Most people have experienced the internet only through Web 2.0: online applications, the social web and software as a service form the fabric of our lives.
But even as other technology rapidly evolves, basic web infrastructure has remained largely unchanged since the turn of the millennium. Lately, many have championed web3 as the internet’s next phase, but the term encompasses so much territory, conversations can be rather diffuse.
We’re still years away from web3 capturing major market share, and there are valid concerns that its complexity will daunt consumers and regulators. However, our research indicated that the investment landscape is growing increasingly competitive as venture capitalists become more educated and less skeptical.
To get a clearer sense of where the market is, we reached out to several active investors to find out where web3 stands and what the future holds:
- Lior Messika, founder and managing partner, Eden Block
- Atul Ajoy, partner, Horseshoe Capital
- David Chreng-Messembourg, founding partner, LeadBlock Partners
- Randy Glein, founder/partner, and Sam Shapiro, principal, DFJ Growth
- Mercedes Bent, partner, Lightspeed Venture Partners
- Jai Das, co-founder, president and partner, Sapphire Ventures
To make things as clear as possible, we asked each respondent to share their elevator pitch: How would they describe the technology if they were trying to convince a skeptic to invest?
Starting with the potential consumer appeal of cartoon apes, we tried to find out what specifically attracted them to invest in the semantic web and where they’re currently seeing demand. “I initially got into web3 through verifiable credentials and data provenance in the enterprise market,” said Atul Ajoy, a partner at Horseshoe Capital. Several others said they started exploring the space after developing an interest in crypto.
In addition to discussing potential applications in advertising, fintech and enterprise apps, respondents shared their advice for web3 founders who are hunting for funding, along with their concerns about factors that could stall its development. Finally, we asked each respondent: What are skeptical web3 investors missing?
“I never met a skeptical investor who actually understood what was going on. If you get it, you’re probably strapped in and ready to go,” said Lior Messika, founder and managing partner, Eden Block.
“At this point, web3 has proven itself as more than a phenomenon — it is the foundational layer of the metaverse.”
Lior Messika, founder and managing partner, Eden Block
Please give us your web3 elevator pitch: What is it, and what role does it play in today’s internet framework?
In two sentences: Web3 is the key to the real metaverse. Web3 will house our financial institutions, social interactions, personal identities and much, much more in the not-so-distant future.
Expanding: When I look at web3, I see an amalgam of decentralized infrastructure capable of powering a new world. The two most distinct properties of web3 are composability and decentralization. Firstly, crypto networks are swallowing up value and creating environments where every possible form of on-chain value interlinks and interacts with the other. Web3 has the unique ability to create tangible value systems out of value systems that remained intangible for millennia. It unlocks a world where our social capital, reputations, and historical interactions are given indelible and truthful assets — which often get priced into a market powered by decentralized protocols.
Web3 is where all decentralized systems will learn to interact with each other, building on the security and value (thus network effects) of a broader ecosystem. It will be multilayered and multifaceted, supported by completely new infrastructure. Our applications will need to relay data reliably, transfer data completely privately, store data and maintain high levels of availability — all on decentralized rails. In web3’s short history, we’ve already seen how centralized infrastructure can be a dangerous tradeoff.
What made you decide to get into the space? Cartoon apes and blockchain games don’t yet have broad consumer appeal: Where are you seeing demand for web3 products today?
Web3 symbolizes a massive societal shift, infused with innovation and supercharged with values. I dove headfirst into the space when I understood that we’re in the midst of a cultural revolution enabled by technology — not the other way around. Crypto and web3 is our technological answer to a societal problem that has plagued us for millenia, so I think that it’s natural for us to treat this movement with respect and passion.
On products: Some of the most powerful web3 products that we’re seeing these days are intensely focused on ownership, creation and other contextual features that ultimately amount to our digital identities. Funnily enough, we’re already starting to see how crypto products are taking hold of our culture and of our shared attention. In the metaverse, your “pfp” is not only a skin of sorts but the key to another dimension. The individualism this basic feature enables over time explains the frenzied NFT market, which will undoubtedly remain a large part of web3 and the metaverse. The technological basis for NFTs will unlock disruptive value systems across gaming, fashion, social and creator economies.
