The Importance of Partnerships

In the Web2 world moats for organizations primarily came in with tech IPs and the data collected from end users. In Web3, with the technology being open source and the anonymity of users, it is hard to create moats specifically around these. Constant innovation, sticky products, and network effects among the community. Network effects in the community are compounding by nature. Community growth can happen organically, or it can be done via partnerships. Partnerships can unlock new areas of distribution where users can directly or indirectly interact with your product/protocol.

Case Study: Opyn

Let’s look at the Opyn. Opyn is an AMM-based DeFi Options protocol that had an exchange product on top of the protocol. DeFi options were very nascent and the adoption was very low.
Enter Ribbon Finance. Ribbon Finance built structured products using Opyn’s options minting contracts and then the adoption of Opyn shot up. 

Opyn TVL and volumes shot up after Ribbon’s launch. Read more about the success of the partnership in this tweet thread by the Opyn team in July 2021.

Case Study: Arbitrum vs Optimism

In the next case, let’s look at two similar protocols and how one protocol took greater market share with an aggressive BD and Partnerships strategy. Arbitrum and Optimism are L2 solutions built on top of Ethereum. Both these L2s use Optimistic rollups as the scaling technology with some differences in the underlying tech, but for the end user, it is pretty much the same.

The only moat either could’ve created is the number and the quality of partners who could build on the respective chains. From a product-leg growth perspective, Arbitrum first made it a lot easier for apps to be deployed on the Arbitrum network, which meant not much heavy lifting on the development end. Secondly, they went aggressive with their partnerships.

Arbitrum has about 112 protocols running on it while Optimism has 70 running on it. Arbitrum also started onboarding partners early before their mainnet launch coordinating the partners’ developer timelines which meant Arbitrum was ready to use for end consumers on the day of the launch. The story of the deployment by A.J. Warner, Director of Partnerships can be read here. 

While Optimism seems to be catching up with the number of transactions and the partnerships, Arbitrum still exceeds Optimism w.r.t. TVL, the number of transactions per day, and the number of users.

Uniswap on Arbitrum vs Optimism

Arbitrum:

7D Active Users – 43,104

# of Transactions – 182,197

Optimism:

7D Active Users – 13,244

# of Transactions – 75,009

Source: Nansen (Arbitrum, Optimism)

Now that we have two use cases on the importance of cracking partnerships let’s look at how early founders can crack the partnerships function for their project.

The knowledge in this piece was imparted by none other than Arjun Kalsy ( VP of Growth at Polygon), Akshay DN (Head of BD and Partnerships, LiFi), and Alyasa Haider (Head of Partnerships, Lumos Labs)

The First Principles of Partnerships

All fluff apart, partnerships are the fruition of a win-win situation. Just like sales, there has to be an alignment of incentives. Unlike sales, there may or may not be a monetary transaction involved in a partnership. 

Power dynamics also come into play while getting into a partnership discussion. Arjun Kalsy says “While an exact 50:50 partnership is rare, the best partnerships come off of minimal power disparity among both parties”. Early-stage startups might feel like they’re lower in the power scale while looking to partner with a larger project/person, but there is always value to be added to the more “powerful” of the two parties.

Partnerships at Early Stage Startups

The Approach

Arjun Kalsy says “Keep it simple. Decide what your North Star metric is and reverse engineer it. You will get your answer on how to approach BD and partnerships.” 

To elaborate with an example, if a company looking to maximize the number of quality developers in its community, one of the strategies could be to run the best hackathons. The best partnerships (in India) would definitely be with Devfolio and Lumos Labs. In simple words, look at the North Star, form the Go-To-Market strategy, and find connections with potential partner organizations.

If the use cases of the project or protocol are varied, then the approach must be verticalized. This makes it easier to execute and finally measure the success of the BD or the partnership team handling it. Ex. 

• Polygon created different verticals with experts in each to tackle projects to build on 
• Arbitrum had its GTM strategy in stone and said it was only going to tackle DeFi projects first and built its partnerships team in the same fashion

The Execution

Akshay of LiFi had no Web3 experience before joining LiFi in Partnerships. When we asked him how it felt and how he started tackling partnerships he said, “It was all cold outreaches. I’d hang around in Discord and Telegram communities, and most of the time the community managers would connect me to the concerned people from the project.” He also claims that his partnerships stack is still Telegram, Discord, and WhatsApp (In that order).

This method works great for lower impact deals and it is in the best interest of a project to slowly convert lower impact partnership deals to more of an inbound pipeline. “Your inbound pipeline is directly proportional to the strength of your community”, says Arjun Kalsy of Polygon. After a certain strong community is built out, the members themselves will bring partnerships to the pipeline.

