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A | Welcome to Bankless, where we explore the frontier of Internet money and Internet finance. This is Ryan. Sean Adams. I'm here with David Hoffman and we're here to help you become more bankless. Guys, we have Luca Netz. He is the founder, I shouldn't say the founder, David. He is the recent acquirer of Pudgy Penguins IP... |
B | Yeah, we don't have to talk about that. |
A | Well, I was never one. So I just, like, I have no losses here, no wins here. But, yeah, what's kind of the context the bankless audience should know going to this episode? |
B | Yeah, I think Luca has really carved a path forward, not just for pudgies, because he did that, but just for the entire NFT industry. A lot of promises were made by NFTs, the industry, in 2021. Most of those promises were not held. But then in comes Luca, who acquired pudgy penguins in the middle of 2022 and really ste... |
A | Yeah, absolutely. And I think if you're looking at how a brand, a digital brand, can execute in the web three world, this is like a perfect case study for that as well. We have no disclosures. Neither David nor myself hold any pudgy penguins. |
B | I fumbled with some pudgy penguins. |
A | What'd you sell them, David? Did you sell them during the bear? |
B | Literally, I think it was like one week before Luca acquired it, and it went from like one eth floor at the very bottom to like a three eth floor like that. And I was like, oh great, that was the bottom. |
A | I'm sorry for your loss, David, but you know, you can still buy a penguin. It's just a little more expensive this time. |
B | It would be 18 times the price I sold it at. |
A | Guys, we're getting right into the conversation with Luca, but before we do, we want to thank the sponsors that made this episode possible. |
B | Bank of this nation, I'm super excited to introduce you to Luca Netz, the leader of the pudgies. Luka has a history of Internet entrepreneurship before he acquired the Pudgy Penguins IP in mid 2022 for two and a half million. Ever since then, pudgies has been on an up only tear in floor price to say the least, but also... |
C | I'm super happy to be here. David Ryan, thanks for having me. |
B | Look, I want to start with this conversation around the promises that the NFT industry made in 2021. The 2021 bull market was really driven by NFTs and really emerged as society shifted online due to the pandemic and perhaps also like the low interest rate phenomenon. It led to this surge in this metaverse concept, and... |
C | I think it was pretty clear as a physical collector that this was the future. I had personal frustrations that began to fester over the course of time because I thought that so many projects were claiming to be brands and building brands at the highest level for the last six, seven years. I thought to myself, well, som... |
A | I'm wondering if you could help us there. What does it mean to build a brand? We say these NFT communities, they all said they were building a brand, but they weren't really doing it. I think that people saw the success maybe of cryptopunks and things like that, projects like this, and they didn't see a lot of brand bu... |
C | I love that you said that. I think there's a couple different facets that we'll break into. I think when you're looking at the 2021 projects, you're completely right in your notion that cryptopunks was the northe everybody was doing, you know, replicating that up until Yuga Labs came around and Yuga Labs really reinven... |
A | You mean crypto projects were not like, NFT projects were not posting anything on Instagram? |
C | They would do it once a month, right? |
A | It was just all Twitter. |
C | It was all Twitter, yeah. So it was a once a month thing. And you can fact check me on that and you'll find that will reign true. The best of the best in bored apes case. Once a month. Once every three weeks. I mean, we almost lost Twitter there for a second right after Elon's acquisition. It looked pretty shaky. Imagi... |
B | So, Luca, we'll get to the conversation about actually purchasing the pudgy IP in April of 2022. But I would imagine that that was not an impulsive move. I would imagine that you were looking at the landscape, you were looking at the brands or the attempted brands, the PFP, NFT projects. And I think you came into this ... |
C | Yeah. So I actually tried to buy my friend's project before Pudgy Penguins. And so I kind of had like, a little, I stood up like a three man unit, little marketing arm. And so if somebody wanted, like, marketing services in this industry, kind of went there and I had helped him with it, and I fell in love with that com... |
A | Okay, so this is so fascinating to me, Lucas, so you saw this big opportunity, and importantly, this is interesting that I think is kind of more unique to your story, though many entrepreneurs might repeat it. You're not the founder of Pudgy Penguins. You didn't come up with the art first. You were just like a collecto... |
C | Yeah, I think, not to bore you because I've said the story couple times, but to give you the 32nd version for the bankless audience. You know, I grew up homeless with my mom and my brother. I was fortunate enough to start my first business when I was 18. I found product market fit pretty easily. And it became a self ma... |
A | Okay. So when you're buying an NFT collection or the rights to the IP for an NFT collection, you're not, importantly, buying all of the penguins, of course, that is continuously, like it's owned by the community. Right. This is crypto, this is web three. So, like, what are you buying? Are you buying some copyrights? Ar... |
