Is your web3 startup seeking to attract investors for the funding round? This article aims to discuss web3 funding trends and top web3 seed investors and VC firms for web3 startups to understand where and how to seek funding.
Web3 or Blockchain
A new kind of network that supports decentralization is the blockchain network. Blockchain technology can present an app or a website across several servers. Each of the servers is independently controlled and managed, reducing the amount of power that any person or organization has over the network. Blockchain technology underpins the new Web3 paradigm.
What is blockchain?
A blockchain is composed of several separate servers or computers. Although dispersed worldwide, all these servers maintain a single standard data record. This shared database is often known as a “ledger” and performs many of the same tasks as a conventional ledger used in accounting. The information on these shared ledgers might be anything, but it is most commonly used to record cryptocurrency transactions.
The information is organized into units called blocked and linked consecutively, much like a chain, where each block holds up the next. As additional data blocks are received, they are added to the terminus of the chain. Each data block is essential to the entire chain’s stability; if one of them is modified or deleted, the chain as a whole would be disrupted.
When a collection of activities is compiled into a block, the total of that data is subjected to a cryptographic process called hashing. All entries or crypto transactions result in a single, distinct transaction ID hash in hexadecimal value in characters between 0-9 or a-f. People can utilize this ID to determine the authenticity of any particular block. The block’s ID could change if someone attempted to modify even the tiniest portion of a block’s transaction data or add a fraudulent transaction. In such cases, all network users would notice it, and the whole block would be rejected.
What is web3?
So far, the World Wide Web, as we know it, has been centralized and controlled by powerful entities that own the servers that host internet activities. Web3 has come to represent the idea of a new, improved internet that supports decentralization. In essence, Web 3.0 leverages cryptocurrencies, blockchain, and NFTs to return ownership and authority to consumers. To clearly show the difference between all the web versions, Web1 is described as read-only, Web2 is read and write, and Web3 is said to be read, write, and own.
How are Web3 and blockchain correlated?
In Web2, each computer connects to a business’s main servers to log in and do tasks. Web3 replaces conventional, centrally controlled databases and apps that restrict users’ content access and store and manage their data with blockchain networks. Unlike Web2, Web3 is the decentralized web, where centralized control is no longer necessary for applications, online services, or finances. In essence, blockchain technology makes the decentralization required by Web3 possible.
Blockchain is a way of achieving agreement among network users without needing a central authority. Through blockchain, users no longer need to generate usernames and passwords. Users depend on crypto wallets to confirm their access to DApps (decentralized apps or websites) powered by blockchain technology. These are used to conduct transactions of digital currencies, publish on specific new Web3 social media networks, or do pretty much everything else on Web3. This way, no centralized servers that a governing body can shut individuals out, close down, or restrict access. Instead, users connect to websites and apps that are partly or entirely decentralized because a few or all of their components are housed on public blockchains.
Importance of Web3
Web3 has several features that are difficult to isolate in clear-cut categories. However, here are a few features that highlight the importance of web3.
- Digital asset ownership – If you’re playing a game on Web2. An in-game commodity that you buy is linked to your account immediately. You could lose those purchases if the game’s developers terminate your membership or if you quit. Web3 gives ownership in a way that your purchased items become digital assets. Direct ownership is possible with Web3 due to non-fungible tokens (NFTs). Nobody, including the program creators, has the authority to revoke your rights on those assets. Additionally, you can sell or transfer your assets (here, in-game possessions) on open marketplaces to recuperate their worth if you decide to quit playing.
- Censorship resistance – You do not control the material if you decide to quit the Web 2.0 platform. Content creators must trust service providers not to modify the regulations and hope their values align throughout their time. However, A Web3 platform comes with natural support for censorship resistance. Since your data is stored on the blockchain, you can transfer your credit with you whenever you decide to exit a platform and plug it into a different interface that more closely reflects your ideals.
- Control digital identity – Traditionally, you’d establish an account for each site. You may have accounts on various social media platforms. Want to alter your name or photo? You need to do it on every account manually. You can utilize social sign-ins in certain circumstances, although this causes censorship. One click might shut you out of your internet persona on various networks. Many sites demand personal information to establish accounts. Web3 overcomes these concerns by enabling you to manage your unique identifier with an Ethereum address and ENS profile. An Ethereum address allows a secure, censorship-resistant, anonymous login across platforms.
- DAOs – DAOs are formally described as agreement contracts that enable decentralized judgment calls over a resource pool of tokens. In addition to owning personal data in Web3, you can also use tokens that function like stock to hold the platform collectively. DAOs enable decentralized platform ownership coordination and future platform decision-making. Users who own tokens can participate in deciding how resources are allocated, and the code executes the results of the vote immediately. Even though many Web3 communities are referred to as DAOs, different degrees of decentralization and coding-based automation exist in each of these groups.
