Hello Unbounded Capital LPs,
We wrote this 2023 year in review during the first week of March 2024. It has been a busy end of last year and start of the new year as we have already finalized four new investments between Q4 2023 and today. In this year in review we will update you on the progress of our portfolio companies; outline some of the highlights, lowlights, and our learnings of 2023; and look forward to what we expect from the remainder of 2024.
Reflections on 2023
When we zoom out and reflect on 2023 from a high level there are several distinct trends in the world of scalable blockchain and micropayments as they pertain to Unbounded Capital and our thesis, both good and bad.
From Contrarian to Consensus
The scalability of blockchains and their use for micropayments was a major topic of discussion in 2023, and Unbounded Capital’s once contrarian point of view on the matter has become mainstream. Blockchains which do not have known and easily implemented scaling roadmaps have inherent ceilings on their potential in delivering real business value, chiefly the ability to scale micropayments. Applications which operated during 2023 on top of fundamentally non-scalable blockchains like BTC and Ethereum ran into this ceiling when the success of applications like Ordinals on BTC, for example, resulted in extreme network congestion leading to high transaction fees which put a damper on what appeared to otherwise be exponential growth.
Ordinals service providers are a good example of this type of business where many of them are still doing well, after all, it was their success which caused the issue. But the inability for the infrastructure enabling their business to scale prevented an unknown number of would-be customers from leveraging their products. In the long run we think this type of hidden cost could amount to trillions of dollars in lost market activity. Because of examples like Ordinals, 2023 showed that those interested in blockchain largely agreed that “scalability” and “efficiency” are core features of blockchains’ value propositions, representing an all time high in this point of view. The success of newer entrants like Sui, Aptos, Near, Avalanche, and others further indicate the market's interest in these features.
This increased interest in both capital allocation and developer mindshare is an extremely positive development for Unbounded Capital and our LPs as both result in more opportunities to invest in companies that will solve core problems and service large swaths of the future of the internet.
Wait a minute: scale, efficiency, infrastructure…these are all relatively abstract concepts. What are we really talking about here? What are the businesses and use cases? 2023 went a long way in answering these questions as well: the tokenization of RWAs, providing audit trails for AI models, monetizing content in pay-as-you-go models on platforms like X (formerly Twitter), and other innovations in next-generation visions for social media just to name a few. These relatively diverse sectors have been united in their short-term need for scalable blockchain payments and data as a core part of their tech stacks.
Mainstream Converging on Micropayments
All of these 2023 trends converge on one thing: micropayments. Together, they position the market for companies enabling accessible micropayment solutions for mass market applications as ready to explode over the next few years.
Former skeptics like JP Morgan and other giants of the legacy financial system are now highly focused on tokenization as a core part of their business for decades to come. Tokenization of RWAs is a technology built around the idea of fractional ownership and presupposes effective micropayment solutions in order to achieve its full potential.
2023 was also the first full year of Elon Musk’s ownership of X. The once relatively stagnant product has begun regularly rolling out new features inching it closer to Musk’s stated vision for making X an “everything app”. Musk has plainly stated his intention to integrate pay-per-action micropayments to the platform enabling offerings like new methods of monetizing individual articles or other forms of content for journalists and content creators. Thus far, Musk has not turned to scalable blockchain-based payments for these services but we would be surprised if this is not something explored in 2024 and beyond.
Blue Chip investment firms like Union Square Ventures agree that the time to strike on micropayment solutions is now. Just last month, USV and M13 led the seed round of Code, a micropayments solution built on top of Solana.
“People all over the world are connecting online to share ideas, create content, and grow communities, but only a small fraction are getting paid for their contributions. That’s not because there isn’t value in these contributions. It’s because existing payment platforms can’t support payments of less than a dollar.”
Code is not only an indication that the broader tech market and venture landscape are in agreement that micropayment business models are ready now, but also that building B2B and B2B2C applications on top of highly scalable and efficient blockchain infrastructure is the best path to delivering it. After all, it is the fact that these base layer blockchain technologies are finally mature enough to deliver on this promise that the time for micropayment applications is here.
Blockchain Scaling Milestones
The topic of X potentially integrating blockchain-based features or platforms like Code are raising from respected firms like USV brings us to another major development in 2023: the maturation of scalable blockchain technology.