C | We bought like 50 different things, from social handles to contract addresses to penguins in the treasury to the rights for certain deliverables that we had to execute on. That was 40 or 50 different things. Probably the most important is the trademarks around the IP and the naming conventions, and that's probably the ... |
A | So it's just the asset purchase. Straight asset purchase. And then to clarify what right, what IP rights does an individual pudgy holder kind of like own? What can they do with their penguin? What can they do with their brand? |
C | They have the right to monetize up to $500,000 a year leveraging their pudgy penguin. But this is really just a caveat because we're in the business of doing real business at Pudgy. And so I told our community members, if I know you're a community member and you have aspirations to build significantly and make signific... |
B | Well, ethereum at least is known to be a place of rainbows and unicorns, but maybe with the success of punchy penguins, you could add penguins to that list as well. At least that would be the success scenario. Luca, when you bought the pudgy penguin ip, you kind of sound like a man with a plan. So what was the plan? Ev... |
C | So I think, like, in the simplest terms, I wanted to win. I wanted to be number one. I'm a super competitive guy, just how I find enjoyment in getting up every day. And fortunately, there's a lot of competition, not really inside of the space, but outside of where we want to go, at least in the IP realm. I knew we want... |
A | So people were pissed. |
C | Yeah, totally. |
A | And at the time that you were purchasing, was this like, okay, so I'm actually April 2022. What was kind of like the pudgy penguin price at this time? Like, what was kind of market sentiment? It couldn't have been all time high, right? |
C | Like seventies, 0.8 east. |
B | That was the low. |
A | And that's off of all time. What was all time high up to that point? |
C | All time high. Was four. |
A | All time high was four east. And we're at 0.7 now. Yeah, so they're already kind of like down in the bear market. And then they see Luca enter the chat, and you're like, yeah, I own it. Like, I own the IP. And so, yeah, so what was their reaction? |
C | They were, you know, some of them were stoked. Like, some of them were not so stoked, you know, but again, like, rightfully so. Like, the guy who I was competing with to buy this on paper, had probably a more impressive resume. He was an OG. Ethereum guy, had built a really great product. Obviously, I think my resume i... |
B | Luca, I asked the question about what was your plan going into the acquisition? And it sounds like your plan coming out of the acquisition was completely different. Maybe you can share some of the experiences or conversations or just ideas that you gained in that week post acquisition. That really changed your mind. Li... |
C | Yeah. So, coming off of a gel blaster, you know, gel blaster really shook up the toy industry. Cause no one had really went from zero to $100 million in basically two years. What we did at gel Blaster, it was, like, a pretty hot, hot toy. |
A | What kind of toys would we. |
C | Yeah. |
A | What's gel blaster? |
B | What should we think of in our head? |
C | It's a toy gun. It's a nerf killer. So it shoots, like, little water. Orbeez. So it's like a completely dumbed down version of airsoft, but, like, a way better version of, like, the darts. The darts are, like, so whack. Every time you got hit with a dart, you're like, what? Is this pointless? This gives you a little bi... |
A | It's somewhere between, like, airsoft and nerf then, right? It's like a nice. |
C | Okay, it's the perfect medium. So complete disruptor to both categories. And so what I learned there is obviously, I saw, like, the craze of cocomelon and all of these. Right? And so when I came into pudgy penguins, I had, like, a toddler idea. I was like, I'm gonna go compete with cocomelon. Like, we're gonna go do th... |
A | That's so hilarious to me that your brain goes to toddlers. Cause I'm like, toddlers don't have any money. Luca, what are you doing? Toddlers aren't going to buy, like, a ten Eth NFT. |
C | So this is the thesis, right? I think a lot of people even, you know, some of our positioning at Pudgy is towards, you know, the ten and twelve and 14 year old. But, you know, toddlers and, you know, ten year olds are also not buying Disney stock. Right? Like, the idea here, and I think this problem that pudgy penguins... |
A | Wow, that's so counterintuitive. But, like, that's a pretty badass answer and it's pretty smart. Like, I would not have connected those dots, but, like, now you think of it, a lot of the NFT collections are kind of douchey. You know, like, I just, they're just, I'm not going to name any ones out there. |
B | Name them. Name them. |
A | No, I'm not going to name them. But, like, yeah, there's this account, but I interrupted your flow. So originally you said you got the discord, you're going to go with toddlers, right? And like, what changed then? Take us from there. |
C | It was going to be a nuke if I went toddler. So just to give you an idea of, like, how the IP business works, when you taper down, you make more money. So, like, like, when an IP brand sells itself out is like, when they start going toddlers. Like, toddlers actually has the highest tam because there's like, you know, t... |
