Twitch cofounder Justin Kan is launching a new startup in the world of web3. Kan and four cofounders have raised $14 million for Rye, a shopping platform that will look to use crypto tokens to try to build a cheaper Spotify for ecommerce.
Kan will serve as head of sales for the new startup, which is led by CEO Arjun Bhargava, a former Reddit engineer turned repeat entrepreneur. The company is launching with $14 million in venture capital funding led by a16z crypto.
In an interview, Bhargava told Forbes that Rye will offer a one-click application programming interface, or API, for merchants to display some or all of their products on Rye’s own marketplace. Rye will offer that directory in turn to developers, to embed within their own sites and apps. And by offering a crypto token, also called Rye, to participants, Rye believes that it can do so at lower cost than ecommerce incumbents like Amazon and Shopify.
Whereas Shopify charges 2.4% to 2.9% per online transaction, in addition to subscription and per-transaction charges, and Etsy takes 6.5% of transactions, as well as a listing fee, Rye’s founders claimed that by structuring as a token protocol, they’ll be able to eventually make money despite offering far lower fees in the fraction of a percent range (to keep servers running, they said).
That’s because over the long term, Rye and its venture capital backers hope that their Rye token will become a popular — and valuable — cryptocurrency itself, used to provide participants with redeemable rewards similar to the industry’s already popular cash-back programs.
“Merchants and brands that are selling products, especially DTC (direct-to-consumer) brands, they’re essentially getting ripped off,” Bhargava said. “We’re not getting a percentage of fees, we’re not going to raise fees over time, because we don’t have the ability to do that.”
Bhargava and Kan, who will also serve as “Evangelist” at Rye, are joined by cofounders Tikhon Bernstam, Jamie Quint, Saurabh Sharma and Robin Chan. Bernstam, the former cofounder of Parse and Scribd, will serve as head of product. Quint, formerly head of growth at Notion and head of ads for Reddit, will serve as head of tokenomics. Sharma, another former Reddit engineer, will serve as chief technology officer. And Robin Chan, an early Zynga employee and the founder of startups Operator and Aiden – and who works with Kan on investments at his fund, Goat Capital – will work as Rye’s head of business development.
Kan’s and Chan’s other web3 venture, Fractal, a gaming NFT that raised $35 million from Paradigm and Multicoin Capital, as well as Rye backers a16z crypto and Solana Labs, will be run by another team, Kan said. He and Chan will continue to invest out of Goat Capital, which backed Rye, alongside other investors Solana Ventures, Electric Ant, Electric Feel Ventures, L Catterton, former Tilt founder James Beshara and NBA veterans Andre Iguodala and JaVale McGee.
On its face, Rye’s API doesn’t appear so different from those offered by checkout and payments platforms that don’t use crypto or web3. A month ago, the company launched a store builder tool on app discovery platform Product Hunt centered around affiliate revenue. But long-term, Bhargava said the Rye protocol will allow for more opportunities to provide rewards to all stakeholders — merchants, app-makers and buyers — while also giving them governance rights to vote on its strategic direction.
At a16z crypto, general partner Sriram Krishnan said Rye will give merchants “a better shot” at exerting influence over the decisions made by that network — clout they lack with platforms like Amazon, which he argued can make unilateral platform changes affecting merchants’ sales with impunity. With all involved receiving Rye tokens, “the idea here is that you have pure incentive alignment,” Krishnan claimed, for a more cooperative approach.
Such a “real-world” application of crypto, in this case helping merchants sell more inventory without additional cost, is part of what attracted Kan to the venture, he said. A self-proclaimed “longtime crypto skeptic,” Kan said that conversations with other entrepreneurs such as Adam Jackson, cofounder of “decentralized talent network” Braintrust, warmed him to the idea that tokenized ownership of the network — even a tiny piece — could improve on the status quo.
Braintrust, it must be noted, hosted a token sale in September 2021, reaching a high of nearly $48; it now trades at about $2, down 96%, raising questions about how much its freelancer token holders have benefited to date. And for a self-described skeptic, Kan has experimented in crypto more than many. In addition to Fractal, Kan launched an NFT collection based off his YouTube channel last year, what he called akin to “an autographed version” of each video. The first sold for about 6 ETH, then the equivalent of $9,000, in March 2021; Kan stopped minting new ones that June, when the collection was selling for 0.1 ETH, or about $260 at the time. (ETH now trades at about half that value to the U.S. dollar today.)
Just how much benefit a merchant will really receive from its share of the tokens also remains to be seen. Other heralded real-world relevant token projects, such as decentralized Wi-Fi network Helium, another a16z investment, have faced scrutiny as insiders — early employees and their friends, family and investors — received much of the proceeds of its token’s spread, detailed in a Forbes investigation. At Rye, Bhargava said the startup would publish an updated white paper before its token launch, detailing its ownership plan for insiders; he expected them to eventually hold about 50%.
Asked about merchant appetite for a crypto token, Kan and Bhargava said they expected sellers to become more interested in the rewards over time, but would benefit from Rye’s platform for its boost to sales in the interim. In working to ensure Rye doesn’t build a solution in search of a problem, Kan need look no further than his previous startup, legal tech company Atrium, which raised a $65 million funding round led (again) by a16z in 2018. That company raised and hired too fast, without a clearly differentiated product and customer, Kan later wrote in a post-mortem of what went wrong on Substack. Atrium shut down in March 2020.
He and Bhargava are confident that Rye won’t be tilting at the same illusory windmills in its pursuit of product market fit. The startup’s API has been in tests with some merchants; it’s expected to launch soon. The company plans to hire in engineering, business development and marketing with the funds, which will also provide initial liquidity to its eventual token launch.
So long as merchants want to sell more products, and entrepreneurs look for new ways to showcase their goods, Rye’s founders insisted their technology should prove useful, crypto aside. “This is a bet that there will continually be new ecommerce innovation, and that merchants will want to use an API that is super simple,” Kan said.