, I knew my limitations. Um, and, you know, and other I didn't some of my other crazy bets did make up for it. So I I went short a bunch of stuff like Rivian, um, you know, with my crazy 15%.

So I did partially compensate. So when you add everything up, like my portfolio as a whole in the last couple years, um, has just been like pretty close to a typical person buying uh the Nasdaq, right?

Because like I I actually got less hit hard the way other people got hit, but I just had my own pains. That's investing for me.

Host: So I guess, um, for angel investing, you made, you said, uh, for Coinbase, can you tell like what does the exit uh look like for you in terms of multiples?

Guest: Yeah, um, the Coinbase investment. So I I got the same deal as Gary Tan. Um, so he is famously like a billionaire off Coinbase except my initial investment was uh 10k.

So, um, yeah, I mean, roughly the return I got was like, um, 1000 X or or even more, but then but I was liquidating some along the way.

So, um, at the end of the day, we're, uh, I I basically got about 5 million cash from Coinbase, which is like, that's definitely like an amount that puts you in the you don't have to work, uh, situation.

Um, you know, you can't buy any house you want in the Bay Area, but you definitely don't have to work.

Host: I was thinking how we should start talking about crypto.

Um, because there's so many, you know, starting points and there's so many, um, subcategories in crypto that we could start talking about, but, uh, let's let's talk with your, you know, your blog, uh, bloated MVP.

Did you, you choose that name thinking that crypto is a bloated MVP or it's just that, you know, you were analyzing different uh products which you thought were like, I mean, MVP, the idea of MV MVP is different for different people and, you know, a lot of product designers will say, hey, this is the level of abstraction you need to have for MVP, etc, right?

Was that the original choice of name for bloated MVP or just that it later fit well with crypto that, you know, we're this is a big giant bloated MVP.

Guest: So I started the blog in 2019. It actually wasn't about crypto. Um, so it it it took me at least a year to really start blogging about crypto.

Um, it was just called bloated MVP because it came from my angel investing where I kept having conversations with founders where it's like 80% of the conversations were like, why are you building this bloated MVP?

And it's kind of a play on the lean startup, right? So that book, the lean startup really nails it. It tells you how to like validate your demand before you like spend a ton of resources building.

And all these startups would talk to me and be like, you know, the lean startup. And be like, yeah, we love the lean startup. Check out our lean MVP. It only took us a year to build. And I was like, um, that's not really lean.

You know, like in your situation, you know, your SAS app taking a year to build, that doesn't seem lean enough.

Um, and so I I called my blog bloated MVP because I'm like, I can't believe how many of these like really smart, well-funded founders are still making the bloated MVP mistake. Um, and it's to the point where they have public betas.

So I can actually just link to the product and I could be like, hey, look, this product is funded by $2 million. They worked on it for a year. It's live. You can kick the tires and I'm here to tell you it has zero users.

It's like, how did this happen? And you could be like, well, you got to experiment and, you know, is the post-mortem can you really judge? And my claim is like, yes, yes, you can judge. Like this is unacceptable.

Like, you know, to have a product that's this polished with this much effort and with zero demand, like that is not okay. You shouldn't have gotten to this point. So I'm trying to, um, you know, to do my part.

And I and I was thinking like maybe if people can see other people's bloated MVP projects. So when I get on these zoom calls and I'm like, look, what you're doing, you're not calibrated the way you're thinking about this.

This this is the path you're headed. I can see your future. Look, here's a link. Look at this other project, right? So if you go to bloatedMVP.com, it's like, I hope these examples are illustrative. Um, and this all happened before crypto.

Um, and then it dawned on me slowly over the years, 20, 2021, more and more. I was like, wait a minute, is the whole crypto ecosystem uploaded MVP? Like is it true that not just 80% of startups, but 100%?

Like a clean 100% of the whole crypto ecosystem is a bloated MVP. And, you know, I've carved out some exceptions. Like, okay, Bitcoin, when you want to go around the government, you can illegally send money with Bitcoin, right?

So I've carved out like a few exceptions like that, but pretty much that's why I like using the term Web3. I actually think Web3 because it specifically doesn't just refer to Bitcoin, it refers to like everything else.

I think there is no everything else. So I love to be able to say that Web3 is just 100% a clean distinction. Like if it's Web3, then it's nothing.

Like, and I and you know, as as a contrarian who's kind of like a simple guy, I just love the simplicity of being able to accurately observe that Web3 is completely 100% devoid of value.

Host: So I think, uh, I mean, in podcast what you can do is you can give sort of extended reasoning. So I guess one thing we could do is like go a couple of use cases and see why they are not actually going to work. Sure.

