Web3 Future: Insights from 7 Investors

The Current State and Future of Web3

The vast majority of individuals interact with the internet primarily through the framework of Web 2.0. This encompasses online applications, social media platforms, and software delivered as a service, all of which are integral to modern life.

Despite rapid advancements in other technological fields, the fundamental infrastructure of the web has remained relatively static since the beginning of the 21st century.

Recently, Web3 has been widely promoted as the next evolution of the internet. However, the broad scope of this term often leads to unfocused discussions.

Market Adoption and Investment Trends

Widespread adoption of Web3 is still several years away. Concerns exist regarding its inherent complexity potentially discouraging both consumers and regulatory bodies.

Our investigations reveal a progressively more competitive investment environment. Venture capitalists are becoming increasingly knowledgeable and less hesitant to invest in this emerging technology.

To gain a more precise understanding of the current market situation, we consulted with a number of active investors to assess the present status of Web3 and its anticipated future.

• 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, principal, DFJ Growth
• Mercedes Bent, partner, Lightspeed Venture Partners
• Jai Das, co-founder, president and partner, Sapphire Ventures

Investor Perspectives on Web3

We sought to clarify the core concepts of Web3 by requesting each participant to provide a concise explanation, akin to an elevator pitch. This was designed to articulate how they would persuade a skeptical individual to consider investment.

Beginning with the consumer-facing appeal of digital collectibles, we aimed to identify the specific factors that drew them to invest in the semantic web and the areas where current demand is strongest.

“My initial involvement with web3 stemmed from an interest in verifiable credentials and data provenance within the enterprise sector,” explained Atul Ajoy, partner at Horseshoe Capital. Other investors indicated their initial exploration of the space was sparked by an interest in cryptocurrency.

Respondents discussed potential applications spanning advertising, financial technology (fintech), and enterprise-level applications.

They also shared guidance for Web3 founders seeking funding, alongside their concerns about potential obstacles to its continued development.

Finally, we posed a direct question to each investor: What crucial aspects are skeptical investors overlooking?

“I’ve rarely encountered a truly skeptical investor who possessed a genuine understanding of the underlying technology. If they truly grasp it, they are likely already committed,” stated Lior Messika, founder and managing partner at Eden Block.

“At this juncture, web3 has demonstrated its viability beyond a mere trend—it represents the fundamental infrastructure supporting the metaverse.”

Lior Messika, Founder and Managing Partner, Eden Block

Could you provide a concise Web3 explanation – its essence and its function within the current internet landscape?

In essence, Web3 is the foundation for a truly immersive metaverse. It’s poised to become the infrastructure for our financial systems, social connections, digital identities, and a multitude of other aspects of future life.

Expanding on this: I envision Web3 as a collection of decentralized infrastructures capable of powering a completely new digital world. Its defining characteristics are composability and decentralization. Crypto networks are accumulating value and fostering environments where all on-chain assets interconnect and interact. Web3 uniquely transforms intangible value systems into tangible, marketable assets. It unlocks the potential to assign value to our social connections, reputations, and past interactions, often reflected in markets driven by decentralized protocols.

Web3 will serve as the platform where decentralized systems can interact, leveraging the security and value – and therefore network effects – of a larger ecosystem. It will be complex and diverse, built upon entirely new infrastructure. Applications will require reliable data transmission, complete data privacy, and high availability – all operating on decentralized networks. The relatively short history of Web3 has already demonstrated the risks associated with centralized infrastructure.

What prompted your entry into this space? Given the limited mainstream appeal of cartoon NFTs and blockchain games, where do you currently observe demand for Web3 products?

Web3 represents a significant cultural and societal evolution, driven by innovation and strong principles. I became deeply involved when I realized we are experiencing a technology-enabled cultural revolution – not the other way around. Crypto and Web3 offer a technological solution to a long-standing societal problem, and it’s natural to approach this movement with respect and enthusiasm.