If X began leveraging blockchain for Elon’s proposed features, even via an invite-only experimental product, they would require massively higher transaction throughput than possible on any blockchain prior to 2023. Last year this all changed, making 2023 the year of massive technological innovation around the bleeding edge of blockchain scalability. The fruits of this labor is now being demonstrated in early 2024. Earlier this month, the BSV association released their highly anticipated next-gen node infrastructure: Teranode. Teranode is now operating on a live test network and is demonstrating sustained 1 Million transactions per second transaction capability. A scale previously unheard of for public proof of work blockchains and something that, until recently, was often claimed to be impossible even theoretically. 1M tps is the type of scale a platform like X would require and is just scratching the surface of the total transaction throughput potential required to service the next generation of internet applications that will leverage micropayments. This is an incredible achievement and a fascinating development for the scalable blockchain ecosystem at large. We look forward to a mainnet launch of Teranode on the Bitcoin SV network anticipated in later 2024.
Macro Reflections
The venture landscape in 2023 was significantly depressed relative to the trend. In 2023, just over $170B of VC dollars were allocated, while in 2022 that figure was more than $242B, a decrease of nearly 30%. This is, of course, a double-edged sword. While Unbounded Capital and our LPs benefited from much lower valuations over this period, portfolio companies struggling to generate revenue were left with less options to fund their ongoing operations. It is already apparent from the first two months of 2024, that this trend is again shifting, especially in the scalable blockchain and micropayments space.
# of funds raised over the years
Unfortunately for some, the impact of 2023 will not be as short-lived as we expect to see many venture firms close down in the coming year. Luckily, Unbounded Capital is positioned to grow during this period, targeting a first close of our Fund III this year. For our LPs, this timing should work out well. The convergence of a growing market for micropayments companies arriving on the heels of a down year for venture dollars allocated should result in a window to identify and invest in unicorn teams at discounted valuations.
Higher values reflect a more investor-friendly dealmaking environment; lower a more startup friendly one (Pitchbook, 2024)
Tough Lessons Learned
If you took a snapshot of the scalable blockchain ecosystem at the end of 2023 and showed it to the Unbounded Capital team when we launched our first fund in 2018 and told us this was coming at some point in our future, we would likely have felt vindicated. The market is largely developing as we anticipated. What we may have been surprised to learn, however, is that this is the state of the market in late 2023, not 2020. While it’s great that the fruits of scalable blockchain infrastructure are being realized, slow and steady progress sometimes feels too slow especially in the world of early-stage venture investing. If presented this glimpse into the future, we likely would have wondered how our earliest investments had fared in the interim five years, well aware of the realities of the timelines required for early-stage companies to find long term success.
Confronting this reality and making necessary adjustments was a difficult part of 2023 for Unbounded Capital. Several of our portfolio companies which built great products on, what we are still confident is, the best technology available have failed to find product market fit and, as a result, are struggling to survive. This emphasized a few key learnings for our team. First, when we identified the Bitcoin SV ecosystem we were thrilled with its technological superiority and the fact that it was an unpopular choice for investors. To us, “unpopular” was code for “undervalued” and we were highly confident that Bitcoin SV’s technological superiority would render this unpopularity a short-term status. While we think this still may be the case and, on a long enough timeline, the best tech is well positioned to win, this is not the most relevant consideration for early stage startups with 2-3 years of runway. In that window of time, the technology needs to overcome its unpopularity either by attracting customers to fund operations or enticing a cohort of forward-looking investors beyond Unbounded Capital to bet on the long-term potential of the products.
The attrition of 2023 made it clear that for several of the investments from our first fund we overvalued the upside potential of being early and undervalued the downside risk. Like all lessons learned, while difficult, these learnings will benefit both existing portfolio companies and future investments in our approach to providing support to founders and refining our investment criteria when making future investment decisions.
Looking Forward to 2024
We are extremely excited to begin 2024. We have not wasted any time this year already finalizing four new investments from our Fund II into incredible companies with exceptional founders building products in industries benefiting from strong tailwinds of momentum.
New Homes
On a personal level we have been busy moving our lives and positioning Unbounded Capital to better achieve our goals for current and future funds. Early this year, Zach made a big move from Austin, TX to Lisbon, Portugal. Already this decision has begun paying dividends as he has embedded himself with the vibrant and growing tech ecosystem there (big thanks to UC advisor and Lisbon resident Mike Sigal!) and taken advantage of the more central time zone to build closer and more frequent relationships with our international community of Unbounded Capital portfolio company founders. In 2024, Zach will be busy building out his local network on the Iberian peninsula and fostering a tech hub focused on micropayments and the businesses leveraging them.
New Fund - Unbounded Capital Fund III
In our Fund III we will be investing in technical founders building the data and (micro)payments infrastructure needed to make the next generation of internet applications possible.