B | Okay, so that was the direction. That was the North Star. I want to get pretty concrete here. So what was the actual, what would you say is the first concrete, first step on that direction there? Like, what was in the game plan on the roadmap? |
C | Yeah, I think, first and foremost, just building trust. Right. And so, like, you know, we came into this. We bought the business with no money in the bank. We had a bankroll it with another half a million dollars. You know, we had 3% royalty set on pudgy penguins. Everyone. Every other blue chip was set to five. I was ... |
B | Can you just explain a little bit more about the licensing just for people who aren't familiar with how that works or the significance or meaning of that. Like unpack that a little bit more. The relationship between the license and the toy. |
C | So the idea is simple. Like, I'm a believer that to expand the brand and to do what's in the best interest of the NFT collection and the NFT holders, I have to create awareness and I also have to create revenue that's not predicated on sending and minting more digital collectibles. Again, it comes down to supply and de... |
B | Okay, so pudgy penguin toys, plushies, they're in Walmart. You can buy them on Amazon. They're in stores all over. And there are 16 different types of pudgies. They are pudgies that are real pudgies. I'm sure you can go and find their correlate on Opensea. And these are deals that you've made with the 16 holders of the... |
C | They're getting a portion of the kickback portion of the. Obviously, the company penguins make some money, but, you know, they don't get the full. They'll make all the money, but they make. I think when we did the math, it's like 15% of net. |
B | Okay, how did these 15 pudgies get selected? |
C | Aesthetics. We were trying to think of like a rubric, but we just hand this off to the creative team. Creative team picks, you know, CEO, we did it before. And like now the way that we do it, just creative picks the ones they want and goes through a submission funnel, and then creative picks the ones that they think ha... |
B | Will there be more in the future? More selected? |
C | Yeah, so we're actually doing this by the time this thing airs, probably. We are actually announcing a really exciting product, which will be on Friday. That product is overpass IP. Overpass IP basically makes NFT licensing and web three easy with a couple clicks of a button. And so what we kind of found when we licens... |
A | That is really cool. So you're building some of the kind of the tools and the infrastructure as you go. Let me ask you, so these 16 that were in Walmart, what has happened to the price of these 16 penguins? Right. So you like, has that gone up and has that been disc correlated with the rest of the collection? |
C | So there's two ways in which I think, obviously there's some monetary value and what a licensing deal kind of brings. Obviously, there's the royalty. That royalty can really fluctuate. It could be, depending on the initiative. We've had very limited. Some collectibles like you see here, you get paid a couple eth for th... |
A | And so if it's a licensed penguin and they sell that licensed penguin, does the new owner of that licensed penguin then inherit the royalty, or do they have to reset? |
C | Yeah, so you have to re sign and we have to renegotiate the deal. If you were to do it that way, then I think it would define a security and it'd be a pretty good argument for there. For us, two parties are interacting to make this deal happen. And so that's kind of what transpires when we license a penguin. And it's n... |
A | Yeah, I bet I was kind of bespoke, I guess, with each of these. Let me ask you the big question here, though. How in the world did you get a deal with Walmart? Okay, that seems like a big deal to me. I don't know, you come from kind of toys and branding, but like, how, how does something like that happen? |
C | I think it's just Walmart being a bunch of chads. I think if we're going to be honest, it is a really big deal. And if anybody who knows consumer product, which I'm sure there's a lot of people listening who do, it's the type of program and the brand in which pudgy penguins is today. Walmart basically put 2000 pallets ... |
B | Well, it's great that Walmart is ready and willing to take a chance on a web three product. It would have been a different outcome, however, if it was a flop. It sounds like it wasn't a flop. It sounds like pudgies had some volume at Walmart. Are there any numbers or metrics or sales or revenue numbers that you can sha... |
C | I can't tell you with Walmart specifically, but I can say pudgy penguins has sold 750,000 toys in the last seven months. |
B | Wow. What's the average price point? |
C | It fluctuates. So it goes for as cheap as three to 25. So in gross retail sales, it's over $10 million. So median would be about 13. Wow. |
B | And this has made the pudgy penguins company completely self sufficient. |
C | We spend a lot of money every month. We have a pretty sure, but I would say when we raised our seed round, basically twelve months ago, we have the same amount of money in the bank than we did when we raised. So figuring we're growing and socials are growing and business is growing and awareness is growing and we're pr... |
A | Luca, I'm kind of struck by this. This conversation is going in a direction I didn't know for sure it would, and I didn't have all the content context for pudgy penguins. Haven't been tracking it closely. I was sort of vaguely aware of all the work that you were doing in the background. And then obviously I saw the Wal... |
