Luca Netz isn’t afraid to name his pictures.
Contemporary off the headline-grabbing success of the Pudgy Toys launch, which raised greater than $500,000 in two days, the Pudgy Penguins CEO has his sights set properly past merely dominating the Amazon toy charts.
“When we talk next, I will be the face of NFTs, and I’ll be on the path to being the number one NFT project in the world with the highest floor price,” he says. “That’s really my objective.”
Whereas nonetheless an bold assertion at this time, it could have sounded farfetched only a 12 months in the past when Pudgy Penguins was reeling from a scandal that drained the treasury and tanked the ground worth. The mission’s subsequent revival has been probably the most spectacular comeback tales the NFT area has seen.
In a candid interview, Netz particulars the highs and lows of bringing Pudgy Penguins again from the brink, his plan to dominate Web3 IP licensing, and why Pudgy Toys is a Computer virus for mass adoption.
Matt Medved: Take us again to April 2022. The Pudgy Penguins mission actually appeared lifeless within the water. What was it that appealed to you and gave you the conviction to buy it for 750 ETH? ($2.5 million on the time)
Luca Netz: I used to be pissed off with NFTs. I used to be upset due to how a lot cash individuals had raised from the neighborhood and enterprise and the way little output they delivered. Everyone was honing in on key phrases like they’re the following IP, the following nice sport, or the following nice innovator in music. And it appeared like no one was doing something. Slightly than complaining, I stated, “This is a perfect opportunity to lead the charge in an NFT project that I ultimately believe is the future of technology and collecting.”
750 ETH for @Pudgy_Penguins by the NFT degenerates. Make your transfer @ColeThereum
— Luca Netz 🐧 (@LucaNetz) January 6, 2022
I purchased it for $2.5 million, however you may’t actually fundraise and say, “Hey, I’m going to do an NFT project, raise a hundred million bucks, and curate and cultivate that community.” You both have it or don’t. On this state of affairs, I used to be lucky sufficient to purchase it. However these items matter in crypto and its historic significance and what it did to actually kick off the area. That run in the summertime of 2021 set the tone for a craze that finally has led us right here. And you may’t simply purchase that. That’s unquantifiable advertising and marketing {dollars} and cache and provenance and significance.
So that you have a look at my ability set as an elite product mover and an elite marketer alongside what’s in my view the most effective Penguin IP ever made. They’ve all the time made Penguins ugly for some motive, and Pudgy Penguins are lovely… so you may have this conventional IP that fills a essential void as a result of proper now, there is no such thing as a premier Penguin model… It has all of the components to achieve success historically, which excites me. It’s the premier case examine for constructing a model in NFTs, Web3’s first actual model, and first actual IP enterprise. And that’s finally what we need to create.
There was a variety of pleasure whenever you took over Pudgy Penguins, however there’s positively a fast shelf life to that in Web3. Holders need outcomes. What had been the most important challenges that you just confronted in turning this factor round?
The arduous half for us was actually these black swans that the universe dealt us. At one level I really needed to dig into the checking account and put extra money into the enterprise, greater than the precise buy. As a result of even our worst projections didn’t account for NFT quantity getting reduce 95 %. We didn’t account for royalties leaving. And we didn’t account for Ethereum taking an 80 % haircut — all on the identical time.
I knew royalties weren’t the income drivers for this enterprise. Royalties are EBITDA patterns, in order that’s how I have a look at them from a income mannequin. However I assumed royalties might maintain us up till we received our actual income drivers going. 80 % of the crew didn’t receives a commission for 11 months. That comes with inner friction and expectations… I’m grateful they caught by way of, and we had been in a position to make it on the opposite aspect.
I don’t suppose we might’ve justified shopping for @pudgypenguins for $2.5M if we didn’t have the protection internet of royalties. We purchased the mission with no cash within the financial institution, and we knew royalties might maintain us till we received our client product line and content material verticals going.
— Luca Netz 🐧 (@LucaNetz) February 18, 2023
Was there a second whenever you felt the pendulum swing?
I’ll attribute this to my greatest buddy within the area. His title is Frank Degods. He gave me a training lesson sooner or later the place he stated he was so impressed with what we had been doing, however I wasn’t doing a superb job galvanizing and spreading that imaginative and prescient, which is absolutely my job as a CEO. And inside these first couple of days of him telling me that began the uptrend for Pudgy Penguins, which was being slightly extra vocal.
In Web2, I by no means actually talked about my successes. I simply confirmed them. I let the outcomes do the speaking. That was all the time my mantra as a result of I grew up in LA, and everyone in LA is both mendacity or a belief fund child. I’m a doer. However he confirmed me that it’s a mix of each, the speaking and the doing. So all I needed to do was muster up the braveness as a result of I’m an introvert. That was an enormous second as a result of many individuals on this area create superb issues however fall on deaf ears as a result of they don’t have a champion of these merchandise.
A lot of Web3 focuses on Twitter, however Pudgy Penguins has been rising quick on Instagram and past. How do you concentrate on completely different platforms for getting this IP in entrance of a wider viewers?
Now we have to manage our personal future… If I maintain my eggs in a single basket, I’m inevitably compromising my future, this firm’s future, and our holders…. Being subjugated to variables I can’t management is a idiot’s sport. And I’ve little interest in taking part in a idiot’s sport. I’ve each curiosity in taking part in a clever man’s sport, and a clever man would diversify his consideration.
