- VC funding for Web3 startups broke records earlier this year, despite slowing overall funding.
- Investors told Insider that startups focused on Web3 infrastructure will survive the cryptocurrency crash.
- As a result, VC firms are growing their Web3 and crypto practices amid market downturns.
While individual cryptocurrency coins and non-fungible tokens may come and go, many investors believe that the future of cryptocurrency remains stable and the opportunities are ripe.
In the world of Web3 startups, investors are still partying like they did in 1999, despite the 30% decline in Bitcoin and Ethereum prices over the past month and the collapse of the stablecoins TerraUSD and Luna. New start-ups in this space like Highlight and Mara are still announcing mega “mango” rounds.
Investors say the overall recession has had little effect on Web3, with good reason. Almost all of the about a dozen VCs Insiders contacted about their Web3 investments focus on “choose and shovel” or the underlying technology that powers other applications.
Aaron Holiday, co-founder and managing partner of early-stage company 645 Ventures, said that here is the basic premise of Web3: a cryptographically-powered, more decentralized version of the Internet that allows users to retain ownership of their digital assets. Invested in Web3 companies Solidus Labs and Cion Digital.
“I think that part is isolated,” he added, referring to Web3’s “choice and shovel” as opposed to the broader market crash. “But there will be material capital to lose.”
Most of the venture capital funds go to companies building tools for the large crypto space, such as chainalysis, a security and compliance firm. Chainalysis recently doubled its value to $8.6 billion following its $170 million Series F round. Solidus Labs, which provides crypto risk analysis for financial institutions, announced $45 million in Series B funding earlier this month.
While the overall flow of venture capital to startups slowed in Q1 2022, financing for Web3 companies was record high of $9.2 billion During that period, according to CB Insights.
Rise of a new standalone VC company dedicated to cryptography, such as: paradigm Having raised billions of dollars over the past few months, Haun Ventures has helped keep the capital flowing to Web3 startups. However, other startups are also moving to strengthen their expertise in this area.
Some companies, such as Lux Capital, have been additional investors Other teams like Bain Capital Ventures Crypto-centric weapons. The new VC firm is investing a significant portion of its portfolio in crypto, even if Web3 isn’t its sole or primary focus.
For example, Day One Ventures, an early-stage company founded by investor Masha Bucher, has backed crypto-focused companies such as SuperRare and Worldcoin, and has invested a portion of its funds in NFTs. (The company’s collection includes the popular Bored Apes Yacht Club and CryptoPunks.)
Bucher told Insider that he sees the Web3 company still being funded at strong value today. “The best companies won’t struggle with financing,” she said. The phrase has become a spell among investors over the past few months.
Some investors are less shaken by the current cryptocurrency crash because they have seen it happen before. Graylock’s partner Mike Duboe was founded in 2014 by cryptocurrency exchange Mt. Shortly before the infamous collapse of Gox, I started investing personally in Bitcoin. He has since supported Web3 companies like Pinata and Magic Eden and has seen several crypto slides since then.
But he said the founders of the outstanding Web3 startups have weathered the changing market winds well.
“Many of these companies were founded by founders who went through a recession,” Duboe told Insider. “Our beliefs are historically strong.”
Not all investors are completely optimistic. Mo Koyfman, founder of venture capital firm Shine Capital, told insiders that investor appetite for Web3 startups will eventually cool down for a while.
Just as tech stocks have depreciated in value, so will cryptocurrencies, he said. “They are all correlated.”
Even some crypto bulls are starting to tighten their belts. Bucher told Insider that he started reducing private NFT purchases earlier this year.
“You’ll be able to get them at a better price in the next few months,” she said.