Backed by Jay-Z, Web3 Hardware Startup Spatial Labs Raises $10 Million

Web3 startup Spatial Labs has raised $10 million in its seed funding round, led by Blockchain Capital and backed by billionaire rap artist Jay-Z’s venture capital firm Marcy Venture Partners. When combined with Spatial’s pre-seed funding raise of $4 million, the new round brings the startup’s total funding to $14 million.

Spatial Labs has developed a 13-millimeter microchip called the LNQ One Chip, which can be sewn or embedded into physical fashion items. Each chip can be scanned with a smartphone via near-field communication (NFC) technology, revealing details about the item and creating a digital copy of it for metaverse wearability. Each physical chip is tied to an NFT on Polygon with lots of opportunities for brands to add details or custom content to the chip’s metadata.

Spatial Labs was started in 2019 by Iddris Sandu, a 25-year-old Ghanaian-American entrepreneur. In an interview with Decrypt, Sandu shared his vision for the hardware startup.

Chip Utility

Sandu has many ideas for his LNQ chip technology. For one, he wants buyers of physical items that contain the chip to be able to easily get a digital version of that exact item for use on metaverse platforms without having to buy the item twice.

“We think our approach is going to create much more of an equitable metaverse,” Sandu told Decrypt. “If you look at economies of scale, people don’t have the luxury of buying things twice over and over again.”

He also spoke of LNQ’s potential to provide authentication services for luxury brands, many of which already have metaverse plans, like Gucci, Balmain, and Prada.

But Sandu also wants his clients to really think outside the box when it comes to what kind of data and content the chips can provide.

“Our chip technology effectively allows brands to embed loyalty programs directly into their products without requiring people to have to sign up for any of the services,” Sandu said.

“Now that unlocks a variety of different things, right? Because you can now think about your products unlocking tickets, specific interviews, podcasts, stuff like that,” he continued. “And so it’s for a lot of brands that want to find potential use cases for Web3 and the metaverse.”

Deleting Fast Fashion

While Ethereum now consumes 99.998% less energy than it did before—and sidechain Polygon is also known for its low energy consumption—Spatial Labs’ business is concerned with more than just blockchain sustainability. Because their product aims to create a bridge between the worlds of physical and digital fashion, Spatial also wants to make the physical fashion industry more sustainable. “Fast fashion” has been well-documented as wasteful and unsustainable.

Sandu told Decrypt that the only way to ultimately solve fashion’s sustainability problem is finding a way to offer sustainable products at affordable prices.

“The conversations around sustainability are very—I don't want to necessarily say classist or elitist—but it still feels like a 1% conversation,” he said.

“We haven't gotten to a space where those sustainable products are equally within the same price range as the products that are not.”

“Being eco-friendly is not a luxury statement,” Sandu added.

Sandu envisions a future where the LNQ chip could help incentivize buyers to hang onto their physical goods for longer, as brands could send updates to the chips with new content, features, or other updates. Long-term, this could shift the consumer mindset and allow brands to create a new kind of ongoing relationship with customers.

When it comes to Sandu’s decision to build his tech on Polygon instead of Ethereum’s mainnet, he cited ETH’s higher gas fees as the main deterrent.

“These ecosystems haven't really built for economies of scale,” Sandu said of the ETH mainnet, adding that he believes Polygon offers fees much closer to that of a Visa or Mastercard sale.

Hardware Matters

Sandu’s hardware also allows Spatial Labs to continue to build without any of the bottlenecks of app stores like Apple’s, which has strict developer rules in place when it comes to NFTs and Web3 elements.

“Our chip technology is not dependent on, you know, an Apple App Store approval or anything, it works out of the box, you don't even it doesn't even require you to have an app installed to access some of the metadata and brands can customize that to their liking,” Sandu said of the NFC chip.

Breaking Barriers with Jay-Z

Sandu believes he is in a unique position as one of the very few founders of color of a hardware-focused company. He views many VCs’ investment theses as “heavily skewed” and “heavily biased” against hardware founders like him, in part because there is little historical precedent for potential investors to draw from when making decisions.

“We’re not just making a funding announcement and going back to work,” Sandu said. “We’re going to continue breaking down these barriers that exist.”

Sandu explained that as a Ghanaian-American who grew up in Compton, successful Black entrepreneurs like Jay-Z, Beyoncé, and Rihanna deeply inspired him. Sandu met Jay-Z after working with the late rapper Nipsey Hussle and, separately, with Beyoncé on an augmented reality (AR) experience.

Sandu said that when he first connected with Jay-Z, it was “a perfect harmony.”

“Jay is actually like a big brother, but also like a good friend, but also an investor,” Sandu said. “Me and Jay have a great business relationship.”

He shared that he and the 24 Grammy Award-winning musician bounce ideas off each other and share the same vision for how they can make an impact.

“I trust that more people will be able to see this unconventional way of approaching business and be inspired by it to know that's what it looks like for me, because as much as I love, like, Silicon Valley VCs, I can only relate so much, because the culture is so different,” Sandu said.

“There's such a huge divide.”