On a less obvious note, coordination in large, decentralized groups (DAOs) will require streamlined frameworks and transparent value systems. As communities grow and scale into multibillion-dollar networks, decentralized governance becomes very difficult. Colony and Coordinape will enable the next generation of DAOs through specialized tooling and automated frameworks for governance and incentives.
What kinds of applications can we expect to reach the market in the near future? Where are you placing your bets, and can you name a few companies to watch?
Within the broader context of web3, we see tremendous growth across two distinct layers in the stack — infrastructure and applications. Unlike TCP/IP (a core piece of internet infrastructure that cannot be monetized) at the dawn of the internet, decentralized protocols and baked-in incentive systems make running decentralized infrastructure extremely valuable. Technologies like the Pocket Network manifest this in full force, with billions of relays per week. The Pocket Network provides decentralized infrastructure to an entire ecosystem — and compensates its node runners handsomely for the work. At the current state of relays, the forecasted annualized revenue of the network is in the hundreds of millions.
Another core piece of infrastructure for web3 is Biconomy. The Biconomy team is building transactional infrastructure for the decentralized web. Its platform abstracts away crypto transaction complexities for both developers and users. Biconomy has built a series of products that cater to developers building applications in web3 — as protocols continue to grow into mass producers of on-chain services, developers need tools to streamline their operations and integrations to allow for mass scale.
On the application layer, I believe that we’ve only begun to scratch the surface of interoperable value systems within the broader web3 space. Through decentralized finance, we will one day price, value and monetize every single form of capital that can be linked to us on-chain. Our favorite art pieces will pay off our mortgage on lending protocols, and our “likes” will become financial assets. In simple terms, decentralized finance will kick-start the great monetization of everything. Protocols like Vega Protocol aim to enable decentralized derivatives at scale through fair and efficient markets.
Another trillion-dollar opportunity in DeFi relates to a massive elephant in the room — since markets need stability to remain competitive and efficient, DeFi has largely sacrificed decentralization for stability, opting for the USD as the main underlying collateral for a huge portion of the market. Protocols like Float offer an alternative, by creating a low-volatility asset that can remain completely decentralized. Without a truly decentralized collateral in DeFi, web3 is at risk.
Can you share a few of your top concerns? What are some of the pitfalls that could prevent web3 from realizing its potential?
Firstly, it must be understood that decentralization has to be the basis for all true innovation in what we refer to as web3. It is the common thread between every truly disruptive application in today’s cryptosphere: Uniswap and its many clones, money markets like Compound, Cryptopunks and Bored Apes, and storage solutions like Filecoin and IPFS — all enabled by one underlying property. Future developments across crypto networks will continue to leverage decentralization as a core enabler and build additional utility around it.
In the absence of decentralization, disruption is stifled. For this reason, I believe that the biggest risk for us as we venture deeper into web3 is going back to how things were. Making easy tradeoffs that take us away from the very core premise of web3 — maximal decentralization, often at the cost of performance or scalability.
What are some of the use cases and monetizable opportunities that will encourage major websites to switch over to web3? Will the prospect of increased internet regulation be a factor?
Internet regulation is one extreme, but the more likely case is that web3 will swallow up enough value as it continues to grow for major websites to deem it necessary to switch over to web3. Web3 is akin to an economy, and most players will want to participate.
Over the next decade, what are some of the major leaps you anticipate? Which aspects of web3 are overhyped?
One major leap we will make as a society is to embrace true ownership. Financial freedom is deeply embedded in financial responsibility, and web3 is an interface to the most direct form of responsibility (and freedom) possible.
On the topic of overhyped aspects of web3: I believe the radical openness and permissionless access across web3 open the door to a lot of experimentation and speculation. For this reason, most of the overhyped areas of web3 will actually be found at the bottom of the most valuable markets in the space. For example, looking at anything but the top 15-20 NFT projects and their associated communities is excruciating. In the long term, overhyped segments of the market will continue to act as a signal of where much of the innovation and broader focus currently stirs.
How competitive is the web3 investment market today? What needs to be done to grow interest?
The web3 investment market has never been more competitive. Investors are rallying behind developer teams with an idea and a bank account. I believe that while the capital continues to flow into the space so freely, the fundamentals remain the same yet the stakes (both in risk and upside) have never been higher. The amount of potential value in strong decentralized use cases is almost unimaginable, and teams are scouring the world for talent. To grow even more interest, the funding will have to eventually match talent and human capital, which currently seems extremely difficult to find.