Regarding products, we’re seeing the most impactful Web3 offerings focus on ownership, creation, and features that define our digital identities. Interestingly, crypto products are already influencing our culture and capturing our attention. Within the metaverse, your profile picture isn’t merely an avatar; it’s a gateway to another realm. This inherent individualism explains the NFT market’s growth, which will remain a significant component of Web3 and the metaverse. The underlying technology of NFTs will unlock disruptive value across gaming, fashion, social media, and creator economies.

Furthermore, coordinating large, decentralized groups (DAOs) requires efficient frameworks and transparent value systems. As communities expand and reach multibillion-dollar valuations, decentralized governance becomes increasingly challenging. Tools like Colony and Coordinape will empower the next generation of DAOs through specialized tooling and automated governance and incentive mechanisms.

What applications can we anticipate in the near future? Where are you focusing your investments, and which companies should we monitor?

Within Web3, we foresee substantial growth across two key layers – infrastructure and applications. Unlike TCP/IP, a foundational internet infrastructure that lacks monetization potential, decentralized protocols and built-in incentives make operating decentralized infrastructure highly profitable. The Pocket Network exemplifies this, processing billions of relays weekly and generously compensating its node operators. Currently, the network’s projected annual revenue is in the hundreds of millions.

Another crucial infrastructure component is Biconomy. The Biconomy team is developing infrastructure for transactions within the decentralized web. Their platform simplifies crypto transactions for both developers and users. Biconomy provides a suite of products designed for developers building Web3 applications – as protocols scale and become major providers of on-chain services, developers need tools to streamline operations and integrations for mass adoption.

On the application layer, I believe we’ve only begun to explore the possibilities of interoperable value systems within Web3. Decentralized finance will eventually allow us to price, value, and monetize every form of capital linked to us on-chain. Our prized artwork could secure our mortgage through lending protocols, and our social media engagement could become financial assets. Essentially, decentralized finance will initiate the monetization of everything. Protocols like Vega Protocol aim to enable decentralized derivatives at scale through fair and efficient markets.

A significant opportunity within DeFi addresses a major issue – the reliance on the USD as collateral for a large portion of the market, sacrificing decentralization for stability. Protocols like Float offer an alternative, creating a low-volatility asset that remains fully decentralized. Without a truly decentralized collateral in DeFi, Web3 faces significant risks.

Could you outline your primary concerns? What potential obstacles could hinder Web3 from achieving its full potential?

It’s essential to recognize that decentralization must be the foundation for genuine innovation in Web3. It’s the common element connecting all truly disruptive applications in the current cryptosphere: Uniswap and its derivatives, money markets like Compound, Cryptopunks and Bored Apes, and storage solutions like Filecoin and IPFS – all enabled by decentralization. Future developments will continue to leverage decentralization as a core enabler, building additional utility around it.

Without decentralization, disruption is suppressed. Therefore, I believe the greatest risk is reverting to previous centralized models. Making compromises that move us away from the core principle of Web3 – maximal decentralization, even at the cost of performance or scalability – is a significant danger.

What use cases and monetization opportunities will incentivize major websites to transition to Web3? Will increasing internet regulation play a role?

While increased internet regulation is a possibility, the more likely scenario is that Web3 will generate enough value to make transitioning necessary for major websites. Web3 is essentially an economy, and most players will want to participate.

Looking ahead over the next decade, what major advancements do you foresee? Which aspects of Web3 are currently overhyped?

A major societal shift will be the embrace of true ownership. Financial freedom is intrinsically linked to financial responsibility, and Web3 provides the most direct interface for both.

Regarding overhyped areas, the open and permissionless nature of Web3 encourages experimentation and speculation. Consequently, the most overhyped segments are often found at the lower end of the most valuable markets. For example, focusing on anything beyond the top 15-20 NFT projects and their communities is often unproductive. Overhyped segments will continue to signal areas of innovation and broader focus.

How competitive is the Web3 investment landscape today? What steps are needed to attract more interest?

