Investing in Web3 Companies: What Investors Should Consider

Dusan Kovacic, CIO at Rockaway Blockchain Fund, talks about new Web3 use cases and which ones could see the most engagement from VCs and investors, as well as how investors should evaluate Web3 companies in the current market environment.

What are the implications of the current market environment for Web3 businesses?

Despite the market downturn, data shows that the number of blockchain users has increased significantly. Sometimes these market downturns can be an extremely positive opportunity for investments, with more realistic valuations in the forefront, and seeing what the next wave of builders are creating. The following Unicorn startups were all created in a bear market: WhatsApp, Netflix, Slack, Mailchimp, Instagram, Uber, etc.

The long-term value proposition of Web3 technology remains strong despite current market activity. At Rockaway Blockchain Fund (RBF), we expect trading to continue at a more sustainable pace in line with the macro environment. Many factors, such as regulation and talent migration, are progressing to make this a more encouraging area for investors. We will likely see the colossal blockchain investment numbers of 2021 – over $33 billion invested by VCs in crypto and blockchain startups – increase further in the future.

Beyond capital, how do Web3 projects seek support from VCs and partners?

Increasingly, Web3 projects seek support from VCs and partners beyond providing capital in areas such as talent acquisition, community expansion, and engineering. Depending on the markets, the value added by VC fluctuates and shifts. For example, in a bull market, the focus is more on services and brand. In a bear market, the added value is capital.

RBF offers a complete product offering, built on the pillars of venture capital, engineering and liquidity. Our company strategically goes beyond capital inflows to solidify the success of portfolio start-ups within a competitive blockchain industry. In addition to capital, VCs should be able to help companies invested in research, engineering, hiring, etc. In addition to this, these projects should also be educated on brand signage because when a brand VC invests, it brings credibility for negotiation, hiring and more.

How should investors view Web3 companies during this time? What should they keep in mind?

As the industry grows, VCs have the opportunity to connect with founders who have niche project experience and apply that skill set with the goal of advancing the ecosystem. In doing so, these founders offer the opportunity for investors to learn more about a specific facet of Web3, such as algorithmic valuations of NFTs or long-term financing mechanisms.

When considering new projects, investors should keep in mind that this is an educational opportunity that helps them refine their own offering. These VCs should review the professional background of the builder team to establish what expertise they bring from another area, which makes them unique in the space.

What are the new Web3 use cases? Which do you think will see the most venture capital commitment and which are most ready for adoption by companies and institutions in 2023?

The global adoption of blockchain technology is well advanced and alongside this is emerging a host of exciting new Web3 use cases. NFTs in particular have seen a lot of hype and exposure, but true long-term and sustainable evaluation methods have yet to be solidified.

Another relatively new concept that we seek to support is insurance in the decentralized applications (dApps) space. Assessing risk is difficult in this regard, which means that traditional insurance companies are reluctant to cover unconventional technical issues, i.e. smart contract hacks or protocol malfunctions.

In decentralized finance (DeFi) in particular, RBF is looking into the area of ​​derivatives. Although there are various options for Automated Market Makers (AMMs) – an underlying protocol that powers the exchange of crypto assets without intermediaries – they have not gained much popularity as they are not efficient in capital terms. Therefore, RBF is interested in projects that solve this problem.

On the infrastructure side, we anticipate increased interest in zero-knowledge proof (ZKP) in verifiable computing in the context of Layer 2 and other protocol designs. We believe these and many other developments are ripe for greater investment and future enterprise adoption.

This interview originally appeared in our TradeTalks newsletter. Sign up here for weekly access to exclusive market analysis from a new industry expert. We also highlight TradeTalks’ must-see videos from the past week.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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