What advice would you give web3 founders who are trying to get their first check?
Web3 needs new leaders and will designate them organically as this ecosystem evolves. Nowadays, web3 founders take on the roles of communicators and community builders. In a world where development is open source and contributions are largely permissionless (more often the case in applications built on Ethereum), rallying an entire ecosystem to your cause becomes an extremely unique challenge.
The core drivers for web3 are values-based and financially driven — thus, iterating on web3 will be a cultural and capitalistic mission. It will be incentivized by numbers, algorithms and code, and it will also be supercharged by brand, community and people. Web3 founders should internalize this and leverage that intimacy between developer and community to their advantage. Founders who clearly communicate the values and core missions of their project right from the outset will enable communities to form around that shared goal and propel the project into existence — and mass distribution.
Without market intelligence, are they at a disadvantage when it comes to pitching?
Without a certain amount of market intelligence, founders are severely disadvantaged. Web3 iterates so quickly and so sharply that even a few months of downtime can create fundamental knowledge gaps. In our investing practice, we see the stark difference between founders who are web3-native and those who haven’t taken the plunge yet. By now, it’s become clear that to build a successful product in web3, teams require a certain level of nativity to correctly identify gaps in the market, desires and needs of its user base, and much more.
Do you know any skeptical investors? What do you think they’re missing?
I never met a skeptical investor who actually understood what was going on. If you get it, you’re probably strapped in and ready to go. At this point, web3 has proven itself as more than a phenomenon — it is the foundational layer of the metaverse. Skeptical investors are probably missing the true meaning of Meta’s recent play, Zuck’s rather funny conversation with Gary Vee about NFTs and the general direction of digital life.
Atul Ajoy, partner, Horseshoe Capital
Please give us your web3 elevator pitch: What is it, and what role does it play in today’s internet framework?
Web3 is a new decentralized form of the internet where users become owners. Today’s internet, Web 2.0, is largely controlled by centralized players who capture much of the monetary value created on the internet. Web3 replaces these centralized players with decentralized networks that distribute the value to developers, creators and users. This allows these network participants to design new incentive mechanisms in on-chain for organizations like DAOs.
What made you decide to get into the space? Cartoon apes and blockchain games don’t yet have broad consumer appeal: Where are you seeing demand for web3 products today?
I would push back against the idea that cartoon apes and blockchain games don’t have broad consumer appeal. However, I initially got into web3 through verifiable credentials and data provenance in the enterprise market. I founded a startup that leveraged the immutability of a blockchain to connect data to a certain individual or business that could be tracked over time.
What kinds of applications can we expect to reach the market in the near future? Where are you placing your bets, and can you name a few companies to watch?
I think we are going to see more enterprise scenarios that leverage web3 technology without having to be solely about blockchain, community-driven ecosystems built on web3 and platforms that onboard institutional investors and individuals into DeFi. Accordingly, we invest across those three main themes: fintech, enterprise apps for web3 and new models for communities.
Can you share a few of your top concerns? What are some of the pitfalls that could prevent web3 from realizing its potential?
I’m concerned that the current UX of web3 is that it can be extremely complicated for non-techies. Guiding users through setting up a wallet, buying eth/btc/sol, and connecting to some dApp is difficult and can be very expensive given the state of gas fees on Ethereum today. I think that there is a market opportunity in making web3 more user-friendly. ENS is an example: Being able to send eth to a human-readable name is native to digital experiences and is a much more seamless experience than dealing with wallet addresses. This is an area of interest that Horseshoe is investing in.
What are some of the use cases and monetizable opportunities that will encourage major websites to switch over to web3? Will the prospect of increased internet regulation be a factor?
Many websites will switch to web3 to use monetization strategies that take advantage of loyal communities as opposed to selling data for ads. This will allow for better user experiences while also creating monetary value for creators. I think the prospect of more privacy regulations will accelerate this conversion as community monetization does not require data collection and thus would stay clear of many of the regulatory decisions that will be made in the next couple years.
Over the next decade, what are some of the major leaps you anticipate? Which aspects of web3 are overhyped?
Web3 will become a lot simpler for the average user to participate in over the next couple years. Getting the next billion users onboarded to web3 is probably the most important task for the community to scale and become more valuable. I also believe we’ll see a major leap in how DAOs function to make them more appealing to current Web 2.0 employees. DAOs offer many benefits including flexibility of work but they are partially overhyped today because they have some issues around decision-making and incentives. Ric Burton describes one of these issues, the liquidity of tokens that is unlike startup equity, as “the liquidity liability,” and I believe that in the future we will see many of these organizational structure issues solved.
