[AMA Digest] VC Investments in Web3 Projects in a Bear Market

· The Web3 space is a hotbed for innovation and investment opportunities

· Despite this, the bear market is shifting the attitudes VCs hold towards projects

· Projects need to focus on the fundamentals, and product viability especially in the current climate

Venture Capitalists have kept the web3.0 space closely in their sights in recent times, with a study from Sifted Intelligence finding that investments into crypto and decentralised finance grew 6 times in 2021, amounting to an estimated $30 billion growth in the year.

Built on a peer-to-peer decentralised network, the realm of web3.0 is one that is often shrouded with mystery and uncertainty for the uninitiated. Yet it promises to support a cornucopia of various innovative features and utilities, such as unparalleled data ownership never seen before in web2.0 through the removal of data-accumulating intermediaries, astounding transparency, and of course, blockchain technology. Facilitating seamless crypto exchanges, smart contracts, and reduced transaction fees are all part of the dream that web3.0 advocates champion for on the daily.

It is no wonder then, that VCs have begun to recognise the abundant opportunities made available in this webspace of the future, with the industry rapidly picking up and attracting top talent. From the likes of Amazon’s former GM for its Edge Services taking up the mantle as CTO of cryptocurrency exchange Gemini, to Lyft’s former CFO taking up the driver’s seat of Opensea as its CFO, many of these industry experts have made the jump from web2.0 to web3.0.

In Coinlive’s latest Ask-Me-Anything session, we spoke with several VCs to find out more about the future of investments in the web3.0 space.

As Glen Aw, an associate from Arcane Group tells us: “VCs recognise the plethora of opportunities in the web3.0 space, that’s why you see huge funds like A16Z and Lightspeed raising so much to invest in web3.0 projects”.

Indeed, the web3.0 space experienced a boom in investments in budding web3.0 projects, with seven out of the ten most active VCs choosing web3.0 as the sector of choice for investment, according to a survey done by CoinTelegraph. A16Z’s recent announcement of a staggering $4.5 billion crypto fund also saw other VC firms following suit, with NFC Ventures launching a $100 million fund to focus on early-stage investment opportunities in DeFi, and Sfermion, which raised the same amount to invest in NFTs dedicated to blockchain games.

A study by investment bank Drake Star Partners reported that Q1 2022 saw an impressive 128 blockchain game companies raise a total of $1.2 billion, contributing to a solid third of all game start-up funding. In reality, the web3.0 space has often been likened to a newly discovered landscape, with new horizons to be discovered and found. Truly, the widespread implementation of Artificial Intelligence, blockchain technology, and peer-to-peer networks into a cohesive ecosystem is something that yields possibilities and opportunities for start-ups to capitalise on and further innovate upon.

“There is also opportunity for instance, in looking at DeFi protocols or new innovations that can cater to developing communities such as those in Africa,” Glen tells us. “These geographically targeted protocols can serve specific populations that may need these DeFi needs.”

Just as Glen says, having DeFi ventures that are able to penetrate certain gated communities for instance, can not only be symbolically empowering by shifting power and ownership back into the hands of the population, it can potentially also serve to circumvent otherwise corrupt intermediaries and inject some much-needed transparency and accountability into their state’s financial ecosystem.

However, there still remains a challenge on whether or not this is actually workable in reality, as noble as this dream may be. For those living in Zambia for instance, paying for the gas fees alone to transact on the Ethereum blockchain is already almost equivalent to the average daily wage there.

“High L1s with their low gas fees and high transactions per second can allow citizens in underdeveloped countries to access protocols like DeFi payments with their mobile phones,” Glen refutes immediately. “Everyone still has relative ease of access to a mobile device”.

Yet the current bear market has nevertheless spread its icy chill throughout the crypto and web3.0 community, with fluctuating crypto prices and unexpected liquidations taking place on an unprecedented scale. Within this climate, we asked our VCs how projects can cope and continue seeking funds to germinate amidst these harsh weather conditions.

“The Bear market has reminded us to be grounded to the quality of the products,” Jenny Dang, the head of Business Development at V2B Labs tells us, “Instead of focusing on prices or raises”.

Tristan, the Director of Investments from X21 Digital shares Jenny’s sentiments on the matter as well. “Projects should avoid copy pasting metaverse projects or trend chasing,” the young investor tells us. Indeed, if anything the bear climate has served as a reminder that the tangible quality and working viability of a product is of paramount importance, as investors become naturally more wary with where they place their bets in the bear market.

Going back to the basics, such as building a strong deck, catering to the interests of the most suitable investors, churning out clear and concise statistics, are all the more important in a world where uncertainty runs rampant. In this context, clarity and objective certainty is truly invaluable.

Especially with the looming Ethereum merge, there may be valuable opportunities for VCs in the web3.0 space yet. As Glen tells us: “with the Ethereum merge, there will be hidden gems everywhere, together with extremely innovative ideas and projects. But traders and investors alike still need to be careful,” he warns. “Dollar cost averaging is important, as well as diversifying your portfolio by trying DeFi ecosystems. Go back to the fundamentals,” the associate advises.

If anything, this bear market is likely a period for reflection for all involved in the crypto community – including VCs and start-ups as well. It serves as a reminder that as lofty as our dreams may be for a web3.0 future, together with the myriad opportunities and promises it beholds, we still persist in a world where ideas and innovation still have to be grounded in material analysis. Concrete profit generation models, a capable and reliable team, and strategic diversification of portfolios will ensure that the web3.0 innovation spring continues to sustain itself for the long run.

This is an Op-ed article. The opinions expressed in this article are the author’s own. Readers should take the utmost precaution before making decisions in the crypto market. Coinlive is not responsible or liable for any content, accuracy or quality within the article or for any damage or loss to be caused by and in connection to it.

Written by: [Coinlive] Darren