The Web3 investment market is incredibly competitive. Investors are actively supporting developer teams with promising ideas and funding. While capital continues to flow into the space, the fundamentals remain crucial, and the stakes – both in risk and potential reward – are higher than ever. The potential value of strong decentralized use cases is immense, and teams are actively seeking talent. To further stimulate interest, funding must align with talent and human capital, which is currently challenging to find.

What guidance would you offer Web3 founders seeking their initial funding?

Web3 requires new leadership, which will emerge organically as the ecosystem evolves. Today’s Web3 founders must be effective communicators and community builders. In a world where development is often open-source and contributions are permissionless, rallying an entire ecosystem to your cause is a unique challenge.

Web3 is driven by both values and financial incentives. Therefore, iterating on Web3 is a cultural and capitalistic endeavor. It will be guided by data, algorithms, and code, but also by brand, community, and people. Founders should understand this dynamic and leverage the close relationship between developers and their community to their advantage. Founders who clearly articulate their project’s values and core mission from the outset will foster community formation and drive the project towards success and widespread adoption.

Without market intelligence, are founders at a disadvantage when seeking investment?

Founders lacking market intelligence are significantly disadvantaged. Web3 evolves so rapidly that even a short period of inactivity can create critical knowledge gaps. We consistently observe a clear difference between Web3-native founders and those new to the space. Building a successful Web3 product requires a certain level of understanding to identify market gaps, user needs, and more.

Are there any skeptical investors you know? What do you believe they are overlooking?

I haven’t encountered a skeptical investor who truly understands the landscape. If they understood it, they’d likely be fully invested. At this point, Web3 has proven itself to be more than a trend – it’s the foundational layer of the metaverse. Skeptical investors are likely missing the significance of Meta’s recent initiatives, Zuck’s discussions with Gary Vee about NFTs, and the overall direction of digital life.

Atul Ajoy, Partner at Horseshoe Capital

Could you provide a concise explanation of Web3 and its significance within the current internet landscape?

Web3 represents a novel, decentralized iteration of the internet, empowering users with ownership. The present internet, known as Web 2.0, is predominantly governed by centralized entities that accrue a substantial portion of the value generated online. Web3 aims to replace these centralized authorities with distributed networks, redistributing value among developers, content creators, and users. This facilitates the creation of innovative incentive structures within on-chain organizations, such as DAOs.

What initially motivated your involvement in this space? Despite limited mainstream appeal of blockchain games and digital collectibles, where do you observe current demand for Web3 solutions?

While I acknowledge the perception regarding digital collectibles and blockchain gaming, I would contend they do possess consumer appeal. My initial foray into Web3 stemmed from exploring verifiable credentials and data provenance within the enterprise sector. I spearheaded a venture that utilized blockchain’s immutability to establish a traceable link between data and specific individuals or businesses over time.

What applications are poised to enter the market in the coming years? Where are your investment priorities, and which companies are worth monitoring?

We anticipate a surge in enterprise applications leveraging Web3 technology, even without a primary focus on blockchain. Furthermore, we foresee the growth of community-driven ecosystems built on Web3 foundations, alongside platforms facilitating institutional and individual participation in DeFi. Consequently, our investments are concentrated across these three core areas: fintech, enterprise Web3 applications, and novel community models.

Concerns and Potential Pitfalls

What are your primary concerns regarding Web3’s development? What obstacles could hinder its full potential?

A significant concern is the complexity of the current Web3 user experience for those without a technical background. The process of setting up a wallet, acquiring cryptocurrencies, and connecting to a decentralized application can be challenging and costly, particularly given Ethereum’s gas fees. A clear market opportunity exists in simplifying Web3 for broader adoption. Ethereum Name Service (ENS) exemplifies this – using human-readable names for transactions offers a smoother experience than managing wallet addresses, and is an area Horseshoe is actively exploring.

How can Web3 incentivize established websites to transition? Will increasing internet regulation play a role?

Many websites will adopt Web3 to implement monetization strategies that prioritize engagement with loyal communities, rather than relying on data sales for advertising revenue. This approach promises improved user experiences while simultaneously generating value for creators. I believe increased privacy regulations will further accelerate this shift, as community-based monetization avoids extensive data collection and potential regulatory scrutiny.