Within the subsequent 12 months, I need to have the most important Fb, YouTube, TikTok, Instagram, Snapchat, and GIPHY of anyone within the Web3 area. After we try this in a 12 months, we go and sort out the standard IPs.
What’s the imaginative and prescient behind Pudgy Toys? How did you’re taking it from thought to completely realized success?
On its face, to the common individual, it’s a cute, cuddly, Pudgy Penguin. However to the Web3 world, it’s a Computer virus for getting individuals into Web3 with out them figuring out. There’s a beginning certificates connected to it with a QR code. You scan it, and it offers you a redemption code and factors you to pudgyworld.com. You join an account through e mail and a password, which provides you a custody pockets. Inside a couple of minutes, you should buy and promote NFTs and put them in your perpetually Pudgy Penguin in real-time. When you resolve to mint it, it’s a dynamic soul-bound NFT. So the precise Penguin itself is additive to our core assortment, not dilutive. To have a tradable Pudgy Penguin asset, you should go to Ethereum and spend massive {dollars}. However it nonetheless makes individuals comfy with that digital id and part of the neighborhood.
If you wish to introduce a buddy or member of the family to the area, proper now, you’ll have train them about MetaMask and OpenSea, which sounds rigorous and time-consuming. Now with Pudgy Toys, all it’s a must to do is purchase them an motion determine and observe the directions. Inside 5 minutes, they’ll perceive the fantastic thing about Web3.
Now if you happen to spend an additional 10 minutes on Pudgy World and also you go and promote a trait, there’s been some superb anecdotes up so far of individuals spending $60 price of toys and promoting $230 price of digital trades. Making that mechanism sticky is the arduous half right here and we’re working arduous to create that suggestions loop to make sure that it’s enjoyable and interesting. However a world the place any person spends $20 on a toy and makes $30 again is a world the place everybody goes, “Holy shit, what is this?” They’ll finally be taught that it’s an NFT and the chance of them turning into a Web3 client may be very excessive.
“The elephant in the room today is NFT holders want monetary gain.”
Luca Netz
In a post-royalty world, how do you suppose community-based initiatives can sustainably create these new income streams whereas nonetheless additionally driving worth again to their holders?
The elephant within the room at this time is NFT holders need financial achieve. Most founders don’t need to speak about it… however I perceive as a result of I used to be an NFT collector. I do know what they need. They need financial achieve. And the way are you going to offer them financial achieve at this time? Effectively, at this time it’s by way of airdrops of tokens and NFTs, that are liabilities. The perfect recommendation I received coming into this enterprise was to keep away from creating liabilities for your self. So I’ve too many collections. I purchased Pudgy Penguins with Lil Pudgys and Pudgy Rods already current. So I’ve no room to create extra NFTs at this time. And tokens are fairly far out as a result of I don’t suppose my NFT market cap has justified and warranted a token airdrop.
So finally, I can’t give financial achieve by creating imaginary gadgets out of skinny air and dropping them. So the one means I can provide financial achieve proper now’s by way of the ground worth going up, which I can also’t management exterior of me simply executing and exhibiting up each day. The one different choice is to create an actual enterprise and share that income… by way of licensing as a result of [holders] personal their digital asset. As the corporate, I’ll license that IP from them and use it within the merchandise and instruments that I make, and that’s a scalable means of financial achieve. If we actually need this area to work, we should shift away from Ponzinomics. We should shift away from creating issues out of skinny air. They’re good and I’m certain I’ll do them sooner or later. However that can not be the all-in-be-all. That simply must be a function.
“If we really want this space to work, we will have to shift away from Ponzinomics.”
Luca Netz
How does IP licensing work? How do you intend to scale it with the enlargement of Pudgy IP?
Proper now, the toys use a licensing royalty, the place they receives a commission in perpetuity on an annual foundation. So on the finish of yearly, we’ll consolidate the toy skews’ income, and we’ll pay them out accordingly. Shifting ahead, we’ll in all probability do it by way of non-exclusive upfront funds. So I’ll pay you for the non-exclusive proper to make use of your Pudgy Penguin and an upfront cost on what the deal is price. And I’m simply going to ship that on to your pockets.
We developed a platform referred to as Overpass, which we’ll launch on the finish of June, perhaps the start of July… [that] solves Web3 licensing at scale…. Licensing is the bottom hanging fruit by way of utility initiatives can present their holders, and Web3 licensing at this time is a ache within the ass. I realized it as a result of we had been the primary main Web3 firm to license IP straight from holders for a mass-market product… Web3 licensing ought to be accomplished the Web3 means, which is a few clicks of a button. Web3 extracts a lot of the friction, and it has but to be abstracted for the licensing enterprise. So we made this licensing market the place if you happen to’re an organization and also you need to license IP, you make a deal. You situation the collections you need on board, and they’ll submit proposals of their character and what they need paid for it. With a few clicks of a button, they’ll ship the cash and signal the paperwork. It’s all accomplished on-chain… I humbly suppose it’s one of many three most necessary items of expertise that any NFT mission has ever shipped.
This interview transcript has been edited for concision and readability.
For the total and uncut interview, take heed to our podcast episode with Luca Netz.