How competitive is the web3 investment market today? What needs to be done to grow interest?
In my experience, the web3 investment market is incredibly competitive today. Web3 as a market moves even faster than the general seed VC landscape. I also think that many projects are able to grow interest by including the users of their platform as a part of the fundraising landscape through token-based models and DAOs.
What advice would you give web3 founders who are trying to get their first check? Without market intelligence, are they at a disadvantage when it comes to pitching?
Web3 founders looking for their first investment should prioritize substance over hype. For far too long, the crypto market has been focused on, as Chris Dixon put it, “number go up.” However, I think most investors today are looking at web3 projects no differently than they do at other startups. The priorities are team, product and scale, not hype. I don’t believe that web3 founders are at a disadvantage because cutting-edge startups generally don’t come from market intelligence. The innovation comes from ambitious teams that are super-focused on a problem and investors want to fund that. This remains true with web3.
Do you know any skeptical investors? What do you think they’re missing?
There are many skeptical investors who, in my experience, seem very confident that they aren’t missing out on the next paradigm shift. Similar to the investors who avoided emerging markets over the last decade, the investors who don’t adapt to a new world powered by web3 likely won’t be a part of the next decade of innovation and, more importantly to some of them, returns.
What do you think advertising will look like in the web3 world?
Advertising will look a lot different in web3 as a result of the control of data being returned to the user. Web 2.0 companies like Facebook use data shared in their platform to optimize ads for individual users. In web3, the data is controlled by the users and this allows them to monetize their data for personalized ads. This will also encourage new revenue models for industries like journalism where users pay for quality content rather than viewing ads. This will also help create new models of social media and the decentralization of news to independent creators with unique distribution channels.
David Chreng-Messembourg, founding partner, LeadBlock Partners
Please give us your web3 elevator pitch: What is it, and what role does it play in today’s internet framework?
Since the ’90s to today, we have moved from the [first iteration of the] web (“read only”) to Web 2.0 (“read, write”) and gradually trending toward web3 (“read, write, own”). I particularly like this wording of web3, as the key here is around ownership, moving from reading to owning, unlocked by blockchain technology. Unfortunately, this wording isn’t from me, but when there are good analogies in the market, I’m always in favor of not reinventing the wheel.
The birth of the internet in the ’90s, as an open network, was a first digital revolution, enabling (only) a few initially to share content online mainly due to the skill set required to do so and leaving the majority in “read” mode. Over a decade later, during the internet boom, a layer of centralized applications emerged, enabling individuals across geographies to communicate and share data and information. It suddenly became easier to build websites, write content, share it — moving us to a “read, write” mode. On the back of this, a few tech companies rapidly gained leadership and control over critical decisions and more importantly over our data: the GAFA (Google, Apple, Facebook, Amazon). With computational firepower becoming increasingly accessible and affordable, blockchain technology found its path to birth in the early 2010s with the Bitcoin protocol. A decade later, we are still in the early days of web3, a decentralized infrastructure where ownership is transferred back to its users and community.
In my view, web3 will unlock new business and incentive models, where the community and its users — both individuals and entities — are rewarded for their implication in infrastructure development and maintenance. Our world is moving into more fragmentation, with an increasing number of individuals and entities opting to become independent or running their own initiatives rather than joining or working alongside large corporations. The web3 environment has lowered barriers to adoption, enabling anyone, anywhere with internet access to create a business digitally. As data becomes the digital oil of our century, I think it will increasingly become paramount for individuals and entities to own their data and have control over it — this is the direction we’re heading toward in my view thanks to web3.
What made you decide to get into the space? Cartoon apes and blockchain games don’t yet have broad consumer appeal: Where are you seeing demand for web3 products today?
I’ve first heard about Bitcoin a decade ago when I spent time in biophysics research, leveraging quantum mechanics and supercomputers to model the DNA structure. That’s when I first began to read and learn about the risk for PoW (proof of work) blockchains. It was only a few years later that I bought my first cryptocurrency, Ethereum, mainly because of the attraction I had to the potential of smart contracts. Fast forward 11 years, I’m today a founding partner at LeadBlock Partners, a VC fund focusing on B2B blockchain and digital assets.