Mid-Impact to High Impact Deals (Example: Polygon x mStable) can come from more efficient channels such as investors, networks of the leadership team, and an extended founder network (if you are or were a part of an incubator/accelerator). Lots of such deals come in through warm connects. 

High-Impact deals can come in many different ways. The number of such deals is so low in number that it is hard to measure the most efficient channels. High-Impact partnerships such as Opyn x Ribbon Finance, Polygon x EY for Nightfall, and many others have come in all the way from cold outreaches to warm connections from investors or communities.

To make an exhaustive list of partnership channels:

Outbound

• Discord/ Telegram of potential partners
• Warm connects from Investors/ leader network

Inbound

• Community Members
• Create a project so valuable, that everybody wants to partner with you (this is the dream, but to get there you have to solve the cold start problem with partnerships) 

Another tip suggested by Akshay of LiFi is “Cut to the chase. If you are dealing with an anon member, make sure you know of their designation. You need to get to the decision maker. Many deals have been lost because of Chinese whispers. Always pitch personally to the Decision maker.”

The Maintenance

Closing a partnership is not a one-time exercise. Partnerships by definition should be long-lasting and should be nurtured. Partnerships are successful when both parties get what they want from one another. Alyasa Haider, Head of Partnerships at Lumos Labs says, “Never enter a partnership where the success metrics are not determined. Both parties need to decide what the success of the partnership looks like and need to keep each other in check.” Regular calls with partners are critical to show the partner that you are there for them, and secondly make sure that you are getting something from the project. 

This ensures that there is a feedback loop for the partnership that closed. 

Hurdles

Closing the partnership is just the start. There are situations where products have to be built on protocols or products integrate with each other. When there is an integration to be done, at least one party has to adjust the project roadmap and repurpose time to build it out. This coordination is also a crucial part of the partnership. The partnership person has to also know how to sell internally. If there is a delay on the partner’s side on execution, there could be a standstill on your project’s side. The partnership person must also become a program manager then. The Partnerships role is one where the person must wear different hats from time to time.

Hiring for Partnerships

In the journey of building and scaling a startup, there will come a time when the founders will have to hire a partnership person to do this job. Finding the right partnership person is critical to swaying the network effects in the favour of a project versus that of a competitor. What are the top qualities to look for while hiring a partnership person in the company?

The top partnerships experts do follow similar evaluation criteria and they are below:

Product and Industry Knowledge

This is an absolute necessity. It makes no sense for the hire to get on a call with a potential partner and create a dependency on the product person to do the selling for them. The partnerships hire must know the project almost as well as the product person to be able to sell the product or the vision of the project.

When there is a greenfield project (where there are no competitors, and the project is a first of its kind) then the partnership person must come with deep industry knowledge.

A Track Record

A track record here need not necessarily mean Web3 Business Development experience (While that would be ideal). Any experience working with Web3 communities can sign that the candidate is well connected in the industry. 

Direct jumps from Web2 to Web3 sales haven’t worked out really well at the early stage. Web2 business development and partnerships might make logical sense, but Web3 seems to be speaking a whole different language.

Community Experience in Web3 > Partnerships experience in a non-web3 ecosystem

“Shamelessness”

Now before you get it wrong, by “shamelessness” we mean a very subtle shamelessness. It is the ability to ask for something from the person in front of you. People tend to think too much before asking for a favor at the risk of the embarrassment of being shut down. The partnership aces know the right way of asking for things. This can be judged by giving them a paid assignment to go and close out a partnership with a potential partner.

The first goal for someone in the partnerships and the BD games should be “To get a response” rather than always hunting for “the RIGHT response.

Closing Words

Partnerships in Web3 are always more important than you think they are. Network effects coupled with constant innovation are the only ways to ensure the longevity of a project in the Web3 space. First to market is a temporary moat. 

Approach partnerships with the north star metric in mind and work backward. There is no other way to do it. There are no good market intelligence tools one can rely on for smoothening the partnerships and BD process. This ensures a tailor-made strategy for the project.

Hiring a partnership person in Web3 is different from the non-Web3 world. In the state in which Web3 is in right now, there are no seasoned solution engineers or solution architects to rely on to help on the technical business development side of things. 

Hope this piece has helped give an actionable way to tackle partnerships in Web3

Credits

Special thanks to Arjun Kalsy, Akshay DN, and Alyasa Haider for imparting their knowledge and helping founders capitalize on their learnings.