Why we invested in Yuga Labs, creators of the Bored Ape Yacht Club NFTs
Samsung Next, BAYC Number 35, joined a large group of investors that participated in the Seed Round for Yuga Labs.
NFTs went mainstream in 2021, with collectors clamoring for unique digital characters from projects such as the immensely popular Bored Ape Yacht Club (BAYC).
NFTs, or non-fungible tokens, are like a deed of ownership for a digital item. This enables buyers to prove that they own a one-of-a-kind work of art that may stand alone or be part of a high-value collection. It also makes it simple to exchange the NFT between parties and collect proceeds. NFT smart contracts also facilitate creator royalty payments, in perpetuity.
BAYC is a collection of 10,000 Apes that was created by Yuga Labs in April 2021. Anyone could have minted one of the Apes for 0.08 ETH, about $180, on the Ethereum blockchain. But the value of the limited edition collection soon skyrocketed, with one Bored Ape NFT selling in January 2022 for 1,080.69 ETH, worth over $2.8 million.
The community grew rapidly because of BAYC’s exclusivity. Celebrities, athletes, and influencers jumped on the bandwagon, turning BAYC into a status symbol. These NFTs are often used as profile pictures on social media, allowing users to express both individual and collective identity. Ownership also provides access to a members-only Discord server, a BAYC community forum.
Over the past 10 months since launch, Yuga Labs has released 10,000 Bored Apes, 20,000 Mutant Apes, and 10,000 Kennel Dogs. These BAYC collections have resulted in over $2 billion in trading volume on secondary marketplaces, such as OpenSea. Yuga Labs generated volumes that took CryptoPunks four years to achieve.
The Yuga Labs team also disrupted traditional media content models by granting NFT owners commercial rights to the underlying intellectual property (IP). This open source IP gives BAYC owners, for example, the right to use their digital assets in any way they choose, such as for content creation around specific NFTs, merchandising, and promotional activities.
Open sourcing the IP enabled Yuga Labs to quickly commercialize the value of its collections with endeavors such as a partnership with Adidas, and the launch of a virtual band of Bored Apes that was signed to a deal with Universal Music. This activity creates a new type of network effect. The more that the community promotes the underlying project, the more valuable and sought after each NFT becomes.
BAYC wasn’t the first NFT collection, but it quickly became the most successful. CryptoPunks was created in 2017 by Larva Labs and is credited as one of the first NFTs. In March 2022, Yuga Labs solidified its dominance by acquiring CryptoPunks and Meebits IP from Larva Labs. Yuga Labs now controls some of the most valuable NFT collections. Moreover, the community has a new token called ApeCoin, a currency for use in games, live events, and merchandise.
We invested in Yuga Labs because of the company's potential in the rapidly expanding web3 metaverse. And we’re not alone. The venture capital community is behind Yuga, investing a total of $450 million in a round led by a16z, and including investments from companies such as Animoca Brands, Coinbase, and Moonpay.
We see three primary forces driving NFT growth. First, digital identities are shifting from self-identification – such as Facebook profiles – to pseudonymous identities represented by NFT images. Second, NFT projects have become communities that show high levels of engagement, and network effects that resemble a new type of social media. Third, NFTs with embedded smart contracts enable creators to collect royalties without an intermediary and in perpetuity.
Yuga Labs has successfully added value around its collections and that, in turn, increases the utility of NFTs for its owners. The metaverse and web3 are important areas for the future of consumer engagement, and we think NFTs are going to be a central part of both brand and consumer identity in the years ahead.
Brandon Hoffman is an investor at Samsung Next. Antonio Key, another Investor at Samsung Next, collaborated on this deal. Samsung Next's investment strategy is limited to its own views and does not reflect the vision or strategy of any other Samsung business unit, including, but not limited to, Samsung Electronics.
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