Venture capitalists are betting big on blockchain – despite the 99% failure rate

Despite the rainy weather and depressed crypto prices, there was a feeling at the recent Nordic Fintech Week in Denmark that we are witnessing history in the making.

Cryptos, blockchain and fintech are attracting a huge and growing share of venture capital (VC) funds. This number reached an incredible 25.2 billion dollars (455.9 billion kroner) in 2021, an increase of 800% since 2020. And things are just getting started.

Although ‘doomers and gloomers’ like to hammer away at the never-ending dive of the bitcoin price, this ‘crypto winter’ is still expected to bring in $31 billion (560.8 billion kroner) in VC investments for 2022, according to Fintech expert , investor and startup advisor Mike Sigal.

“Venture capital is an industry that generates outsized returns from 99% failure rates,” Sigal said.

“To do this, the industry has developed unique ways to invest in disruptive innovation over the past 80 years.”

There is much to be learned by exploring how VCs do it. And what they are doing now is investing in crypto-related technology.

It is divided into:

• Blockchain technology – the backbone of all crypto.
• NFTs (Non-Fungible Tokens), which are far more than just expensive artworks, are also an integral part of the metaverse.
• The Metaverse (a bunch of technologies that include virtual and augmented reality)
• Smart contracts, and all the wonderful things that can be done with them (like performing financial transactions without human intervention).
• Decentralized Finance (DeFi) – a growing marketplace where you can lend, borrow, earn interest and trade without having to go through a credit committee or human agent.
• Web3 – use of blockchain technology to store data in a decentralized manner. Our current version of the internet is Web2 owned by tech giants like Facebook and Google. Web3 is more private, where the user owns their own digital footprint and will be able to make money from it.

The number of financing agreements in the above technologies is estimated to reach 1,842 in 2022, up from 1,312 in 2021.

The financing deals keep coming

New VC deals for crypto companies continue to pour in. For example, the FTX crypto exchange was reportedly in talks just a few days ago to raise $1 billion in funding, while the company is valued at an astonishing $32 billion, CNBC reported.

Crypto computing firm Messari just raised $35 million in a Series B round. The company turns blockchain data into standardized reports.

BlackRock, the world’s largest asset manager, launched a private trust in August to give institutional clients direct exposure to bitcoin.

In August, we were well into the supposed “crypto winter”, and yet the world’s most influential investment management company decided to bet on bitcoin, which in itself is a bet on the unmet institutional appetite for this new digital asset.

The Metaverse

Right now, the metaverse is a distant concept – a vision of blending reality with the digital world. No one is quite sure what it will look like right now – will we all be wearing virtual reality glasses? But VCs are sure of one thing: This is going to depend heavily on blockchain, tokens and NFTs.

Funding in the metaverse skyrocketed in 2021 when Facebook changed its name to Meta and announced its vision of the metaverse. In September 2022, the number of funding deals closed for metaverse startups and companies was already higher than in all of 2021.

Online games

Online games have welcomed NFTs and tokens with open arms.

By using NFTs, users can own completely unique in-game items. Connecting to a blockchain allows users to easily exchange tokens, making it easy for developers to monetize their games.

The online gaming market’s global revenue was $152 billion in 2019, Sigal said at his presentation. By comparison, the music industry was barely a third of that with a value of $57 billion.

Mega corporate adoption of blockchain technology

It’s hard to find a single mega-company that hasn’t dipped its toes into the blockchain, crypto, metaverse or NFT space.

Luxury jewelry maker Tiffany & Co launched an NFT collection of 250 CryptoPunks – one of the most popular NFT collections – that are connected to a real-life pendant.

The project sold out in 22 minutes and raised over $12.5 million in ETH, Blockworks reported.

It was also back in August, well into the supposed crypto winter.

Atari, Disney, Gucci, McDonald’s, Coca-Cola, Amazon, Shopify, Netflix, Google and countless other mega-corporations are just a handful of the big companies that have taken an interest in crypto, blockchain, metaverse or NFT.

Nike has earned over $185.3 million on NFTs. Users buy sneakers and have a metaverse/NFT version of it as well to show that they are the unique owner of that pair of sneakers. Think of it as proof of authenticity.

Andreessen Horowitz

Andreessen Horowitz, one of the world’s most influential VC firms, raised a $4.5 billion crypto fund in May. In August, it decided to go all-in on crypto, to “break up the excessive concentration of Big Tech power”, the Financial Times reported.

The Big Tech Power probably refers to the five companies that control 43% of internet traffic – Netflix, Google, Amazon, Meta (Facebook), Microsoft and Apple.

The VC firm “sought to hone a new investment strategy built around cryptocurrencies and digital tokens”, the Financial Times reported.

Blockchain is here to stay

Sigal’s lecture at Nordic Fintech Week was not the only one to highlight how deeply this technology has penetrated the business world.

Sandra Ro, executive director of the Global Blockchain Business Council, said a quick search for “blockchain jobs” on LinkedIn yields over 50,000 results. The same search a few years ago brought only a few hundred.

Blockchain is a thing. It’s not just a fad.

Interest in it is exploding, and it is not going away. And Sigal’s final message was clear: Companies that don’t jump on the bandwagon now will miss out on a huge opportunity.

R Paulo Delgado is a crypto writer with an eye for the bizarre and human stories behind the always fascinating leaps and stumbles of this new asset class.