Our thesis for the fund is that the infrastructure companies that execute on micropayments will massively grow the payments market and capture a large portion of new and existing online commerce.
Drawing on our learnings from 2023, this fund will have a less explicit emphasis on scalable blockchains as the primary technology underpinning these companies to open up our ability to invest in the best founders building in the micropayment ecosystem. We expect to invest heavily in companies servicing or delivering on the aforementioned trends of RWA tokenization, AI, privacy-focused identity, social media/content monetization,
We anticipate the first close of Unbounded Capital Fund III in later Q2. If you are an accredited investor, you can learn more about our Fund III here or by replying to this email - we would welcome sharing more about what we are building at Unbounded with you!
New Unbounded Team Members
As part of our new fund and our expanded focus, we also anticipate bringing on two new members of the Unbounded team at the Partner level, following the close of Fund III. After running a comprehensive process, we are delighted with the two people we have identified, both of whom have extensive backgrounds in investing and building in Fintech and buttress the existing skill sets of the UC team. We expect to make announcements in the coming weeks as our soon-to-be partners formally join as advisors until Fund III is closed.
In addition to our new partners in early 2024, the Unbounded Capital team added additional core team members in 2023 as well. In June we welcomed Mike Sigal aboard as an adviser and member of our investment committee. Mike’s extensive investing background as a partner at 500 Startups, one of the world's most active early stage investors in fintech, has already proven extremely helpful in sourcing our deal flow and helping the team refine our investment decision making process. A few months later in August, Unbounded welcomed Vignesh Markandu as our new head of operations. Beyond streamlining our day-to-day operations, Vignesh’s unique perspective on, and extensive relationships in, the blockchain and web3 ecosystem have helped round out our team’s reach and skillset in identifying fantastic companies in which we can invest.
Portfolio Company Updates
DXS
DXS made significant progress during 2023, adding core features to their micro-trading platform which massively grow their addressable market of users which they are now rapidly onboarding.
In the beginning of the year, the DXS team identified two target user bases they wanted to reach: 1) users in emerging markets who uniquely benefit from DXS’s ability to process small individual trade sizes and 2) blockchain native traders who process higher volumes of trades but come from ecosystems like Ethereum or Solana and use previously unsupported wallets like Metamask.
During the first few months of the year DXS added support for USD-denominated trading to cater to users in emerging markets and ran influencer marketing campaigns to reach them. Learning quickly from the results of these efforts, the DXS team shifted their time to building features that would attract the higher volume, blockchain-native traders. Their belief in this decision was compounded by the bullish crypto market sentiment in the last quarter of 2023. Since then, DXS has added support for wallets like Metamask, launched additional low-fee stablecoins, and made improvements to their referral program which have resulted in significant growth to their user base and trade volume, ending Q4 2023 with over $240M in trades on the DXS platform.
An extremely capital-efficient team, DXS has been operating near breakeven even against the backdrop of a relatively flat market for traders. Benefiting from the major strides in product and bullish shift in market sentiment to start the year, we are excited for DXS’s growth trajectory in 2024.
Masa
Masa has had an incredibly exciting 2023. Over the last 12 months, Masa has launched several flagship products, massively grown its user base, and closed significant capital all driving toward their goal of creating a decentralized google tailored for the AI era.
Today, the Masa network has recorded over 31M events in the creation of this data resource, created over 1.3M unique user wallets, and forged over 70 partnerships with major players in the web3 space. These metrics are all growing quickly and can be tracked via Dune here.
In June, Masa announced the closure of their $5.4M seed round in partnership with major web3 investors and companies like DCG and Avalanche. Just last week, Masa was listed on Coinlist for their first public sale and instantly sold out $8.75M worth of MASA tokens. Unbounded Capital fund I LPs with Masa exposure will get liquidity in 2024.
HandCash
HandCash had a busy 2023. They started the year needing to navigate around a significant setback out of their control when Circle abruptly pulled out of their year long integration to offer USDC on efficient HandCash rails, a feature which HandCash was building around across their entire platform. Without Circle’s support, major adjustments needed to be made to HandCash’s roadmap.
Unperturbed by the sudden change, HandCash’s team quickly shifted focus to incorporating additional features which grew what was primarily a wallet & SDK in 2022 into a more feature rich ecosystem in 2023. These features included support for Ordinals items and collectibles in the HandCash wallet, marketplace features to enable users to easily list, buy, and sell items, and hands on support for their first large customer of these features, the digital trading card game Champions.
The net results of 2023 were positive for HandCash with major revenue growth and continual upticks in core KPIs for use of their wallet and platform.