Future Outlook and Overhyped Aspects

Looking ahead over the next decade, what major advancements do you foresee? Which aspects of Web3 are currently receiving excessive attention?

Web3 will become significantly more accessible to the average user in the coming years. Onboarding the next billion users is paramount to scaling the ecosystem and enhancing its value. We also anticipate advancements in DAO functionality, making them more attractive to professionals accustomed to Web 2.0 work environments. While DAOs offer benefits like flexibility, they are currently overhyped due to challenges in decision-making and incentive alignment. The concept of “liquidity liability,” as described by Ric Burton – the difference between token liquidity and startup equity – will be addressed through future organizational improvements.

How competitive is the Web3 investment landscape currently? What steps are needed to stimulate further interest?

The Web3 investment market is exceptionally competitive. The pace of development within Web3 surpasses even the fast-moving seed VC sector. Many projects successfully generate interest by incorporating their user base into the fundraising process through token-based models and DAOs.

What guidance would you offer to Web3 founders seeking initial funding? Are they disadvantaged without extensive market intelligence?

Web3 founders seeking initial investment should prioritize substance over sensationalism. The cryptocurrency market has historically focused on price appreciation, but investors are now evaluating Web3 projects similarly to traditional startups. Team quality, product viability, and scalability are key, not mere hype. I don’t believe Web3 founders are at a disadvantage due to a lack of market intelligence; innovation often arises from ambitious teams tackling specific problems, and investors seek to support such endeavors.

Are there any skeptical investors you know? What perspectives might they be overlooking?

Numerous skeptical investors appear confident in their assessment that they aren’t missing a significant paradigm shift. Similar to investors who avoided emerging markets in the past, those who fail to adapt to a Web3-powered world risk missing out on the next decade of innovation and potential returns.

The Future of Advertising

How do you envision advertising evolving within the Web3 ecosystem?

Advertising will undergo a substantial transformation in Web3 due to the restoration of data control to the user. Web 2.0 platforms like Facebook leverage user data to optimize ad targeting. In Web3, users control their data, enabling them to monetize it for personalized advertising. This will also foster new revenue models for industries like journalism, where users directly support quality content instead of relying on ad views. Furthermore, it will encourage the development of decentralized social media and independent news distribution channels.

David Chreng-Messembourg, Founding Partner, LeadBlock Partners

Could you provide a concise web3 explanation? What function does it serve within the current internet landscape?

The internet has evolved significantly since the 1990s, progressing from a “read-only” model to Web 2.0’s “read, write” capabilities, and now trending towards web3, characterized by “read, write, own.” This framing of web3, emphasizing ownership facilitated by blockchain technology, is particularly insightful. While I didn’t originate this analogy, I always favor utilizing effective existing concepts rather than reinventing them.

The internet’s inception in the 90s marked a pivotal digital revolution, initially enabling a limited number of users to share content online due to the specialized skills required. Most remained in a “read” capacity. A decade later, the internet boom saw the rise of centralized applications, allowing broader communication and data sharing. Building websites and sharing content became simpler, shifting us to a “read, write” paradigm. However, this led to the dominance of a few tech giants – the GAFA (Google, Apple, Facebook, Amazon) – who gained control over crucial decisions and, importantly, our data.

With increasing accessibility and affordability of computing power, blockchain technology emerged in the early 2010s with the Bitcoin protocol. We are still in the nascent stages of web3, a decentralized infrastructure designed to return ownership to users and the community.

I believe web3 will foster novel business and incentive structures, rewarding community members and users for their contributions to infrastructure development and upkeep. A growing trend sees individuals and organizations choosing independence or launching their own ventures instead of joining large corporations. Web3 lowers barriers to entry, allowing anyone with internet access to establish a digital business. As data becomes the defining resource of this century, owning and controlling that data will become increasingly vital for both individuals and entities – a direction web3 is driving us towards.

