Venture Capital Firms in the Web3 Sector? Plenty and Here’s Why.
In 2021, venture capital companies financed $33 billion in blockchain and cryptocurrency businesses. They poured at least US$17.5 billion into the crypto and blockchain industry into crypto across 725 deals in the first half of 2022. Here's why Web3 has VCs so excited.
Monumental Yield:
When contrasted to Web2 expenditures, the tokenomics that underlie many Web3 initiatives can produce substantial returns. This is certainly relevant in the present environment of sharply rising inflation, rising interest rates, decreasing startup valuations, and volatile markets. Although there have been some peaks and valleys in the cryptocurrency industry in 2022, its entire market valuation increased by about 200% in 2021, with Bitcoin and Ethereum recovering around 60% and 400%, correspondingly. Other cryptocurrencies also saw tremendous gains, such as Avalanche, which increased by over 3,300%, and Solana, which increased by roughly 11,000%.
DeFi (decentralized finance), which is more industry-specific, had an addressable market of approximately $2 billion in 2020 and launched with a market valuation of $160 billion in 2022, an 80-fold increase within only two years. The audacious claim that DeFi, which presently constitutes a negligible portion of the S&P 500 conventional financial services sector, might be higher than 100x more in only five years is being made by several eminent investors and financial institutions.
The NFT(non-fungible-token) industry experienced the same kind of dramatic expansion, growing by 21,000% from 2020 to 2021 to reach a $40 billion market! For legitimate reasons, the NFT industry has virtually reached parity with the mainstream world. Early investors in certain ventures, such CryptoPunks or Bored Ape Yacht Club, would have reaped a stunning 100x return in less than a year. Doodles, recently clocked $54 million at a $704 million valuation where the project’s volume was recorded to be $2.48 million, with an uptick of 1028.34% on a 24-hour scale mid-week.
Certainly, there are actually a lot more losers than winners for any extreme case. A venture fund simply has to choose a small number of sound assets because the average venture capital fund seeks an annualized return of 20-30%?As we've already seen, there are several chances to invest in prospective unicorns when they're still in their infancy, with 100x returns offsetting the numerous failures. This unique period in Web3 is an opportunity reminiscent of the formative years of the digital revolution, in which emerged many of the most prominent VCs of the contemporary day.
Multiple Streams of Revenue:
Tokens give VCs an exceptional chance to produce several channels of passive income on their assets as opposed to merely undertaking typical equity investments and trying to generate a cash gain upon departure.
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This can be accomplished in a few ways:
The Base of the S-Curve:
As previously said, this is a very young market that is largely characterized by a heightened sense of urgency and enthusiasm akin to Web1's early years. We will have to go slowly because, like Web1, there is significant excitement and foolish investments made in the sector.
The majority of significant financial organizations forecast that over the next ten years, the overall Web3 sector would develop at a pace of about 50% CAGR (compound annual growth rate) to reach multi-trillion dollar dominance. Notwithstanding their initial misgivings of cryptocurrency, JPMorgan, Goldman Sachs, Andreessen Horowitz, and Citigroup recently established crypto research units to capitalize on the opportunity's explosive growth.
Since we are currently near the base of the curve, a once-in-a-lifetime prospect could possibly be about to present itself.