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Most people only experienced the Internet through Web 2.0: online applications, the social web and software as a service shape our lives.
But even if other technologies are developing rapidly, the basic web infrastructure has remained largely unchanged since the turn of the millennium. Lately many have advocated the Web3 as the next phase of the Internet, but the term encompasses so much territory that conversations can be quite diffuse.
We are still years away from large market share and there are legitimate concerns that its complexity will discourage consumers and regulators. However, our research has shown that the investment landscape is becoming increasingly competitive as venture capitalists become more educated and less skeptical.
To get a clearer picture of where the market is, we contacted 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, Director, DFJ Growth
Mercedes Bent, Partner, Lightspeed Venture Partner
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 you describe the technology if you tried to get a skeptic to invest?
Starting with the potential consumer appeal of cartoon monkeys, we tried to find out what made them particularly invest in the semantic web, and where they are currently seeing demand. "I first came to web3 through verifiable credentials and data origins in the enterprise market," said Atul Ajioy, partner at Horseshoe Capital. Several others said they started exploring space after developing an interest in crypto.
The respondents not only discussed potential applications in advertising, fintech and business apps, but also shared their advice for web3 founders looking for funding, as well as their concerns about factors that could hinder development. Finally, we asked each respondent: What are skeptical Web3 investors missing?
“I have never met a skeptical investor who really understood what was going on. By the time you get it, you will likely be buckled up and ready to go, "said Lior Messika, founder and managing partner of Eden Block.
"At this point, web3 has proven to be more than a phenomenon – it is the basic layer of the metaverse."
Lior Messika, Founder and Managing Partner, Eden Block
Please tell 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 true Metaverse . In the not too distant future, Web3 will host our financial institutions, social interactions, personal identities and much more.
Expanding: When I look at web3, I see a mixture of decentralized infrastructure that can drive a new world. The two most characteristic features of web3 are composability and decentralization. First, crypto-networks engulf value and create environments where every possible form of value in the chain is interconnected and interacting with one another. Web3 has the unique ability to create tangible value systems from value systems that have remained immaterial for millennia. It opens a world in which our social capital, reputation, and historical interactions are endowed with ineradicable and truthful assets – which are often priced in a market powered by decentralized protocols.
In Web3, all decentralized systems learn to interact with one another and build on the security and value (i.e. network effects) of a broader ecosystem. It will be multi-layered and multi-faceted, supported by a completely new infrastructure . Our applications have to forward data reliably, transfer data completely privately, save data and be highly available – all on decentralized tracks. In the short history of web3 we have already seen how a centralized infrastructure can be a dangerous compromise.
What made you decide to go into space? Cartoon monkeys and blockchain games have not yet had broad consumer appeal: where do you see the demand for web3 products today?
Web3 symbolizes massive social change, permeated by innovation and charged with values. I dove into the room headfirst when I understood that we are in the midst of a technology-enabled cultural revolution – not the other way around. Crypto and Web3 is our technological answer to a social problem that has plagued us for millennia, so I think it is natural for us to meet this movement with respect and passion.
About Products: Some of the top performing Web3 products we see today have an intense focus on ownership, creation, and other contextual functions that ultimately make up our digital identity. Funnily enough, we are already beginning to see how crypto products conquer our culture and our collective attention. In the Metaverse your "pfp" is not just a kind of skin, but the key to another dimension. The individualism this basic function enables over time explains the frenzied NFT market which will no doubt remain a large part of Web3 and the Metaverse. The technological basis for NFTs will set free disruptive value systems in the areas of gaming, fashion, social affairs and the creator economy.
Less obviously, the coordination in large, decentralized groups (DAOs) requires lean framework conditions and transparent value systems. As communities grow and scale into multi-billion dollar networks, decentralized governance becomes very difficult. Colony and Coordinape will enable the next generation of DAOs through specialized tools and automated frameworks for governance and incentives.
What applications can we bring to market in the near future? Where do you place your bets and can you name some companies to keep an eye on?
In the broader context of Web3, we see tremendous growth across two different layers in the stack – Infrastructure and Applications . In contrast to TCP / IP (a core part of the Internet infrastructure that cannot be monetized) at the beginning of the Internet, decentralized protocols and integrated incentive systems make the operation of a decentralized infrastructure extremely valuable. Technologies like the Pocket Network manifest this in full force with billions of relays per week. The Pocket Network offers a decentralized infrastructure for an entire ecosystem – and compensates its node runners for their work. At the current state of the relays, the projected annualized revenues of the network are in the hundreds of millions.
Another core piece of the infrastructure for Web3 is Biconomy . The Biconomy team is building a transaction infrastructure for the decentralized web. Its platform abstracts the complexity of crypto transactions for both developers and users. Biconomy has developed a range of products aimed at developers building applications on the Web3. As protocols continue to mass produce on-chain services, developers need tools to streamline their operations and integrations to allow for mass scaling.