What prompted your involvement in this space? Do cartoon avatars and blockchain games truly resonate with mainstream consumers? Where is the current demand for web3 products concentrated?

My initial exposure to Bitcoin occurred a decade ago during biophysics research, where I utilized quantum mechanics and supercomputers to model DNA structures. This sparked my interest in the potential risks associated with Proof-of-Work (PoW) blockchains. I acquired my first cryptocurrency, Ethereum, a few years later, drawn to the potential of smart contracts. Now, as a founding partner at LeadBlock Partners, a VC fund specializing in B2B blockchain and digital assets, I’ve been immersed in this field for 11 years.

The transition from initial interest to a full-time role as a blockchain/digital assets investor was motivated by the opportunity to support founders and a technology that promises increased accessibility. I believe the core premise of web3 is already delivering on this front – accessibility to finance. Demand spans diverse sectors, including food/agriculture, gaming, and music. In a digital economy saturated with data, owning and controlling that data will become standard practice. Data is poised to become tomorrow’s digital oil, and its ownership will confer a significant advantage.

In what areas are you investing, and which companies should we be watching?

LeadBlock Partners focuses on segments of the web3 ecosystem crucial for institutional adoption of digital assets, including white-label solutions, custodians, credit, staking, compliance, and data analytics tools. For example, we invested in Bitpanda upon the launch of their institutional white-label offering, with their first partnership with Lydia in France, granting access to crypto, stocks, and commodities to their 5 million+ customers. We also invested in Tesseract, a regulated “credit as a service” provider, offering yield-generating investment products via a white-labeling API. Spring Labs is another notable company, having created a data-exchange infrastructure for secure and anonymous information sharing. Their Ky0x solution brings off-chain data on-chain, providing compliance tools for institutions entering DeFi.

How competitive is the web3 investment landscape currently? What steps are needed to stimulate further interest?

The web3 investment market is becoming increasingly competitive, particularly in token and equity investing. Growth-stage investments, especially in areas like custody services, exchanges, and gaming, have seen substantial funding rounds over the past year. Interest is already growing, but the key is converting that interest into investment. This requires time and conviction.

Currently, early-stage web3 investments are primarily led by specialist blockchain/digital assets funds like ours. More generalist VC funds need to dedicate time to understanding the ecosystem, its dynamics, and its potential, which will ultimately lead to informed investment decisions. The fintech sector followed a similar trajectory in the 2010s, initially dominated by specialist funds, then gradually attracting generalist funds at more mature stages and eventually at early stages. I anticipate a similar pattern in the web3 investment market as blockchain and digital assets gain mainstream acceptance.

What guidance would you offer web3 founders seeking initial funding? Are they disadvantaged without comprehensive market intelligence when pitching?

My advice to web3 founders seeking their first check is twofold: (1) thoroughly understand your target market segment, including both incumbents and challengers, to effectively differentiate yourselves, and (2) prioritize product development and execution. We are currently in an economic environment with ample liquidity, fueled by fiscal and monetary stimulus. Capital isn’t the primary constraint or differentiator; time to market and execution are. This hinges on the quality of the team.

Are there any skeptical investors you know? What do you believe they are overlooking?

Yes, many investors remain skeptical, but generally, they are more curious now than a year ago. Innovation requires time and conviction. I believe the primary thing they are missing is time. Everyone is busy and inundated with investment opportunities. When facing an emerging technology, you have two choices: (1) proactively dedicate time to understand it, its applications, and potential, or (2) wait until it becomes substantial enough to warrant attention. For the skeptical investors I know, we are at a critical juncture – a phase where they still harbor doubts but can’t ignore emerging success stories and are beginning to seriously evaluate the space.

Randy Glein, founder/partner, and Sam Shapiro, principal, DFJ Growth

Please provide a concise web3 explanation: What is it, and how does it fit into the current internet landscape?