And I'll try to play a little bit of like, uh, what devil's advocate if I can in some of these from based on my experience. But, um, I think let's talk about the first one, right?

Like, um, I guess, uh, which is also the most recent one that you wrote about, which is Helium. Um, so why do you think Helium is not going to work?

Because I'll give the positive, which is because I want to give the positive side, um, a view, uh, in, uh, let's say what if there is a Lora and I don't I forgot what the exact acronym they're using?

What if there's a network like that, which is very usable, uh, which is used for not just dog collars, but a bunch of stuff. You know, I'm using it on my bike kids and etc, etc.

Firstly, I think as a product, is that a viable scenario that could exist? I think that's one point.

And then I think the second question is, do we really need, um, tokenomics behind it and it does it, is there a way to execute it without crypto, right? Um.

Guest: I mean, Helium is actually a really complicated case because there's there's just like there's a few different aspects to it.

So like just to break it down, um, we can talk about like, does, you know, is Lora WAN technology, which is like low power Wi-Fi essentially, the Wi-Fi that can extend a lot farther, but it's slower and it's lower battery power.

So Lora WAN technology, is that something that's going to get really wide adoption? And that could be, you know, a lot of people are saying, hey, internet of things devices, they're better when you connect them to Lora and then to Wi-Fi.

Okay, so that's a maybe. And then the question is, okay, if you have these Lora WAN networks, is it okay for every consumer to just own their own hotspot the way that they own their own Wi-Fi router?

Or does it make sense to network them up where and and you know, have be able to move your dog with your dog collar, right? From one house to another and and borrow that other house's connection. Like, does that work?

Um, and then another question is like, okay, now if you do want to build like a nationwide Lora WAN network, does it make sense to build it, uh, you know, with with peers, right?

With individual users like setting up their own hotspots and getting paid or does it make sense to have like Verizon just set up antennas, right? So that's a question.

And then you got another question of, okay, if it's best to have users do it, does it make sense to just have Verizon manage the network and pay them or does it make sense to use blockchain technology to pay them, right?

So there's like all these and then so I guess that I broke it down into like four question marks. And I think all of the question marks I mentioned are like very significant question marks.

Um, and the interesting part from the Web3 discussion is really just the last one of like, okay, users should all have Lora notes. Okay, I believe I passed the first three question marks. Now, should we be using tokens on the blockchain?

Um, and but it's it it makes it a complicated discussion because we kind of have to assume the first three.

I mean, I guess we could just like assume the first three are true and like we definitely need a Lora WAN network that individuals broadcast from their homes. And now the only question is, should we use blockchain to incentivize it?

Host: Also, I mean, you could also say that I'm a startup because startups are usually experiments, right? That's the way I think.

Because whenever whenever I'm angel investing, like the question is whether, you know, this is an experiment that's worth doing, right?

At least till you get to pre series A or like series A, you're doing an experiment essentially, whether there's a market, there's a product, there's actually use case, right? In that phase, most of the things are experiments.

Um, so let's say this is another experiment. The problem I think what I've seen with Heathem is like, do we need a global network first, right? Could we experiment this at a city level. Can we like find a Right. I mean ironically your blog name.

Can we find an MVP that actually, you know, can prove out this thesis?

I think that that's what is missing and the second thing is, um, the tokenomics and and also like there are a couple of other general worrying trends, not with just I feel like it's not just Web3, but I think sort of this FOMO, um, I think it's culturally couple of things got intersected in last couple of years, one is like FOMO.

Uh, one is rapid access to, you know, sort of uh excessive financialization of everything, which sort of crypto sort of enables uh financialization first and then product second.

I think it's like, you know, we we we have this idea of distribution first then product second.

We used to have product first, now we got to distribution first because, you know, if you can find distribution, you can create markets is one theory, uh, that people try to like influencers do that, for example. Yeah. Right.

So I think these are a couple of problems with Heathem. But uh, I want to like move to the next. I think you've written a bunch about Heathem. I don't want to like spend a lot of time on Heathem.

Um, uh, but I want to move to the next use case, uh, which, um, I think is also an interesting one, which is cross border payments, right? Uh, what do you think about cross border payments with either Web3 or Bitcoin or Ethereum?

Guest: Mhm. Um, so I have a thread about this.

I think the using, uh, cryptocurrency, it's it's harder to write it off completely and be like, no, there's zero value because you can describe the value that there is as illegal money transfers, right?

So if you want to transfer money and you don't want your government or some some middleman to get involved who would normally get involved and and make your life worse. In that case, maybe you can turn to the blockchain, right?

It's like this rogue, um, yeah, this this this rogue, uh, lawless system that that may help you out. Um, and so that's definitely a use case and in and you know, the reality is I think Alex Gladstein is like the biggest champion of

---