Luca Netz isn’t afraid to name his pictures.
Recent 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 nicely past merely dominating the Amazon toy charts.
“After we speak subsequent, I would be the face of NFTs, and I’ll be on the trail to being the primary NFT challenge on the earth with the very best flooring worth,” he says. “That’s actually my goal.”
Whereas nonetheless an bold assertion as we speak, it might have sounded farfetched only a yr in the past when Pudgy Penguins was reeling from a scandal that drained the treasury and tanked the ground worth. The challenge’s subsequent revival has been one of the 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 challenge actually appeared useless 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 dissatisfied 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 subsequent IP, the subsequent nice recreation, or the subsequent nice innovator in music. And it appeared like no one was doing something. Fairly than complaining, I stated, “This can be a good alternative to guide the cost in an NFT challenge that I in the end imagine is the way forward for expertise and gathering.”
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 possibly can’t actually fundraise and say, “Hey, I’m going to do an NFT challenge, increase 100 million bucks, and curate and domesticate that neighborhood.” You both have it or don’t. On this state of affairs, I used to be lucky sufficient to purchase it. However this stuff matter in crypto and its historic significance and what it did to essentially kick off the area. That run in the summertime of 2021 set the tone for a craze that in the end has led us right here. And you’ll’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 for my part the perfect Penguin IP ever made. They’ve at all times made Penguins ugly for some purpose, and Pudgy Penguins are lovable… so you will have this conventional IP that fills a needed void as a result of proper now, there isn’t a premier Penguin model… It has all of the components to achieve success historically, which excites me. It’s the premier case research for constructing a model in NFTs, Web3’s first actual model, and first actual IP enterprise. And that’s in the end what we need to create.
There was a whole lot of pleasure if 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 minimize 95 p.c. We didn’t account for royalties leaving. And we didn’t account for Ethereum taking an 80 p.c 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 believed royalties might maintain us up till we obtained our actual income drivers going. 80 p.c of the workforce didn’t receives a commission for 11 months. That comes with inner friction and expectations… I’m grateful they caught via, and we had been in a position to make it on the opposite aspect.
I don’t assume we might’ve justified shopping for @pudgypenguins for $2.5M if we didn’t have the security web of royalties. We purchased the challenge with no cash within the financial institution, and we knew royalties might maintain us till we obtained our client product line and content material verticals going.
— Luca Netz 🐧 (@LucaNetz) February 18, 2023
Was there a second if you felt the pendulum swing?
I’ll attribute this to my finest buddy within the area. His identify is Frank Degods. He gave me a training lesson in the future the place he stated he was so impressed with what we had been doing, however I wasn’t doing job galvanizing and spreading that imaginative and prescient, which is admittedly 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 somewhat 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 at all times my mantra as a result of I grew up in LA, and all people 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 wonderful 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 consider totally different platforms for getting this IP in entrance of a wider viewers?
We’ve got to regulate 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 recreation. And I’ve little interest in enjoying a idiot’s recreation. I’ve each curiosity in enjoying a clever man’s recreation, and a clever man would diversify his consideration.
Within the subsequent yr, I need to have the most important Fb, YouTube, TikTok, Instagram, Snapchat, and GIPHY of anyone within the Web3 area. After we do this in a yr, we go and sort out the standard IPs.
What’s the imaginative and prescient behind Pudgy Toys? How did you’re taking it from concept to totally 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 realizing. There’s a start certificates connected to it with a QR code. You scan it, and it provides you a redemption code and factors you to pudgyworld.com. You join an account by way of e-mail and a password, which supplies 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. In case you determine 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, it’s essential to go to Ethereum and spend massive {dollars}. However it nonetheless makes individuals comfy with that digital identification 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 educate them about MetaMask and OpenSea, which sounds rigorous and time-consuming. Now with Pudgy Toys, all you must do is purchase them an motion determine and observe the directions. Inside 5 minutes, they’ll perceive the fantastic thing about Web3.
Now when you spend an additional 10 minutes on Pudgy World and also you go and promote a trait, there’s been some wonderful anecdotes up thus far of individuals spending $60 value of toys and promoting $230 value 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 fascinating. However a world the place any individual spends $20 on a toy and makes $30 again is a world the place everybody goes, “Holy shit, what is that this?” They’ll in the end be taught that it’s an NFT and the chance of them turning into a Web3 client could be very excessive.
“The elephant within the room as we speak is NFT holders need financial acquire.”
Luca Netz
In a post-royalty world, how do you assume community-based tasks can sustainably create these new income streams whereas nonetheless additionally driving worth again to their holders?
The elephant within the room as we speak is NFT holders need financial acquire. Most founders don’t need to discuss it… however I perceive as a result of I used to be an NFT collector. I do know what they need. They need financial acquire. And the way are you going to provide them financial acquire as we speak? Nicely, as we speak it’s via airdrops of tokens and NFTs, that are liabilities. The most effective recommendation I obtained 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 present. So I’ve no room to create extra NFTs as we speak. And tokens are fairly far out as a result of I don’t assume my NFT market cap has justified and warranted a token airdrop.
So in the end, I can’t give financial acquire by creating imaginary objects out of skinny air and dropping them. So the one approach I can provide financial acquire proper now could be via the ground worth going up, which I can also’t management exterior of me simply executing and displaying up on daily basis. The one different choice is to create an actual enterprise and share that income… via 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 approach of financial acquire. If we actually need this area to work, we must shift away from Ponzinomics. We must shift away from creating issues out of skinny air. They’re good and I’m positive I’ll do them in some unspecified time in the future. However that can not be the all-in-be-all. That simply needs to be a function.
“If we actually need this area to work, we must shift away from Ponzinomics.”
Luca Netz
How does IP licensing work? How do you intend to scale it with the growth 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 via non-exclusive upfront funds. So I’ll pay you for the non-exclusive proper to make use of your Pudgy Penguin and an upfront fee on what the deal is value. 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, possibly the start of July… [that] solves Web3 licensing at scale…. Licensing is the bottom hanging fruit when it comes to utility tasks can present their holders, and Web3 licensing as we speak is a ache within the ass. I discovered it as a result of we had been the primary main Web3 firm to license IP instantly from holders for a mass-market product… Web3 licensing needs to be executed the Web3 approach, 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 when you’re an organization and also you need to license IP, you make a deal. You concern 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 will ship the cash and signal the paperwork. It’s all executed on-chain… I humbly assume it’s one of many three most vital items of expertise that any NFT challenge has ever shipped.
This interview transcript has been edited for concision and readability.
For the complete and uncut interview, take heed to our podcast episode with Luca Netz.