PE-VCs flock to Web3 despite crypto concerns

Chennai: Even as cryptocurrencies are in a sell-off mode globally, and the Indian crypto industry battles taxation woes, the Private Equity-Venture Capital (PE-VC) appetite for Web3 enterprises continues to grow.
Over 28 deals worth $890 million were recorded in startups belonging to the Web3 sector in 2022 (January-April) compared to 28 deals worth $500 million in 2021 and a mere five deals worth $25 million in 2020, as per data from Venture Intelligence. Despite the recent dip in sentiment due to the 30% tax on cryptos, troubles, April clocked eight deals worth over $274 million, data showed.
Web3, though loosely considered as anything having to do with cryptocurrency, denotes the next phase of the World Wide Web and is a decentralized ecosystem based on blockchain. It includes the likes of NFTs (Non Fungible Tokens), DeFi (Decentralized Finance) and other technologies that use blockchain as an infrastructure layer to provide trust.
Web3 startups and investors TOI spoke to say the value of cryptocurrency as an asset class and the cycles it goes through are not likely to impact the efforts to build a de-centralised internet leveraging blockchain — the core premise of most Web3 startups.
“The fundamental long-term story of Web3 is still very much intact. In the short term, say in the next six months or so, the pace of fundraising may slow down, but that is a healthy development to weed out low-quality projects and participants. There are enough long-term investors,” Nitin Sharma, Partner and global Web3 head at Antler, said. “We anticipate there may be more caution on the asset side, especially in parts of DeFi more linked to the value of digital assets. We at Antler, in fact plan to continue doubling down to increase our investment activity in Web3,” Sharma said. Antler has allocated around one-third of its portfolio for Web3 innovations.
Rario, a cricket non-fungible token (NFT) platform, that recently raised $120 million in Series A funding from Dream Capital, believes there is a need for more awareness about the difference between Web3 and cryptocurrencies. “We don’t even accept cryptocurrencies on our platform and trade our products only in rupees and dollars,” Ankit Wadhwa, co-founder and CEO, Rario, says.
An analyst tracking the space explains that ‘crypto’ in Web3 refers to the science of cryptography and not the asset class of cryptocurrencies. “Investors are quite bullish on Web3, but the general slowdown in the private markets is expected to make them more selective. PEs and VCs may at this point worry more about the RBI and Sebi moves around cryptocurrencies rather than a global crash,” the person added.
Web3 infrastructure and gaming NFT startups dominate PE-VC investments in this segment in 2022 with Polygon ($450 million), Rario ($120 million), and FanCraze ($100 million) among the top deals. However, cryptocurrency exchange CoinDCX managed to raise $136 million in April.