Web3 represents the next evolution of the internet, an open and decentralized system built upon blockchain technology. This architecture fosters composability – the ability for applications to seamlessly integrate and build upon one another, extending the principles of the modern API economy. Blockchain ledgers ensure secure ownership tracking and verification, shifting value and control to developers and users, unlike the centralized models prevalent for over two decades.

What prompted your involvement in this sector? Considering the limited mainstream appeal of NFTs and blockchain games, where are you observing current demand for web3 solutions?

Our firm has been actively involved in blockchain and cryptocurrency innovation since 2014, highlighted by our Series C investment in Coinbase. This followed extensive research into the foundational technologies, solidifying our belief in blockchain’s potential to revolutionize asset ownership and value exchange. We anticipated consumer-driven adoption, with institutional investors following suit, a strategy that guided our investment in Coinbase.

Currently, demand is surging for diverse digital assets, encompassing token trading, payments, and innovative forms of digital art like NFTs. This signifies a broader trend toward modernizing asset management with transparency and digital security. Furthermore, the transition from Web 2.0 to web3 is driving demand for specialized blockchains catering to areas like Decentralized Finance (DeFi) and Non-Fungible Tokens (NFTs).

What applications are likely to emerge soon? Where are your investment priorities, and which companies should we monitor?

Our initial focus centered on the foundational technology layer, empowering developers with streamlined tools and infrastructure. This led to our early investment in Alchemy, a company providing essential developer tools and chain computing infrastructure – effectively the operating system for web3. Subsequently, we’ve concentrated on web3 scaling solutions, including Layer 1 blockchains such as Solana, Avalanche, and Polkadot, alongside Layer 2 Ethereum scaling solutions like StarkWare and Optimism.

We are also closely observing the tools facilitating consumer access to blockchain applications, including innovative wallets and the marketplaces driving NFT growth.

What are your primary concerns? What obstacles could hinder web3 from achieving its full potential?

We currently view web3 as being in its early stages of development, akin to the internet’s dial-up era. Just as the internet required 15 years to evolve from basic connectivity to streaming video, web3 will necessitate time and innovation to achieve widespread utility. Numerous risks and challenges accompany the transition from centralized to decentralized systems.

Despite our strong belief in web3’s future, current investor enthusiasm carries inherent risks, with numerous projects receiving funding beyond reasonable levels. Similar to the dot-com bubble, a market correction and company failures could dampen public interest and impede progress.

Government regulation will significantly impact the success of web3 businesses. While rapid iteration has been a key advantage, restrictive regulations could drive innovation to more permissive jurisdictions.

How can web3 incentivize major websites to adopt it? Will increasing internet regulation play a role?

Web3 holds immense potential for the creator economy, offering creators greater control over their interactions with fans and providing fans with expanded support options. This will fundamentally reshape the business models of media, entertainment, art, and content creation.

Blockchain-based tokens enable micropayments and fractional ownership, allowing creators to monetize their contributions effectively. This “tokenization” of commerce and community is disrupting traditional network creation and infrastructure development. The ability to incentivize collective action through tokens represents a core innovation of web3.

As previously mentioned, increased regulation poses a threat to blockchain and crypto innovation. However, thoughtful regulation can also foster growth and protect users.

Looking ahead over the next decade, what major advancements do you foresee? Which aspects of web3 are currently overhyped?

Over the next ten years, we anticipate web3 will transcend simple imitations of the existing internet, giving rise to entirely new product categories. The early internet initially replicated physical-world experiences online, but eventually spawned unique digital offerings. A similar evolution will occur in web3.

Currently, many use cases center around NFTs mirroring collectible art, but the future will unlock entirely new products and business models. Decentralized Autonomous Organizations (DAOs) exemplify this potential, offering a novel governance structure based on open code and token ownership, enabling community-driven organization and decision-making.

How competitive is the web3 investment landscape currently? What steps are needed to broaden interest?

The web3 investment market is attracting significant attention, with established venture funds launching dedicated blockchain and web3 funds, and crypto-native firms emerging. Blockchain projects can also raise capital through token sales, offering a new funding avenue.