UNISOT
UNISOT spent 2023 focused on sales, securing several extremely high-upside customers as a result. As a general purpose blockchain-powered supply chain product, UNISOT has focused their product development on catering to the specific needs of verticals accessible to them as early adopters. Their Seafood Chain product focused on Scandinavian fisheries (UNISOT is located in Norway) was a pre-2023 version of this vertical-specific implementation of their product, interacting with IoT devices to measure the temperature of water along the fishery to table journey of the fish for example.
In 2023, their HalalOnChain and KosherOnChain products served a similar function for their new customers in the Middle East, a region increasingly looking to leverage blockchain-powered solutions for their rapidly growing populations. UNISOT customer DUMA Gourmet is a meat distributor in the MIddle East leveraging their HalalOnChain product to provide a digital passport for Halal meats. In October UNISOT debuted this product and partnership at the Gitex convention in Dubai leading to additional Middle Eastern partners like SilverLine.
In 2024, UNISOT will continue to focus on sales and product development tailored to the specific needs of early customers
Aldea
Aldea started 2023 optimistic that their technological advantage over competitor L1 blockchains touting scalability and efficiency would yield significant investor traction against the backdrop of increased interest in “Ethereum Killer” scalable blockchains like Aptos and Sui. Despite executing on transaction throughput goals (far surpassing what competitors were demonstrating in 2023), they were unable to generate interest from institutional investors during their seed round raise efforts. Unfortunately, Aldea’s lack of operating capital resulted in founder Brenton Gunning needing to significantly cut burn and lay off core members of the team. Despite this setback, Brenton is still actively developing the Aldea product and is looking for interested users and investors and his new blockchain is set to launch imminently. If you know of other firms looking for exposure to hyper-scalable and efficient L1 blockchains please reach out and we will make the connection.
Haste
Haste had a difficult 2023. Their micropayment-powered leaderboard payout system has proven popular with an extremely active and dedicated early user base, but the reality of that business model is that it requires high volume to generate significant enough revenue to bring Haste to breakeven or profitability. To supplement this revenue, Haste spent 2023 innovating on their higher margin offerings including in-game item sales as well as collectible NFTs on their TakeIt NFT platform. While these products were well received by their user base, they failed to increase Haste’s MAUs to result in long-term sustainable revenue generation.
As a result, Haste has cut the majority of their burn to preserve remaining capital and release new products in development by their founding team. Because Haste’s user base has historically been correlated with the cryptocurrency market sentiment, the Haste team is hopeful that the bullish shift to end 2023 and start 2024 can breath new life into their platform or interest potential investors in backing a scrappy team with a uniquely blockchain-enabled product which has already demonstrated traction on a small scale.
Xoken
There is not much of an update on Xoken, the node infrastructure company with products specialized for the requirements downstream from super high volume transaction processing on the Bitcoin network. Because Nithin and team were so early to develop solutions for problems which did not presently exist, customer prospects were slim with only a handful of potential buyers for Xoken’s software at launch. Xoken’s perspective, one shared by Unbounded when we invested, was that the market for Bitcoin transaction processors was small today but would soon be massive. While we still feel similarly, the timeline here is extremely important and the reality is that in the 4 years since we initially invested, the market has not grown fast enough to keep Xoken funded.
All of that said, we still believe in Xoken and the Xoken team. Recently, the launch of the Teranode testnet has demonstrated sustained 1M transactions per second (for reference this is yielding single Bitcoin blocks with the same number of transactions as the entire Bitcoin network for Q4 2023) on the Bitcoin network, foreshadowing the near-term need for a product like Xoken. We are optimistic that Xoken being early to solving core problems of services leveraging scalable blockchains will pay dividends as we anticipate the market for these solutions to grow heavily in 2024.
Tokenized
For Tokenized, 2023 was a milestone year. In May they launched their highly anticipated desktop wallet which serves as the leading front-end interface for interacting with their tokenization protocol specialized on simplifying the issuance and management of tokenized real world assets (RWAs). Since launch, Tokenized has been busy with product development, continually releasing support for new instrument types supported by their wallet.
With the tokenization platform and core wallet now live, Tokenized turned their attention to sales. Part of this emphasis includes high-touch support for early customers like new UC portfolio company Liquid Noble (more on them in a later section) which is leveraging Tokenized to issue RWA baked tokens, namely precious metals like gold, silver, and palladium to start.