What led to turning an interest a decade ago to my full-time role as a blockchain/digital assets investor was the opportunity to back founders and a technology that would unlock accessibility. The first use case was accessibility to finance — that’s what I believe the premise of what we see of web3 has begun to achieve. I see demand across all sectors, ranging from food/agriculture to gaming or music. With data surrounding us, in a digital economy, it will become standard to own its data and have control over it. I believe data is tomorrow’s digital oil, and whoever owns it has a material edge — in food/agriculture, producers and farmers have little negotiating power over the large corporations that are the distribution channel to end customers despite owning very valuable data and information off all raw products that we consume. I believe the web3 will rebalance forces between market participants, putting some power back in the hands of farmers, producers and the broader community.
Where are you placing your bets, and can you name a few companies to watch?
At LeadBock Partners, we have closely monitored segments of the web3 ecosystem that will be critical for institutional adoption of digital assets — from white-label solutions, custodians to credit, staking to compliance and data analytics tools. For example, we invested in Bitpanda when they launched their institutional white-label offering with the first partnership announced with Lydia in France to unlock access for their 5 million+ customers to crypto, stocks and commodities. We also have invested in Tesseract, a regulated “credit as a service” company, providing yield-generating investment products in a white-labeling fashion. For instance, any crypto exchange, trading app, can offer a crypto savings account or leverage to their users by a simple API to Tesseract proprietary technology. Another company is Spring Labs, which has built a data-exchange infrastructure enabling sensitive information to be shared between market participants in a secured and anonymous fashion — Ky0x, their latest “KYC in a box” solution brings off-chain data on-chain and provides compliance tools for institutions to participate in DeFi.
How competitive is the web3 investment market today? What needs to be done to grow interest?
In short yes, the web3 investment market is getting increasingly competitive. But I will split it in two main segments — (1) token and (2) equity investing. On both segments, the growth-stage investment market has become very competitive, especially over the past 12 months — from custody services providers to exchanges and gaming companies where we have seen the largest funding rounds. In my opinion, interest is already there and growing every day — the important question is what needs to be done to convert interest to investment. Time and conviction. As of today, most of the early-stage investments in the web3 world are led by specialist blockchain/digital assets funds like ours. More early-stage generalist VC funds need to dedicate time to learn about the ecosystem, its dynamics and potential, which ultimately would lead to conviction calls. As for fintechs, investments in the 2010s were dominated by specialist funds, progressively joined by generalist funds — initially in more mature stages and gradually down the stack to early stages. I am convinced that we will see the same trend in the web3 investment market as blockchain and digital assets become mainstream.
What advice would you give web3 founders who are trying to get their first check? Without market intelligence, are they at a disadvantage when it comes to pitching?
My advice for web3 founders in getting their first check is (1) understand the market segment you are tackling, from the incumbents to the challengers, to truly differentiate yourself and (2) focus on product and execution. We live in an economic environment with excess liquidity, driven by fiscal and monetary stimulus. Capital isn’t the bottleneck, nor the differentiator — time to market and execution are. This is down to people.
Do you know any skeptical investors? What do you think they’re missing?
Yes, many investors I know are still skeptical but generally more curious than a year ago. Innovation takes time and conviction. I think the only thing they are missing is time. Everyone is busy and flooded with investment opportunities. Two options are on the table when it’s down to an emerging technology — (1) take the initiative to unlock time to understand it, its applications and potential to forge an opinion early, or (2) wait until it gets material enough to unlock time and learn about it. For the skeptical investors I know, we’re at the junction of (1) and (2) — the phase where they still have doubts but can’t ignore some emerging success stories in the space and start to do some serious work on the space.
Randy Glein, founder/partner, and Sam Shapiro, principal, DFJ Growth
Please give us your web3 elevator pitch: What is it, and what role does it play in today’s internet framework?
Web3 is the open internet. It is the modern successor to the legacy internet, enabled by blockchain technology and architected with a decentralized framework. This architecture allows developers to create applications that build on each other, a concept called composability, which is essentially an extension of the API economy we’ve seen emerge in software applications broadly. Web3 leverages blockchain ledgers to track and verify ownership, allowing the value and control of these networks to accrue to the developers and participants in each ecosystem. In this way, web3 is very different than the centralized internet we’ve known for the past 25+ years, providing a construct for more distributed value creation and less reliance on the “middleman” approach of the past.