At the application level, I believe that we have only just begun to scratch the surface of interoperable value systems in the broader Web3 space. Through decentralized financing, we will one day value, rate and monetize every single form of capital that can be linked to us in the chain. Our favorite works of art will pay off our mortgage on credit logs, and our "likes" will become financial assets. Simply put, decentralized funding will fuel the great monetization of everything. Protocols like the Vega Protocol aim to enable decentralized derivatives on a large scale through fair and efficient markets.
Another trillion dollar opportunity in DeFi relates to a massive elephant in space – as markets need stability to remain competitive and efficient, DeFi has largely sacrificed decentralization for stability and has become the primary underlying of the USD lying security ruled for a large part of the market. Protocols like Float offer an alternative by creating a low volatility asset that can be left completely decentralized. Without really decentralized security in DeFi, Web3 is at risk.
Can you share some of your main concerns? What pitfalls could prevent Web3 from realizing its potential?
First of all, it must be clear that decentralization must be the basis for all real innovations in the so-called Web3. It is the common thread between every really 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 are made possible by an underlying property . Future developments in crypto networks will continue to use decentralization as a central pioneer and build additional benefits on it.
Without decentralization, the disruption will be stifled. Because of this, I believe that as we go deeper into Web3, the greatest risk for us is to go back to the old state. We make simple compromises that take us away from the core premise of Web3 – maximum decentralization, often at the expense of performance or scalability.
Which use cases and monetizable possibilities will induce large websites to switch to web3? Will the prospect of increased regulation of the Internet be a factor?
Regulation of the Internet is at an extreme, but the more likely case is that, as Web3 continues to grow, it will devour enough value that large websites will find it necessary to move to Web3. Web3 is like an economy, and most gamers will want to participate in it.
What are some of the big leaps you can expect over the next decade? Which aspects of Web3 are overrated?
A big leap that we will make as a society is to accept real property. 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 subject of exaggerated aspects of Web3: I believe that the radical openness and permissionless access via Web3 open the door to much experimentation and speculation. Because of this, most of the hyped areas of web3 are actually at the bottom of the most valuable markets in that area. For example, it is excruciating to look at anything but the 15-20 major NFT projects and their communities. In the long term, excessive segments of the market will continue to be a signal for where many innovations and broader focuses are currently in motion.
How competitive is the Web3 investment market today? What has to be done to increase interest?
The Web3 investment market has never been so competitive. Investors stand behind development teams with an idea and a bank account. I believe that while the capital continues to flow freely into space, the fundamentals will remain the same, but the stakes (both on risk and up) have never been higher. The potential value in strong decentralized use cases is almost unimaginable, and teams are scouring the world for talent. Eventually, to arouse even more interest, funds must balance talent and human capital, which at present seems extremely difficult to find.
What advice would you give to Web3 founders trying to get their first check?
Web3 needs new leaders and will organically name them as this ecosystem develops. Today, Web3 founders take on the role of communicators and community builders. In a world where development is open source and contributions are largely permissionless (more common in applications based on Ethereum), getting an entire ecosystem to work on your cause becomes an extremely unique challenge.
The core drivers for Web3 are value based and financially driven – therefore iteration on Web3 will be a cultural and capitalist mission. It is stimulated by numbers, algorithms and code, and it is also charged by the brand, community and people. Web3 founders should internalize this and use this intimacy between developer and community to their advantage. Founders who clearly communicate the values and core tasks of their project from the start will make it possible to form communities around this common goal and bring the project into existence – and disseminate it en masse.
Without market information, are you at a disadvantage when pitching?
Without a certain degree 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 investment practice, we see the stark difference between founders who are web3-native and those who have not yet dared to take the plunge. It is now clear that in order to develop a successful product in web3, teams need a certain degree of naivety in order to correctly identify market gaps, wishes and needs of its user base and much more.
Do you know skeptical investors? What do you think they are missing?
I have never met a skeptical investor who really understood what was going on. By the time you get it, you are likely buckled up and ready to go. At this point, web3 has turned out to be more than a phenomenon – it's the fundamental layer of the metaverse. Skeptical investors are likely to miss the real meaning of Meta's latest play, Zuck's rather amusing conversation with Gary Vee about NFTs and the general direction of digital life.
Atul Ajoy, Partner, Horseshoe Capital
Please tell 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 actors who capture much of the monetary value created on the Internet. Web3 replaces these centralized actors with decentralized networks that distribute the value to developers, creators and users. This enables these network participants to develop new incentive mechanisms in the chain for organizations such as DAOs.
What made you decide to go into space? Cartoon monkeys and blockchain games have not yet had broad consumer appeal: where do you see the demand for web3 products today?
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