Blueprint: OpenSea buys Dharma, shuts down wallet; Microsoft acquires $70B Activision Blizzard; Facet Wealth raises $100MM for digital CFPs
Gm Fintech Futurists — our agenda for today is below.
NFTs: NFT Marketplace OpenSea Buys Ethereum Wallet Maker Dharma Labs
METAVERSE: Microsoft Acquires Activision Blizzard for $69B to Play “key role” in Metaverse Development
INVESTING: Facet Wealth raises $100 million
LONG TAKE: 2022 Capital Markets Primer: Crypto Flows and Fundamentals, NFT Digital Art (part 2) (link here)
PODCAST: Upgrading DeFi market-making and liquidity programs, with Carson Cook of Tokemak (link here)
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Digital marketplace OpenSea, valued around $13 billion, is buying smart wallet company Dharma Labs at an expected price of $110-130 million. Dharma offers a well-designed wallet, where users can store, borrow and lend digital assets. But this functionality is not the motivation for the acquisition, and the wallet is in fact being decommissioned over the next month.
Rather, OpenSea is executing a very expensive acquihire. Dharma Labs’ CEO, Nadav Hollander, will act as OpenSea’s new chief technology officer, and the Dharma COO Brendan Forster will become Head of Strategy. We expect to see OpenSea to continue an acquisition and hiring push — earlier this month, the company raised $300 million and saw trading volumes areas high as $3.5 billion. On top of that, competition with traditional brands and auction houses is rising, leading to more expensive talent; see Meta’s announcement that it would be entering the world of NFTs with a marketplace for minting and trading them.
Reading through the grape leaves of talk about Web3 and tokens suggests to us an attempt to defend OpenSea from vectors like the LooksRare vampire attack. Losing to Meta or some other big tech company is one thing. But losing to a more distributed, decentralized alternative — executed as an attack on your business model by your customers — is another. While LooksRare volumes are indeed very high, per the charts above, the user base is quite low, suggesting a bit of the good old … “circular” capital markets.
METAVERSE: Microsoft Acquires Activision Blizzard for $69B to Play “key role” in Metaverse Development (link here)
Microsoft is upping their commitment to the metaverse with a chunky $69 billion acquisition of Activision Blizzard, which generated about $9 billion last year. The move, expected to go through in 2023, is the biggest-ever gaming acquisition as titles like World of Warcraft, Call of Duty, Diablo and Candy Crush join Microsoft’s roster. It also propels Microsoft into being the world’s third-largest gaming company, behind only Tencent and Sony.
Unlike Facebook/Meta, Microsoft has taken a different angle for how the Metaverse will play out, and has very different strengths. Rather than developing proprietary consumer VR hardware — a difficult and expensive R&D and consumer persuasion battle — the strategy focuses on developing interconnectivity between future Metaverses (centralised and decentralised) and the ability to enter them from any screen that will render it (e.g., your browser).
There is lots of competitive space to support the ecosystem in different ways, and unless we enter a world-ending global depression for the next decade, this should be a growing platform shift. Microsoft has leaned into gaming, content, and infrastructure — arguably one of the least risky plays given it minimizes execution risk. If it is too early to call the winner of a digital world, focus on the tools that lets developers and users get there over time.
The final thought is that the tech industry needs *platform shifts* to maintain its growth multiple, especially at the massive scale of the big tech giants. It is in the collective interest of these companies to imagineer a new world where we buy the new things, or they will suffer industry-wide multiple collapse.
DIGITAL INVESTING: Facet Wealth raises $100 million (link here)
Facet Wealth announced a $100M funding round, and is emerging as one of the strongest champions in digital wealth. The company offers virtual financial planning to over 10,000+ clients and connects users with Certified Financial Planners at an annual subscription fee ranging from $1,800-$6,000, with an average client paying $3,000 per year. This yields an annual revenue of over $30MM+ for the company.
The investing approach will be familiar to those of us trained on Modern Portfolio Theory and asset allocation. We particularly love the above chart showing the danger of being out of the market, even during a bear cycle. That said, Facet isn’t a roboadvisor, but a digitally-enabled financial planning provider. Such services are distinct from and adjacent to digital investing. Facet adds trusts and estate planning to its mix, for example.
We think back to Learnvest as an attempt to do this earlier on, but they were never able to get things scaled or marginally profitable. We also think to Merrill Lynch and its thundering herd, a model that is certainly already well established. LPL had similar initiatives around digital planners.
In the past two years about 40% of affluent consumers switched from traditional wealth management firms to a digital firm. Facet Wealth has been able to tap into this movement and saw 10x growth since 2020 as a result. The key efficiency improvement is that a hub advisor sees 500-600 clients vs. 300 for an in-person network.
That said, we are skeptical about putting a venture capital multiple on an advisory services business, even if it is intermediated by digital software. At $100MM raised, the likely valuation is in the $300-500MM range, with a revenue multiple of 10-20x. In the current market environment, that will be hard to prove out relative to the average RIA acquisition multiple of 5-10x on EBITDA. But you know, YOLO.
Rest of the Best
Here are the rest of the updates hitting our radar. Note that DeFi and digital investing now have their own dedicated weekly emails, on Tuesday and Thursday respectively.
PAYMENTS: Pinwheel raises $50 million
INVESTING INDmoney raises $75 million
2022 Capital Markets Primer: Crypto Flows and Fundamentals, NFT Digital Art (part 2) (link here)
Last week, we discussed how the public and private equity markets were trying to negotiate the value of fintech companies, and the messy volatility created at that intersection. The overall expensive risk-reward ratio of the stock market, combined with the engineered macro environment, gave us pause and anxiety.
This week, we are looking at crypto capital markets at the levels of flows and fundamentals, as well as dive into digital art NFTs and the dynamics we expect this year. This piece is a conclusion of our research here establishing the allocation of our attention.
Podcast: Upgrading DeFi market-making and liquidity programs, with Carson Cook of Tokemak (link here)
In this conversation, we chat with Carson Cook – the founder of Tokemak and Fractal. Carson holds his PhD in Physics and Masters in Electrical Engineering. After completing his PhD, Carson worked at McKinsey for several years, focused on fintech, financial services, and wealth management. He got into the blockchain/crypto space in 2016 and founded Fractal in 2018, focused on market making and providing liquidity. Tokemak is a new product Carson designed based on opportunities he saw in the space. Tokemak is a decentralized liquidity/market making primitive.
More specifically, we touch on how decentralized finance has evolved as well as the different threads that have brought all of it together, as well as, magnetohydrodynamics, the similarities between the finance world and theoretical physics, early crypto exchange arbitrage trading, 0x market making, liquidity aggregation, and so so much more!
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