What made you decide to get into the space? Cartoon apes and blockchain games don’t yet have broad consumer appeal: Where are you seeing demand for web3 products today?
We have focused on participating, and enabling, innovation in the emerging sector for blockchain technologies and cryptocurrencies since 2014, when we led the Series C investment round in Coinbase. At the time, we had spent a year studying the technical underpinnings of this nascent category, developing conviction in the fundamental innovations enabled by blockchain approaches in particular. We believed in the potential to transform asset ownership and the exchange of value through blockchain and the importance of underlying cryptocurrencies like BTC. We felt consumers would lead the way in terms of experimentation and adoption, with institutions being fast followers, which led us to Coinbase, who had strategies to deliver products for both constituents.
Now that the basic tools are being put in place, demand is exploding for all sorts of digital assets, from token speculation to payments to creating new forms of collectible art and media in the form of NFTs. This is just the beginning of a long trend to modernize the way we buy, sell and store assets in a transparent, digital world. In addition, as we move from Web 2.0 to web3, we are seeing demand for the base layer of infrastructure move into a multichain world with specialist blockchains to enable areas like DeFi and NFTs.
What kinds of applications can we expect to reach the market in the near future? Where are you placing your bets, and can you name a few companies to watch?
We began our journey into web3 with emphasis on the enabling technology layer that can pave the way for developers to build and innovate with less friction. That’s how we found Alchemy, which we invested in early this year. Alchemy provides developer tools and chain computing infrastructure that positions them as the operating system for web3. Since then, we have focused on web3 scaling solutions, including Layer 1 blockchains like Solana, Avalanche and Polkadot, as well as Layer 2 Ethereum scaling solutions like StarkWare and Optimism. We are also watching the tools that consumers are using to access blockchain applications, like new wallets that are the gateways to this ecosystem and the marketplaces powering the rapid growth of the NFT ecosystem.
Can you share a few of your top concerns? What are some of the pitfalls that could prevent web3 from realizing its potential?
We are in the dial-up phase of web3. Just like the internet needed 15 years to get from Lycos and modems to livestreaming video, it will take time and innovation to build out web3 in a way that has broad utility, and there are many risks and friction points along the way as we manage the migration from the centralized to decentralized web.
While we are firm believers in the future of web3 and decentralized computing, there is a level of exuberance among investors currently that adds another layer of risk as so many projects get funded beyond what makes sense at this stage of market development. Not unlike the bubble period of [the first web era], a downturn accompanied by significant company failures could cause concern and burnout in public buy-in that slows progress.
Government regulation will likely play a big role in the success and failure of certain business models and companies. One of the advantages of web3 to date has been rapid iteration. Developers can organize, create and iterate more quickly than ever before. If government regulation slows that process down, other countries that do not impose the same restrictions can seize leadership and become the hotbeds of blockchain innovation, so it’s a fine line for governments to both protect while stimulating innovation.
What are some of the use cases and monetizable opportunities that will encourage major websites to switch over to web3? Will the prospect of increased internet regulation be a factor?
Web3 will be transformative for the creator economy. Creators will have far more options in interacting with their fans, and those fans will have so many more ways to support their favorite artists. This is one huge way that web3 will change the business model of media, entertainment, art and content creation. We have been anticipating micropayments for a long time and blockchain-based tokens are emerging as a way to enable assets to be subdivided into small ownership stakes and for creators to earn a living by monetizing their contributions. This “tokenization” of commerce and community is disrupting the way networks are created and infrastructure is built. The ability to incentivize collective action via tokens is a fundamental innovation of web3.
As noted above, the prospect of increased regulation poses a threat to blockchain and crypto/token innovation generally. At the same time, prudent regulation can both protect and serve the greater good.
Over the next decade, what are some of the major leaps you anticipate? Which aspects of web3 are overhyped?
Over the next decade, we expect web3 will move beyond the simple imitations of the legacy internet and toward an entirely new class of products unlike anything we interact with today. When the internet began, the first use cases people could think of were putting physical products onto the web. Magazines became websites. Over time, however, the internet created products that had limited if any analog in the physical world. The same will happen with web3. Today, some of the biggest use cases are NFTs that approximate collectible art and trading cards, whereas in the future the concept of digital ownership will unlock completely new products and business models. Decentralized autonomous organizations (DAOs) are an early example of this. Rather than copying the existing governance structure of a company, these organizations use a combination of open code and token ownership as the basis for communities of participants that organize, make decisions and create things. This type of collaboration without a centralized leader would have been unthinkable before blockchain made it possible.
