Venture Capital Firms Are Investing Billions of Dollars in Web3 Startups Despite Bearish Crypto Market

Venture capital firms are launching multibillion-dollar funds and doubling down on Web3 startup investments amid a downturn in the crypto market.
Image source: Elena Mozhvilo on Unsplash

Quick take:

  • Last week, Andreessen Horowitz has announced a $4.5 billion crypto fund targeted at Web3 startups.
  • NFT blockchain, Flow, recently launched a $725 million Ecosystem Fund backed by Web 3 VC firms.
  • Binance Labs today announced a $500 million fund to invest in Web3 startups.

As the cryptocurrency market struggles to make a recovery, venture capital firms and crypto investment arms are betting big on Web3 startups with blockchain-focused fund announcements week after week.

In May, the largest crypto fund of $4.5 billion was announced by none other than leading Web3 VC firm, Andreessen Horowitz (a16z), just last week. The firm said that its fourth crypto fund will target Web3 startups at every stage. With this new fund, a16z’s crypto fund portfolio has grown to $7.6 billion. 

Explaining its decision to launch the fund, A16z said that it believes that the golden age of Web3 is around the corner, pointing to programmable blockchain advances and dApps with tens of millions of users. Additionally, the Web3 industry has been attracting top talent, with some making the jump from Web2 platforms. A16z’s $4.5 billion crypto fund came shortly after its $600 million gaming fund which plans to invest in blockchain games

“Games will play a pivotal role in defining how we socialise, play and work over the next century,” said Andreessen Horowitz.

Besides a16z, other VC firms that have launched blockchain-focused funds last month include NGC Ventures – which launched a $100 million fund to focus on early-stage investment opportunities in DeFi, blockchain-based gaming, NFTs, and the metaverse – as well as Sfermion, which is raising $100 million to invest in NFTs designed for blockchain games.

Besides VC firms, funds are also being launched by blockchain companies and cryptocurrency exchanges. For instance, NFT Blockchain, Flow, recently launched a $725 million Ecosystem Fund backed by Web3 VC firms, focusing on support for gaming, infrastructure, decentralised finance, content and creators across Flow’s ecosystem. Meanwhile, KuCoin Ventures has invested in blockchain game publisher Joyride as part of its newly launched $100 million Creators Fund.

It’s no surprise that many of these Web3 funds are looking to invest in blockchain games—the hottest Web3 sector at the moment. According to investment bank Drake Star Partners, Q1 2022 saw 128 blockchain game companies raise a total of $1.2 billion, a third of all game startup funding, with the largest rounds raised by Animoca Brands.

Image source: VentureBeat

DappRadar reported that VCs have poured over $2.5 billion into blockchain games and metaverse projects in Q1. According to a joint report by DappRadar and Blockchain Games Alliance, 52% of blockchain activity comes from blockchain game dApps. 

Over the last month, several Web3 and blockchain gaming startups have received funding from various VC firms. These include N3TWORK Studios, MetaKing Studios, Saga, Azra, FreshCut, Metatheory, Jadu, and Kryptomon, among others.

Evidently, VCs remain bullish on Web3 as they capitalise on the crypto market downturn for a chance at a higher return on investment when the market recovers. Soona Amhaz, general partner at Volt Capital, even said that this is the time to double down on investments as the VC firm seeks to invest in founders that are building products that crypto can disrupt. 

Echoing her sentiment, Roger Lim, NGC Ventures’ general partner said: “Despite the systematic market slowdown globally, we continue to see the emergence of high-potential projects that are set to shape the next era of Web3.”

Today, Web3 VC firm Fabric Ventures announced the final close of its $140 million fund alongside the first close of its $100 million new Growth Fund, while Binance Labs announced that it has raised $500 million with external backing for its debut venture capital fund to invest in Web3 companies.

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