Limitations of Web3
Web3 has many advantages, but there are still several restrictions that the ecosystem must overcome if it grows.
- Technical barriers – Web3 presently has a too-high technical entrance barrier. Users need to be able to traverse confusing user interfaces, grasp security issues, and comprehend sophisticated technical documents. This is being addressed by wallet providers, although further development is required before Web3 is widely embraced.
- Require expertise – In contrast to Web2.0, Web3 presents new paradigms that call for acquiring new thought processes. Web3 is not challenging, but it is unique. Its success depends on educational programs that teach Web2 users about these Web3 principles.
- Centralized infrastructure – The Web3 environment is still developing and changing fast. Because of this, it relies on centralized infrastructures, such as Twitter, Discord, GitHub, etc. Many Web3 businesses scramble to eliminate these discrepancies but creating dependable architecture takes time.
- Accessibility cost – Important Web3 capabilities, such as Sign-in with Ethereum, are currently freely used by anybody. However, many still find the relative fee of transactions excessive. Because of its high transaction costs, Web3 is less likely to be used in developing countries with lower levels of affluence.
How can you prepare your Web3 startup for funding?
Looking to get web3 funding for your startup? Investors are looking for the following things before investing:
- Build an excellent team – Launching a Web3 business concept is straightforward, but keeping it alive, growing it, and managing it are altogether other challenges. Investors won’t provide web3 funding to a business without competent leadership and a cohesive workforce. Having a solid advisory board is also advantageous. Such a group may provide useful guidance in terms of planning and carrying out development objectives, attracting and keeping people, fostering a healthy corporate culture, and finding investors.
- Have a great marketplace and potential – The market is a crucial factor that investors take into account. During economic downturns, a business can continue operating and typically even thrive if there is a huge market and a significant demand for the product or service in issue. Investors want to give web3 funding to companies that can exceed current market circumstances and the assumptions and biases of users, customers, regulators, and the media.
- Build excellent techniques and products – Similar to conventional investing, investors look for companies that provide necessities for everyday living. For example, fintech companies that specialize in cutting-edge payment and other financial services provide a solution to everyday needs. Businesses sometimes sell products or services that are not seen as needs. However, if your business could easily attract web3 funding, if it could provide a novel or exceptionally creative solution that challenges conventional knowledge, it creates brand-new market sectors or appeals to institutional clientele.
- Have clients – A profitable business has the potential to grow further, but it can only be successful if it already has customers. You need to show investors that your business idea or product has been through a test. By identifying and studying your present clientele, investors can decide if a business plan is effective and has an opportunity for growth to provide web3 funding. There are no market sentiments to assess if a firm hasn’t even begun offering services to real customers yet.
- Alliances or joint ventures – When seeking web3 funding, strategic alliances or ties are critical. A suitable, long-term strategic relationship should be formed rather than a casual acquaintance or temporary association. A product or service gains greater acceptance when a collaborator or strategic investor can convince consumers to use it. When you show how your ties can add to the success of your firm, the worth of the web3 startup increases.
Top 30 Investors in Web3 startups
Here is the list of top seed investors and VC firms in Web3 startups.
| S. No | Name | No. Of Investments |
|---|---|---|
| 1 | Pitango VC | 388 |
| 2 | Brinc | 378 |
| 3 | Streamlined | 363 |
| 4 | Outlier Ventures | 356 |
| 5 | Picus Capital | 335 |
| 6 | JP Morgan | 312 |
| 7 | Blockchain Founders Fund | 212 |
| 8 | BITKRAFT Ventures | 211 |
| 9 | a16z crypto | 190 |
| 10 | IOSG Ventures | 181 |
| 11 | Borderless Capital | 178 |
| 12 | BAI capital | 170 |
| 13 | ConsenSys Mesh | 156 |
| 14 | AppWorks | 155 |
| 15 | Mirana | 153 |
| 16 | MH Ventures | 151 |
| 17 | Sky9 Capital | 147 |
| 18 | Protocol Labs | 142 |
| 19 | Play Ventures | 124 |
| 20 | Jump Crypto | 113 |
| 21 | Skyland Ventures | 111 |
| 22 | DWF Labs | 110 |
| 23 | Variant | 107 |
| 24 | 50 Partners | 102 |
| 25 | XRPL Grants | 93 |
| 26 | Archetype | 83 |
| 27 | Zee Prime Capital | 78 |
| 28 | Reciprocal Ventures | 77 |
| 29 | P2 Ventures | 76 |
| 30 | Sterling.VC | 73 |
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