However, regulatory uncertainty surrounding token classification as securities remains a concern. Clarification is needed to attract greater participation from institutional investors with long-term investment horizons.

What guidance would you offer web3 founders seeking initial funding? Is market intelligence crucial for successful pitches?

Founders currently benefit from a favorable venture capital environment. Blockchain, crypto, DeFi, and web3 are attracting substantial investment due to the enthusiasm surrounding these opportunities. While referrals remain valuable, many companies can demonstrate early product adoption and utility to secure funding before raising institutional capital.

The ability to launch tokens and monetize them provides an alternative funding pathway.

Are there any skeptical investors, and what might they be overlooking?

Skepticism is common, given blockchain’s nascent stage and association with cryptocurrency market volatility. However, skeptics often fail to recognize the fundamental innovation blockchain provides – an open, verifiable platform driving web3 and potentially revolutionizing finance and digital asset management.

How do you envision advertising evolving in the web3 ecosystem?

Web 2.0’s dominant business models – advertising, transactions, and subscriptions – are being challenged by blockchain and web3. This will unlock new models, potentially reducing the reliance on intrusive advertising that currently funds much of the internet. Web3 advertising has the potential to be more integrated and user-centric.

Is there anything further you’d like to share, particularly regarding Alchemy?

We believe blockchain technology is enabling a new paradigm poised to power the future of the internet, finance, and digital asset management. We are committed to actively participating in this revolution.

We foresee a multichain future, with specialized blockchains catering to diverse applications. Alchemy is facilitating this future by providing developers with the tools and infrastructure needed to build applications across multiple blockchains. By enabling developer activity across various chains, Alchemy is rapidly becoming the operating system for the multichain future we envision, already powering over $45 billion in web3 transactions for tens of millions of users.

Mercedes Bent, Partner at Lightspeed Venture Partners

What initially drew you to this field? Considering that cartoon apes and blockchain-based games haven't yet achieved widespread consumer acceptance, where do you currently observe demand for web3 products?

I was initially captivated by the enthusiasm and practical applications emerging in sectors such as educational technology and consumer entertainment. The decentralized, community-driven, and reward-based systems constructed on blockchain technology possess a significant potential impact extending beyond mere digital collectibles. I recently published an article detailing the innovations I'm witnessing within the web3 learning environment and my belief that every startup will require a blockchain strategy within the coming years. Its influence is comparable to that of the internet itself.

What types of applications are likely to become available in the near term? In which areas are you concentrating your investments, and could you highlight a few companies worth monitoring?

My investment focus lies in crypto-supported solutions that demonstrate a strong synergy with Web 2.0 and appeal to a broad audience, regardless of the underlying technical complexities, but are improved through blockchain integration. This has led to my interest in companies like Fan Controlled Football, which merges gaming and sports to establish a league where fans actively participate in play-calling, player selection, and jersey design. Notably, two teams within their league operate as token-gated entities. I have made an investment in this venture! Another area of interest is the intersection of web3 and entertainment, exemplified by Mad Realities, an interactive dating show where token holders can influence show design, cast selection, and more. I am also in discussions with numerous founders aiming to revolutionize higher education through Decentralized Autonomous Organizations (DAOs). However, I haven't yet made any investments in these latter two areas.

Could you outline some of your primary concerns? What are the potential obstacles that could hinder web3 from fulfilling its promise?

My top three concerns are concentrated wealth/inequality, a predominantly male culture, and a lack of consumer understanding/apprehension.

The tendency for wealth to concentrate is almost a fundamental principle; capital often generates more capital. This is particularly evident within the cryptocurrency space. Considering that many community experiences are token-gated and early information regarding NFT collection launches is often shared with crypto influencers and large holders who then promote the project. Furthermore, transaction fees can be substantial.

The majority of crypto projects exhibit a distinctly male composition and atmosphere. It is uncommon to encounter spaces where women are prominently represented. As a woman, the pervasive "bro culture" within the tech industry is exhausting and can, at times, create a sense of exclusion. This issue isn't merely present in web3/crypto; it is actively flourishing.