How competitive is the web3 investment market today? What needs to be done to grow interest?
Web3 is getting a lot of investor attention today, and rightfully so. Respected venture funds are raising new pools of capital dedicated to blockchain and web3, and crypto-native firms have emerged with a sole focus on investing in this sector. In addition, blockchain-based projects are able to create and sell liquid tokens to their community, which provides a new financing option for startups in this space. With that said, there is some regulatory overhang since these tokens are likely to be treated as securities in the future, but this needs to be clarified in order to attract more interest and participation from institutional investors with long-term horizons rather than short-term speculators.
What advice would you give web3 founders who are trying to get their first check? Without market intelligence, are they at a disadvantage when it comes to pitching?
The good news for founders is that it’s a great time to raise venture capital, which is in abundant supply. Blockchain, crypto and related areas like DeFi and web3 are attracting significant investment given the enthusiasm for these emerging opportunities. It remains true that attracting experienced institutional investors is always easier with a trusted referral. However, since many of these companies can build and release initial products before raising institutional capital, many are able to attract venture capital by showing early product development adoption and utility. In addition, some companies are able to release their own tokens that quickly proliferate and provide the opportunity to monetize for funding business operations.
Do you know any skeptical investors? What do you think they’re missing?
Skeptical investors are abundant because blockchain technology is fairly nascent and has been associated with the speculation and high volatility of the cryptocurrency trading market. We believe those skeptics are missing the fundamental innovation that is happening with blockchain, which is creating an open and verifiable platform that is driving web3 and is quickly becoming the future of finance and underlying infrastructure for tracking digital assets.
What do you think advertising will look like in the web3 world?
Web 2.0 has seen three dominant business models emerge: advertising, transactions and subscription. Blockchain and web3 are poised to change how we think about creating, storing, exchanging and distributing value. This will unleash new business models, meaning there will be less need for a one-size-fits-all business model like advertising, which has become a necessary, broad-based and annoying nuisance for funding the Web 2.0 environment we have come to know through our internet browsers. Advertising in web3 has an opportunity to be more integrated and natural to the user experience.
Is there anything else you would like to add about the space outside the scope of these questions? In particular, we’d love to hear more about Alchemy.
Blockchain technology is enabling an entirely new paradigm we believe is poised to create an underlayment that powers the future of the internet, finance, transactions, digital asset management and more. As a result, we are dedicating significant time and capital to participate in this revolution.
We believe the future of web3 is multichain, where no one chain dominates but many “specialist” chains proliferate to enable a broad array of applications and use cases. Alchemy is enabling this multichain future by building a set of tools and computing infrastructure that developers use to build applications across a wide variety of blockchains. By enabling the growth and movement of developer activity across many different chains, Alchemy has grown quickly to power over $45 billion in web3-based transactions for tens of millions of users worldwide over the past year across multiple blockchains. They are quickly becoming the operating system that facilitates the multichain future we envision.
Mercedes Bent, partner, Lightspeed Venture Partners
What made you decide to get into the space? Cartoon apes and blockchain games don’t yet have broad consumer appeal: Where are you seeing demand for web3 products today?
I got pulled in by the fervor and utility-driven use cases in sectors like edtech and consumer entertainment. Decentralized, community-owned and earning models built on the blockchain have far-reaching impact outside of just apes and jpegs. I wrote a post about innovation I’m seeing in the web3 learning space and about how I think every startup needs a blockchain strategy in the next few years. It’s a force as powerful as the internet.
What kinds of applications can we expect to reach the market in the near future? Where are you placing your bets, and can you name a few companies to watch?
I’m placing my bets in crypto-backed solutions that have a strong crossover to Web 2.0 and appeal to a mass audience irrespective of the technical structure but are enhanced because of the blockchain. This has meant interest in companies like Fan Controlled Football, which combines gaming and sports to create a league where fans call the plays in real time, decide who plays, decide the jersey design, etc. Two of the teams in their league are token-gated teams. I’m an investor, so I made a bet there! Another area that’s of interest to me are web3 x entertainment, for example, Mad Realities, which is an interactive dating show, where token holders can help design the show, pick the cast of characters and much more. I’m also speaking with lots of founders looking to build the future of universities via DAOs. I don’t have any bets in those last two spaces yet.
