Does web3 need a venture bailout now that AI has all the hype?
Shifting investor priorities, more expensive cash, and the lack of big deals that were so common during the last startup boom may have left many late-stage web3 companies cash-strapped. And the clock is ticking.
People are already aware that venture capitalists have moved from cryptocurrencies to AI, looking for the next big thing, as they are used to.
For startups stuck in a category that is now passé, it can’t be great to see venture dollars flowing elsewhere, even if such developments in capital flows are normal.
TechCrunch recently dug into venture capital data to understand how investor interest in web3 is faring in 2023.
We tried to gather what we could from similar searches for AI-related fundraising startups.
what did we learn The data suggests that the ability of web3 companies to raise private capital has declined to a fraction of its former pace (perhaps as much as 80% in Q1 2023 if trends continue).
The AI-related funding picture is a little less clear.
What’s clear about the melting glaciers is that there are a significant number of late-stage startups in the Web3 space and beyond stuck between their last funding event.
The price set during the transaction, and a new market reality in which investors don’t seem very interested in further funding their efforts.
We’ve touched on this matter before and even recently wondered how far the unicorn death cliff is.
We’re happy to tie this morning’s question to our terminal cash date question for previously richly valued startups and the changing genre focus of the venture market.
Technology investor and founder Elad Gil recently wrote an interesting article about cash balances in companies that raised money during the last quarters of the zenith of venture business in 2021.
At the height of the market frenzy in 2021, venture capital firms broke every record by surpassing $730 billion in nearly 1,000 unicorns, allowing venture funds to raise an additional $130 billion in capital.
Fast-forward to today, and while venture capital firms are sitting on nearly $300 billion in dry powder, the factors that have produced stunning returns over the past decade seem to be missing. The tide has definitely gone out.
There are basically two investment models for venture capital.
The first is the larger value theory model, where the VC invests in a start-up that is capable of creating value through sustained high growth and thus can IPO or exit through acquisition in good or bad times. The second is the Greater Fool Theory model, where the VC invests in a loss-hungry company that is able to convince retail investors, larger investment firms, or large corporations to facilitate an exit through an IPO or acquisition with some hand-waving.