The $4 Billion NFT Company

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The market for non-fungible tokens (NFTs) exploded in popularity last year. The asset class went from doing just $20 million in transaction volume on the secondary market in January 2021 to more than $17 billion just twelve months later.

NFT Transaction Volume (Secondary)

• January 2021: $20 million

• January 2022: $17.2 billion (+85,900%)

And companies like OpenSea, the world’s largest NFT marketplace, went from collecting just $615,000 in total fees in January 2021 to more than $386 million in fees in January 2022 alone — they are now a $13 billion company.

But the market has cooled off substantially since the beginning of this year. For example, the record $17.2 billion in transaction volume that was done in January is on pace to fall by more than 75% in the 60 days since.

And popularity via Google Trends doesn’t look much better either.

So is this just a classic bear market? Or has the “bubble” officially burst?

Well, Yuga Labs and some of the world’s best investors are betting that it’s just a pothole on the road to the future. But before we get into exactly what happened, here’s some background on what Yuga Labs is and why you should care.

Yuga Labs is one of the world’s most interesting companies. The team behind Bored Ape Yacht Club (BAYC), a non-fungible token collection built on the Ethereum blockchain, started working together in February 2021.

The project was founded by four friends in Miami with diverse backgrounds—Jewish, Cuban, Turkish, Pakistani—and until Buzzfeed doxxed two of their founders last month, all four founders were completely pseudonymous.

But that’s not even the interesting part. Because in a market where over 90% of NFT projects are expected to fail in the long run, Yuga Labs has become the industry’s North Star of success.

Celebrities like Serena Williams, Shaquille O’Neal, Post Malone, Snoop Dogg, Mark Cuban, Neymar, Justin Bieber, LaMelo Ball, and Stephen Curry have all spent hundreds of thousands of dollars to purchase a “Bored Ape.”

The collection went viral in January when Paris Hilton and Jimmy Fallon pulled out printouts of their Bored Apes on The Tonight Show. The Bored Ape Yacht Club has done over $1.5 billion in lifetime sales, making it the third-most-popular NFT project of all time, and the cheapest Bored Ape, otherwise known as the floor price, is now worth over $330,000.

That means that if they still hold their Ape(s) today, the original investors are looking at one of the best investments of all time. How? Because the BAYC launched in April 2021 for 0.08 ether each (about $190) and is worth at least $330k today. That’s a paper gain of more than 170,000%.

And here is a breakdown of the BAYC wallet distribution — over 5k wallets currently hold at least one Bored Ape, and only 232 wallets hold five or more.

But Yuga Labs is now much more than just the Bored Ape Yacht Club. They created additional drops for their community and have spent the last few months expanding their scope. The company now owns three of the biggest NFT brands on the market, and with the ambition to grow their business, they needed additional capital.

So Yuga Labs announced a $450 million seed round (lol) yesterday, and the business is now valued at $4 billion. The round was led by Andreessen Horowitz and included participation from Animoca Brands, FTX ventures, Google Ventures, and others.

Several celebrities, including Shaq, Snoop Dogg, Mark Cuban, Steve Aoki, Dez Bryant, and others participated in the round. It was also a requirement that every investor owned an Ape — a16z changed its profile picture on Twitter after the announcement.

This is obviously a massive announcement. It’s one of the biggest funding rounds in web3 history, or whatever you want to call it. And Yuga Labs will use the capital to build a “media empire” around NFTs, including games and its own version of the metaverse called “Otherside.”

Now, this isn’t investment advice. I don’t own a Bored Ape, and I don’t care if you buy one. But I do think the financials of the business are fascinating. For example, the pitch deck that Yuga Labs used to raise money got leaked last week, and to put it simply, the company is straight-up PRINTING money.

Yuga Labs 2021 Financials

• Revenue: $138 million

• Gross Profit: $131 million (95% margins)

• Net Profit: $127 million (92% margins)

Keep in mind, the company was founded just 14 months ago and only had 11 full-time employees in January.

Here's the complete income statement (2021 results vs. 2022 budget):

Sure, Yuga Labs has over $100 million in cash on its balance sheet. But ultimately, these investors are betting on a much grander vision. They think that this company can shape the future of how we live, both on the internet and off of it.

But only time will tell if they are right. I’m not sure anyone knows for certain what will happen. Many people think this is a fad that will die out as fast as it rose. And many other people are staking their financial and intellectual capital on the future of this industry.

I don’t have all the answers. But I certainly respect people committing their time and energy towards a massive market and ambitious vision, regardless of whether consensus says it’s a worthwhile endeavor. So, as always, I’ll keep you updated, and we’ll see what happens.

Have a great day. I’ll talk to everyone tomorrow.

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