Feb 18, 2022
Venture Capital Firms are still going strong on Web 3.0
Even though Cryptocurrencies are not in the best form recently- globally, sell-off mode is on, and in India, the sentiments are hurt because of the high tax levied. Yet, venture capital firms have faith in the long-term performances, which are a crucial part of Web 3.0.
In the last couple of years, the next generation of Internet-Web 3.0- has been attracting Venture Capital (VC) funds and startup investors worldwide. Investors see immense opportunities in emerging technology Web 3.0 (Blockchain, Non-fungible tokens-NFTs, virtual reality or metaverse, etc.). The pandemic has allowed Internet-driven startups to grow exponentially across sectors. Recently, Blockchain and gaming (metaverse) have emerged as top gainers in startup funding. The attraction is well reflected in a California-based investment firm Andreessen Horowitz's (A16Z) announcement of two new funds for Web3.0 startups.
What is Web 3.0?
Web 3.0 is the next generation or stage in the development of the web and the internet, and it has the potential to be just as revolutionary and paradigm-shifting. The fundamental ideas of decentralization, openness, and increased consumer usefulness form the foundation of Web 3.0. Through decentralization, nothing on the internet requires permission from a centralized authority; there is no single point of failure, no 'kill switch,' and no central controlling node. This also implies the freedom from indiscriminate censorship and surveillance. Web 3.0 also includes bottom-up planning. Instead of having a small group of professionals write and oversee code development, it will be done in plain view of everyone, encouraging maximum participation.
In addition to being open and decentralized, Web 3.0 will allow users to connect directly without going via intermediary authorities. As a result, Web 3.0 applications—also known as dApps—will operate on blockchains, decentralized peer-to-peer networks, or a hybrid of the two. Using technologies based on semantic web principles and natural language processing, Web 3.0 will enable computers to comprehend information similarly to humans. Web 3.0 will also use machine learning, a subset of artificial intelligence (AI) that mimics human understanding using data and algorithms, gradually improving its accuracy. Instead of just targeted advertising, which makes up most of the current efforts, these capabilities will enable computers to deliver faster and more relevant outcomes in various fields like medical development and new materials.
Another critical component of Web 3.0 is gaming. The ownership of in-game materials and experiences, along with all the behaviors in Web 3.0 games or gaming ecosystems, are all outside the purview of any centralized authorities. In the decentralized Web 3.0 gaming ecosystem, users fully own their assets and experiences. One of the main benefits of Web 3.0 gaming is the incorporation of Blockchain into the gaming industry. Players can share their thoughts on the game's future thanks to the benefit of decentralization in the best Web 3.0 games. Web 3.0 games also provide the novel advantage of play-to-earn games instead of the pay-to-play model in conventional games. Web 3.0 games that allow play-to-earn functions often have elements like asset trade or tradable game tokens as standout features.
According to Bloomberg, the idea behind Web 3.0 "would embed financial assets, in the form of tokens, into the inner workings of practically anything you do online." In a policy study published by the University of Cambridge's Bennett Institute for Public Policy, Web 3.0 was defined as "the putative next generation of the web's technological, legal, and payments infrastructure—including blockchain, smart contracts, and cryptocurrencies."
Startups Funding and Venture Capital
Venture Capital India is a sort of private equity and financing provided by investors to startup enterprises and small businesses with the potential for long-term growth. It is in the form of money, management, and technical know-how. Wealthy individuals, investment banks, and other financial organizations often provide most venture capital market. Startups with exceptional growth potential or new businesses with fast growth appear to be in a solid position to continue growing in the future and get venture financing. A company seeking is venture capital should start by submitting a business plan to either a venture capital firm or an angel investor. If the company or investor is interested in the idea, they must subsequently do due diligence, which entails carefully examining its operating history, management, and business plan. This background investigation is crucial since venture capital invests more cash in fewer businesses.
Following the completion of due diligence, the business or the investor will promise to invest money in exchange for shares in the company. The capital may be given all at once, but funding rounds are more common. The corporation or investor then actively participates in the funded company, providing advice and observing its development before disbursing new funds. After some time has passed, usually four to six years after the initial investment, the investor quits the business by starting a merger, acquisition, or initial public offering (IPO).
Divergence of VC Firms towards Web 3.0
2021 marked a turning point for Web 3.0 as it developed from a fledgling community to developing industry. The Web 3.0 ecosystem has received much talent and funding over the past year. A tremendous amount of innovation in the underlying decentralized technological stack has resulted from this, as well as consumer-facing applications that are upending the worlds of finance, money, and even the internet. In common parlance, 'Web 3.0 is referred to as an advanced stage of the internet which t is created, used, and owned by its users. It aspires to displace centralized intermediaries by utilizing tokens and decentralized technology.
Due to various global macroeconomic factors restricting cash flow to traditional companies, venture capital funds and top investors have now moved their focus to emerge technologies like Blockchain and gaming (Metaverse), where they see enormous potential. They have chosen to park their money elsewhere after realizing the exponential expansion across various spectrums, including e-grocery, health tech, food delivery, and online home services. The California-based investment company Andreessen Horowitz (A16Z) leads the group, which recently unveiled two new funds: a sizable $4.5 billion fund for Blockchain startups and Web 3.0 companies and a $600 million fund dubbed "Games Fund One" that is only targeted at the gaming sector.
A $100 million startup fund has been established by a group of former executives from Binance, one of the biggest cryptocurrency exchanges. As smartphone usage increases, internet plans become more affordable, high-intensity gaming devices, and larger screens enter the market, Indian businesses in the gaming sector have also realized enormous prospects.
Gaming, Metaverse investments in India
More than 430 million mobile gamers reside in India today, and by 2025, that figure is expected to rise to 650 million. According to the Internet and Mobile Association of India's most recent estimate, mobile gaming currently leads the industry, accounting for more than 90% of the nation's $1.6 billion gaming market (IAMAI).
Over 28 deals worth $890 million were recorded in companies startup belonging to the Web3 sector in 2022 (January - April) compared to 28 sales worth $500million in 2021. Although funding may slow down in the next six months or so yet, the faith of venture capital firms lies in long-term investments in the sector.
According to a survey by investment banking platform Maple Capital Advisors, gaming businesses in India received $1.6 billion in the first nine months of 2021. Two significant fantasy sports and platform gaming companies—Dream Sports and the Mobile Premier League—received about 90% of the financing (MPL). Other gaming startups like PlayShifu, Zupee, and Winzo also received millions of dollars from renowned venture capital firms. The developer of PUBG Mobile Krafton made a $22.4 million investment in the domestic esports organization Godwin Gaming.
Sandbox, a firm focused on the metaverse and NFT, recently raised roughly $93 million in a round headed by SoftBank Vision Fund 2, the Japanese investment juggernaut's first foray into the cryptocurrency market. Sfermion, a different NFT-focused business, obtained $100 million from Winklevoss twins Cameron and Tyler Winklevoss and two general partners from A16Z. Indian blockchain-based firms also aim to become globally recognized. The Indian government and the Reserve Bank of India (RBI) plan to introduce a blockchain-based digital currency, which reflects India's growing crypto tech sector, which will only make for a healthy and more regulated competition.