In addition to early existing customers, James Belding from Tokenized is busy riding the wave of RWA tokenization and filling the company’s pipeline with potential customers. RWAs are among the most popular high level themes for the entire blockchain ecosystem today with major players like JP Morgan and others projecting the market size to eclipse $1 Trillion dollars over the next several years. As we start 2024, capitalizing on the momentum behind RWA through sales and fundraising will be the Tokenized team’s primary focus.
RF Labs
RF Labs saw rapid growth in 2023 on several fronts. Starting the year with just two full-time team members, they ended 2023 with over 10 employees. RF Labs’ poker tables have been in high demand since the start of the year but their ability to ship was the limiting factor. Over the course of the year their pace has improved from 1 table every two months to shipping 4 tables in January 2024 alone, an 8x improvement! The shipping speed was also accompanied by a large decrease in cost to produce the tables as well as major improvements to products surrounding it including the new RF Cloud platform, mobile app, AI powered “Ask RF” bot and rfOS.
A big highlight of the year was early RF team member Dan Weinman winning the largest ever first-place prize at the 2023 World Series of Poker, repping the RF Labs patch on his arm the entire way. Beyond being incredibly exciting for Dan and the RF team, this has understandably had a material benefit on RF’s brand awareness and sales efforts. The net result of all of these developments is RF Labs operating at near profitability despite significant increases in expenses and growth.
Looking forward to 2024, the RF team is laser-focused on deploying tables to over 500 card rooms in the US.
New Investments
Provocative
Provocative is an atmospheric carbon removal company powered by humanity’s insatiable demand for compute. Led by serial entrepreneur co-founders Nick Meyer and Rob Fisher, Provocative turns shipping containers into AI data centers with massive amounts of airflow, captures the CO2, and sells it into the $84B global gas market. Every GPU hosted in a Provocative container removes 20-30 tons of CO2 / year, and wildly reduces the environmental and financial cost of hosting high-performance computing.
Provocative has been busy to start 2024, hitting the ground running on growing their international customer base and pipeline including a large office park in the UK (representing over 8,000 ton-CO2/year), Africa Climate Ventures’ development with Kenya’s Great Carbon Valley project, and increased interest from large Bitcoin mining operations seeking to diversify their revenue sources.
Reactiv
In January we invested in Reactiv, a powerful AI-powered platform for transforming web-only ecommerce stores into native mobile apps. Canada based ex-Shopify ecommerce veterans Ross Correia and Zach Elias started Reactiv after experiencing the pain points of their customers with web based ecommerce stores who failed to properly convert sales without the benefits of push notifications and other mobile-only features which are only enhanced thanks to the rapidly growing potential of AI. Reactiv’s pipeline is full and rapidly growing as they roll out access to the platform to early customers.
Liquid Noble
Liquid Noble is tokenizing precious metals to make it simple to own and transaction in gold, silver, palladium, and more. As mentioned in the Tokenized update, they are an early customer of UC portfolio company Tokenized to make this offering extremely efficient and scalable. Liquid Noble founder and CEO Dan Dragon is an experienced developer with an extensive background in helping to develop the Tokenized product. With Liquid Noble he will be able to deliver on the true potential of tokenized RWAs from the starting point of some of the most widely held speculative physical assets in the world.
If you are interested in checking out Liquid Noble they are currently filling up their waitlist with an anticipated launch date in early 2024.
OnePay
OnePay is innovating Whatsapp based micropayment solutions at the epicenter of early micropayments adoption in Latin America. OnePay founder Andres Silva, and his team are building tools to streamline payments for everyday goods and services both improving the user experience for customers and massively reducing friction for those sending invoices like their early adopters at large telecom providers in Colombia, Mexico, and other growing LatAm markets including Movistar. To date, OnePay has processed over $3.3M USD in payments and are on track to process more than 10M transactions per month through their recent telco partners.
OnePay is the most recent investment from Unbounded Capital Fund II and we are excited to see their growth in 2024.
In Conclusion
For Unbounded Capital 2023 was a year of growth. Some of this growth was exhilarating and some of it was painful, but we enter 2024 extremely excited about our future and well-prepared.
The micropayment ecosystem has never been better positioned for extreme growth. The technology has matured to a level where truly high-scale use cases are now possible. And the narrative in the blockchain world has never been more clearly focused on scale and efficiency as core components of the infrastructure required to deliver on blockchain’s potential. The use cases have never been more tangible and in demand with trillion-dollar markets already integrating early versions of this technology.
Unbounded Capital has never been in a better position to capitalize on this convergence of technology, timing, and opportunity. We are extremely excited for the new year and thankful for your trust in us as stewards of your capital.
Onwards and Upwards,
Zach Resnick, Managing Partner
Dave Mullen-Muhr, Partner