C | A real investment that is kind of taboo and I guess people don't speak about it, but like the elephant in the room is people are spending tens of thousands, hundreds of thousands, billions of dollars on these things, things. And you have to have some empathy and respect for that. That's like a real thing. I remember be... |
A | Okay, so I want to ask you about the unit you said a publicly traded startup. I want to ask you about the double edged sword. That is speculation and that is price. So, you know, another NFT project that I've been observing over the last year or so, and indeed we've had him on a couple of times, is Kevin Rose. And like... |
C | I think the key kicker that we've done for the last two years that I think some of the projects you mentioned did not. And I think a lot of people got caught in that the trap of the tailwinds is expectations. The expectation on what it means to own a pudgy penguin is exponentially clear. I am giving you no reason to sp... |
B | Well, definitely a current, in this conversation of stability, if you will. You talked about leading and creating a bull market, not waiting for one to happen, having a plan and sticking to it, and just overall, just vibes of stability in this whole project seems to be coming forth. Luca, we talked about the toys, and ... |
C | Yeah. So not only did we put NFT IP in the world's biggest retailer, and the story of web three, which is like licensing and doing this together on the shelves of the biggest retailer, but we actually put blockchain technology on the shelves of the biggest retailer. So every toy that we sell actually comes with a birth... |
B | Okay, so right now it's primarily a place to collect properties. How much further investment into this middle of the funnel are you going to make? Is this going to be like its sole focus? Like, how important is this as a product line, would you say? |
C | I think it's really important because it's, you know, not only does it complete the toy loop, right? Which is like, right now, if you go to Pudgy world, it is not this robust explanation that I just gave you. It's really just a character builder and a couple mini games and maybe some daily rewards. We raised our seed r... |
B | I want to ask about the collaboration with Zksync. Using a ZK roll up makes a ton of sense because this is going to be a consumer product. There's going to be hopefully millions of people using these things. And we also need native account abstraction, which I'm sure is part of the pudgy wallet. Can you just shed more ... |
C | Yeah, I think ZK sync specifically from a tech perspective, they have the cheapest fees. I mean, dude, even with the cheapest fees. This stuff costs a lot of money in gas to kind of front and this has to be optimized for that. As of the last month, per my call with them, they had the cheapest transaction fees out of an... |
B | When is pudgy world slated to go live? |
C | We alluded to quarter one. It seems like a goal that we want to hit. Obviously, gaming is a lot more deep and complex than I think people think. I'm slowly accepting the fact that there might be a delay. You know, it is what it is. You know, we run with the punches, but we know we need to get that product out sooner ra... |
B | Luca, right before this podcast, I asked the bankless nation what questions they wanted to ask you. So I've got three quick lightning round questions. You ready for them? |
A | Yeah. |
B | The pudgy gifts. Why do I run into so many pudgy gifts everywhere? Whenever I'm looking for gifs on Discord or in Telegram or on Twitter, and I type in some prompts to show me some gifts every once in a while there's always a pudgy version of the GiF, I'm looking for, like, where do these come come from? |
C | Content distribution. We make 200 to 300 gifts a week. It's its own seven person department. It is no joke. So it's intentional. |
A | You got gift game man. |
B | Yeah. All right, next question. What is your personal favorite pudgy trait or traits combo? |
C | Don't tell anyone this, but I'm a big wizard hat guy. For me, personally, I think the bowl cuts are, like, I love the bowl cuts and the cross eyes. Cause I think they're just the most memetic, and they probably have, like, the biggest lore in the pudgy penguin group. Obviously, I'm a goldschool skin. We do a little lux... |
B | Amazing. All right, last lightning round question. What's your biggest worry? Your biggest worry about the pukchu penguins? |
C | Let me give you a true and honest, thoughtful answer. My biggest worry would probably be, you can make fatal mistakes in this business. Business, it's just the truth. One move can be fatal, and that is worrisome because it's like, build a reputation for 20 years, one day you can lose it all. This business is unforgivin... |
A | Luca, thank you so much for spending time with us on bankless today. I appreciate the approach and certainly congrats on bringing penguins back from the dead and now maybe to the masses. One last question. This wasn't from the community. This is my own personal when are you going to flip in the apes, my friend, you're ... |
C | Look, man, I have so much respect for those guys, the apes. You know, we are not here without them. I don't have the confidence to buy pudgy penguins without the bored apes. Just being frank. I think if anyone did a good job, it was them. I think their run in 2021 was amazing. I don't want to win at their expense. I th... |
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