Can you share a few of your top concerns? What are some of the pitfalls that could prevent web3 from realizing its potential?
My top three concerns: whales/inequality, male-dominated cultures, consumer education/fear.
It’s almost a law of physics that the rich get richer; it takes money to make money. This is especially true in crypto. Especially given so many community experiences are token gated and advance info about NFT collection launches is given to crypto influencers/whales who will promote the project. And let’s not even talk about gas fees.
Most crypto projects have a decidedly male makeup and feel. It’s rare to find spaces with women featured prominently. As a woman, constant bro culture in tech is draining and at times can make me feel like I don’t belong. It’s not just alive and well in web3/crypto; it’s raging.
Right now there is a big challenge in consumer education and getting Web 2.0 users to see the point. Just look at what happened with Discord when they teased a crypto integration. There is still a large amount of misunderstanding even from within the community about why this is so different from Web 2.0.
Jai Das, co-founder, president and partner, Sapphire Ventures
Please give us your web3 elevator pitch: What is it, and what role does it play in today’s internet framework?
Web3 is a new way of building distributed and global applications. We had client-server and then cloud computing for building desktop and then web applications. Web3 is the next iteration of building applications that are global, scalable and distributed right from the get-go.
What made you decide to get into the space? Cartoon apes and blockchain games don’t yet have broad consumer appeal: Where are you seeing demand for web3 products today?
At Sapphire, we are always looking for the fundamental innovations in enterprise software. We are convinced that web3 will be built on blockchains and use tokens to monetize these chains. So we are investing in the blockchain infrastructure and middleware to help build web3 apps and the next generation of distributed web3 apps.
What kinds of applications can we expect to reach the market in the near future? Where are you placing your bets, and can you name a few companies to watch?
We have already placed bets in Blockdaemon (staking infrastructure), Taxbit (crypto tax software), FalconX (prime brokerage) and Tesseract (crypto lending). Companies to watch include Vendia (blockchain-based middleware), ImmutableX (middleware for DeFi apps), Offchain (Arbitirium), Helium/Nova labs (IoT and WiFi ISP), OpenSea (NFT Trading), POAP (presence protocol), Tatum.io and Moralis (last two are building the AWS for developers).
Can you share a few of your top concerns? What are some of the pitfalls that could prevent web3 from realizing its potential?
I think the only concern is that regulatory bodies take a long time to figure out the rules that all these companies have to abide by. This applies mostly to financial applications. Also, auditors will have to figure out the rules needed to recognize tokens for GAAP revenue purposes.
What are some of the use cases and monetizable opportunities that will encourage major websites to switch over to web3? Will the prospect of increased internet regulation be a factor?
Most of the fintech websites will support crypto trading. Payments via crypto token will also happen fairly soon. A lot of business networks like the ones that Vendia is focused on will all switch to private blockchains quite soon.
Over the next decade, what are some of the major leaps you anticipate? Which aspects of web3 are overhyped?
One of the major issues with crypto networks is that they are slow and the transaction costs are high. This has been holding back the usage of tokens for paying for goods and services. This will be solved in the near future.
How competitive is the web3 investment market today? What needs to be done to grow interest?
The investment environment is extremely competitive. The genie is out of the box and every venture fund is investing in crypto and web3 companies in a big way.
What advice would you give web3 founders who are trying to get their first check? Without market intelligence, are they at a disadvantage when it comes to pitching?
There is really no difference in pitching for a web3 or non-web3 founder. They have to know the firm and the partner they are pitching to in order to understand the firm dynamics. They have to be able to narrate and pitch a very attractive vision and story while backing it up with facts about the markets and the company’s customer and financial traction.
Do you know any skeptical investors? What do you think they’re missing?
Yes, a lot of investors are skeptical. But they remind me of the investors who did not understand how the internet or mobile phones would change our life. Some of these same investors kept saying that Amazon and Netflix would go out of business and Borders and Blockbuster would win because they had physical stores.
What do you think advertising will look like in the web3 world?
It will look very different and consumers will control their own data and be able to choose who can advertise to them. This is very different from today when all the advertising is controlled by Facebook, Google and Amazon.