Venture capital firms slow Web 3.0 investments slow as investors turn cautious

Some venture funds have slowed investments in Web 3.0 amid a cryptocurrency winter and the collapse of the FTX.com exchange, but they continued to invest in projects that are “true builders,” multiple investors told Forkast.

“Last year, we were at least looking at 10 deals a week. This year, we’re looking at maybe only one-third of that,” Akio Tanaka, cofounder and partner of Asia-based venture fund Infinity Ventures Crypto, said in an interview with Forkast at the NFT Taipei conference on Thursday.

Tanaka said the company continues to invest, but investments have “slowed down significantly” since June. “It’s not just [about] the number of deals that we consider to look at, but also we take longer to make a decision,” he added.

The pace of capital deployment has slowed this year, but total funding at crypto startups this year is expected to exceed 2021 levels, according to a December Reuters report that cited data from research firm Pitchbook. The data showed crypto projects accounted for US$19.9 billion of venture capital investments in the first nine months of this year, up 41% from a year ago.

Patrick Lee, cofounder and managing partner of U.S.-based PKO Investments that has invested in several media and tech projects in Asia, told Forkast that his investment firm has reduced its pace of investment since May, in light of the Terra-Luna crash and the tech downturn.

“Our first Web 3.0 investment was maybe in July last year. At our fastest, we were investing in a company [every] week, late last year,” said Lee, who cofounded movie review site Rotten Tomatoes two decades ago.

“We used to be putting in US$500,000 to US$1 million across 50 investors coming in through a syndicate. Now it’s more like US$250,000 to US$500,000 with about 30 investors,” Lee added.

More cautious

Venture funds are also taking a much more cautious approach when reviewing potential investments.

“We’re still investing, but much more conservative,” Jason Fang, founder of Sora Ventures, which is in the process of moving its headquarters from Hong Kong to Taiwan, told Forkast, adding that his fund wants to “play it safe and just buy major tokens” as “we’re already up multiple returns.”

“So [we’re in] no need to [go] all in and take high risk on the VC model,” Fang added.

Animoca Brands, the Hong Kong-based blockchain gaming unicorn and venture capital firm, also continues to make investments. Yat Siu, cofounder and chairman of Animoca told Forkast on Thursday that Animoca remains bullish on the development of the Web 3.0 space.

“Within our portfolio and ourselves, for some of the businesses that we’re doing, we see deals being made. [It’s] not just us investing but other companies investing. We see rounds closing,” Siu said.

Siu added: “Maybe the valuation is lower but you can still raise money. If we’re talking about a really bad situation – if you can’t raise money at all, if the liquidity is entirely dried up – that is not true.”

Siu said investors continued to show interest, especially after Nikkei Asia reported last month that Animoca planned to establish a US$2 billion fund – Animoca Capital – next year to invest in the metaverse.

“We had a lot of people send us messages. We’re not even beginning to raise yet, so it just shows that there is a general interest,” Siu said.

Builders keep building

As investors become more picky in a bear market, Web 3.0 projects need to prove they have real value and are true believers of blockchain technology, multiple investors said.

“Now we’ve been much pickier because we’re like: Is it in focus? Is it in stage?… Do they have traction product market fit? And do we think our investors would even be interested in something like that?” Lee of PKO Investments said.

Lee added: “We were probably doing 10 or 20 calls a week late last year, [but] now one or two calls a week. We’re filtering a lot more before we even take the call.”

Fan Shen, vice-president of games at Dapper Labs, the U.S. company behind popular non-fungible token collection NBA Top Shot, told Forkast that “the market was just too great” in 2021 and that it was easy to raise money by issuing NFTs, but usually “the quality of the product didn’t match the capital that went in.”

“My hope is that this year, with the market trending down and becoming more calm, it will actually weed out a lot of teams and products that are not truly believers and are not truly building because it’s no longer that easy to make money,” Shen said.

Asia to lead in gaming

Despite the crypto downturn, the Web 3.0 gaming sector may see upward momentum in 2023, according to Siu.

“A lot of the funding for the gaming companies already took place,” Siu said. “I think over US$3 billion was invested in Web 3.0 game companies [in 2022]. That’s enough money to build some incredible games. And 2023 will see the results and fruits of these.”

Meanwhile, Infinity Ventures Crypto continues to invest in games, Tanaka said.

“This year, we backed more mature game studios,” Tanaka said. “This year we have backed projects that are done by a very mature game studio that wants to incorporate Web 3.0 elements.”

The gaming community in Asia and the region’s skilled developers have laid a decent foundation for future development, according to Shen of Dapper Labs.

“When I look at the global Web 3.0 gaming market, Asia is one of the most critical ones in terms of the game developers [and] the community,” Shen said. “Apac game developers will most likely make the first wave or a first handful of successful Web 3.0 games.”

Shen said the player base in Asia will likely be more welcoming to Web 3.0 games and “together with the developers, they can make a few successful and popular games that can change the narrative of Web 3.0 games to influence Western players.”

“This is exactly the pattern that we see in mobile games,” Shen added.

See related article: Animoca founder says Asia is ‘moving on’ from FTX fiasco

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