Currently, a significant challenge lies in educating consumers and demonstrating the value proposition to Web 2.0 users. The reaction to Discord's proposed crypto integration serves as a clear example. A considerable degree of misunderstanding persists, even within the community, regarding the distinctions between this technology and Web 2.0.

Jai Das, Co-founder, President & Partner, Sapphire Ventures

Could you provide a concise explanation of Web3 and its significance within the current internet landscape?

Web3 represents a novel approach to constructing applications that are both distributed and globally accessible. Following the evolution from client-server to cloud computing for desktop and web applications respectively, Web3 signifies the subsequent stage in application development, inherently designed for global scalability and distribution.

What prompted your involvement in this sector? Considering the limited mainstream appeal of areas like NFT collectibles and blockchain gaming, where is the current demand for Web3 solutions concentrated?

Sapphire Ventures consistently seeks out foundational advancements in enterprise software. We firmly believe Web3’s architecture will be rooted in blockchain technology, utilizing tokens for chain monetization. Consequently, our investments are focused on blockchain infrastructure and middleware, facilitating the creation of Web3 applications and the next generation of distributed web platforms.

What types of applications are anticipated to emerge in the coming years? In which areas are you concentrating your investments, and which companies are worth monitoring?

We have already invested in companies like Blockdaemon (staking infrastructure), Taxbit (crypto tax software), FalconX (prime brokerage), and Tesseract (crypto lending). Notable companies to watch include Vendia (blockchain-based middleware), ImmutableX (middleware for DeFi applications), Offchain (Arbitrium), Helium/Nova Labs (IoT and WiFi ISP), OpenSea (NFT Trading), POAP (presence protocol), Tatum.io, and Moralis – the latter two are effectively building a developer-focused AWS equivalent.

What are your primary concerns regarding Web3’s future? What potential obstacles could hinder its full realization?

A key concern revolves around the time regulatory bodies require to establish clear guidelines for companies operating within this space. This is particularly relevant for financial applications. Furthermore, auditing firms will need to develop standardized procedures for recognizing tokens under GAAP revenue accounting principles.

What use cases and revenue-generating opportunities will incentivize established websites to transition to Web3? Will increasing internet regulation play a role in this shift?

Many fintech websites will integrate cryptocurrency trading capabilities. Payments utilizing crypto tokens are also expected to become commonplace in the near future. Furthermore, numerous business networks, similar to those Vendia is targeting, will likely migrate to private blockchains relatively soon.

Looking ahead over the next decade, what significant advancements do you foresee? Which aspects of Web3 are currently receiving excessive hype?

A major limitation of current crypto networks is their slow transaction speeds and high costs. This has restricted the adoption of tokens for everyday purchases. Solutions to these challenges are expected to materialize shortly.

How competitive is the Web3 investment landscape currently? What steps are needed to stimulate further interest?

The investment climate is intensely competitive. The potential of Web3 has been recognized, and virtually every venture fund is actively investing in crypto and Web3 companies.

What guidance would you offer to Web3 founders seeking initial funding? Are they disadvantaged without comprehensive market intelligence during pitches?

The fundamentals of pitching a Web3 startup are no different than pitching any other venture. Founders must thoroughly research the firm and the specific partner they are presenting to, understanding their investment focus. A compelling vision, supported by factual data regarding market dynamics, customer acquisition, and financial performance, is crucial.

Are you aware of any investors who remain skeptical about Web3? What do you believe they are overlooking?

Indeed, many investors express skepticism. However, their reservations remind me of those who initially underestimated the transformative impact of the internet or mobile phones. Some of these same individuals predicted the failure of Amazon and Netflix, believing that established businesses like Borders and Blockbuster would prevail due to their physical retail presence.

How do you envision advertising evolving within the Web3 ecosystem?

Advertising in Web3 will be markedly different. Consumers will possess greater control over their data and the ability to selectively permit advertising. This contrasts sharply with the current landscape, where advertising is largely dominated by platforms like Facebook, Google, and Amazon.