Why we invested in Yield Guild Games

Yield Guild Games (YGG; Yield Guild Games) is a decentralised autonomous organisation (DAO) for investing in the non fungible tokens (NFTs) of blockchain games and virtual worlds that recently raised a $1.325mil seed round to build its protocol and invest in yield-generating NFTs.

In this interview with Yat Siu, Chairman of Animoca Brands, we learn why he chose to join the seed round and invest in YGG.

Who is Animoca Brands and what does your company do?

Animoca Brands is a company that’s focused on the NFT space. But we look at ourselves as a company that is delivering true digital property rights.

The real driver behind this is to be one of the primary companies out there that helped build an open digital assets framework. We see NFTs as the technology that will make such a framework possible, as it is the method in which digital assets have a free composability and open access.

What industries are you involved with?

We’re focusing heavily on the gaming side because we think that gamers have a natural affinity with digital assets.

Gamers are familiar with the concept of virtual currencies, even if they don’t know about blockchain. They may not even care about NFTs as a technology, but it’s not alien to them to spend some money on virtual goods or virtual assets.

With games, it’s easy to imagine owning a virtual car, or buying a virtual piece of land, and building something on it.

That’s why we’re approaching it from a gaming standpoint as we think it’s the most obvious path. But that’s not where it has to end. This is just the tip of the iceberg.

What is your investment thesis?

Back in our early days in mobile games, we had Venture Capital (VC) funding, and traditionally, VCs take a view of winner-takes-all: Don’t enable your competitors, kill them!

So we listened to our wiser, elder VCs and we didn’t invest in a lot of competitor companies that we thought could be interesting.

When we went into blockchain, and we didn’t have VC money, we went ahead and invested in everyone. Back then, around 2018 and 2019, there weren’t a lot of people investing in NFTs. It was kind of a lonely field. But the ecosystem needed support, so for a relatively small check size, we were able to help seed the market.

Our ‘ecosystem thesis’ also meant that we wanted to work with people who share the same vision and were looking to amplify our open digital assets framework, rather than try to reduce it or control it. We’d prefer to have collaborative or competitive relationships instead of antagonistic ones. That’s more fitting to our style of business at Animoca Brands.

If we enlarge the pie and have more users in the NFT space, theoretically, that’s good for everyone. Because in an ecosystem, being successful isn’t an isolated experience, it makes everyone else successful too.

We thought: As long as they believe in our mission and vision, they’re smart guys, and they broadly think NFT is going to be big, then we should be okay.

And that’s worked out well for us. Especially in the last six months, because the whole space has expanded.

What are some other companies that Animoca Brands has invested in?

Today, we have over 35 public investments. Notably, Animoca Brands was a very early investor in Dapper Labs, the company behind NFT trends including CryptoKitties and NBA Top Shot.

We also invested in Decentraland, the first fully decentralized world, and NFT marketplaces OpenSea, WAX and Bitski.

We have NFT-based games in our portfolio, including our own The Sandbox and F1 Delta Time, and third party blockchain game developers such as Lucid Sight and Sky Mavis, the latter being the creators of Axie Infinity.

Why did you invest in Yield Guild Games (YGG)?

YGG fills an obvious gap. They are helping to build the NFT gaming ecosystem and they are also developing some metaverses of ours, such as The Sandbox, F1® Delta Time, Axie Infinity, and possibly others in future too.

The thesis around it is very simple. I see YGG as a recruitment agency for the metaverse.

There is an ecosystem effect taking place in these games which requires optimisation. We witnessed the importance of this ourselves, with F1 Delta Time in the beginning, where people were building race teams.

There’s an element of skill involved with these games, so some people weren’t able to play. Ultimately, they mastered it together, with the support of the broader player community, but there wasn’t any designated person or organisation that was coordinating this activity and we didn’t think it was appropriate for us, Animoca Brands, to try to build everything ourselves.

But if a third party could have come in to provide players with the right tools and approaches, providing the necessary education and support to allow people to get involved, that would have smoothed the onboarding process and significantly accelerated user adoption.

YGG fits into this as a form of labor arbitrage because they have access to low-cost labor in places like the Philippines, but at the same time, they are providing employment opportunities that would not otherwise exist.

There’s a very big money market amongst those NFT owners who have money to invest, but they don’t have the time to put into their digital assets to generate the maximum yield.

YGG matches that against people who have the time, but not the money.

This will also drive adoption of cryptocurrencies and blockchain more broadly, as crypto products and services are notoriously difficult for new users to understand and use.

But when you’ve got people playing these games and they get rewarded in something that requires a crypto wallet, they’re willing to go through the full experience to learn how to claim that value, convert it, and eventually cash out.

Basically, if someone gives you a paycheck, you’ll do whatever is needed to unlock that money. And that’s a very effective way to onboard new users to crypto.

What do you look for in a founding team?

I’ve known Gabby Dizon, co-founder of YGG, for a long time. We share the same values, the same mission, and Animoca Brands has followed him as someone who really knows this industry. He is a deep thinker. We were bouncing around a whole bunch of ideas, and when Gabby was ready to go with YGG, we were in.

The people behind the project are the most important. They must share our values around open digital asset frameworks, and if they are focused on doing good to drive growth of the ecosystem in general, then they are suitable for us and we’re happy to invest.

I also think that people in the NFT space are less about money. Money is essential, you must get rewarded, but it’s not their primary driver. At least, until very recently, that was true.

In the past, if you were in the NFT space, you accepted that it would be a while before you would have an exit, because you’re still in the building stage. You’re constantly building. That’s another important mindset, the people behind these ventures tend to be mission and purpose-led.

From a classic investor standpoint, that might sound counterintuitive, because the immediate goal is to focus on financial returns. Classic investors and entrepreneurs will look for the parameters that give them the fastest, most effective returns versus what will drive long-term impact.

Those people were probably not spending much time on NFTs before 2021.