Investors Chase Visible Impact With AI and Web3 Infrastructure Investments

When it comes to the venture capital landscape, every year — and strategy — is different.

Nearly no other investor segment deals with more reckonings and recalibrations than tech investors — or reaps such sky-high benefits when their big bets pay off.

Against the backdrop of the artificial intelligence boom, VCs are starting to creep back into the cryptocurrency and Web3 space.

Hack VC announced Tuesday (Feb. 20) it closed an oversubscribed $150 million Venture Fund I to invest in early-stage Web3 opportunities, bringing its total assets under management to $425 million.

VC firm a16z Thursday (Feb. 22) invested $100 million into crypto startup EigenLayer, a restaking protocol and infrastructure layer for the Ethereum network that allows new projects building on the Ethereum blockchain to use its security for their own networks.

These numbers, however, pale in comparison and scale to the amounts being invested in and raised to support the AI sector.

Menlo Ventures, for example, raised $1.35 billion for an AI-focused venture fund, and companies like IBM are deploying venture funds that dwarf crypto-specific vehicles like Hack VC’s.

A total of $27 billion was funneled into AI startups during 2023.

But crypto-native VC firms have raised war chests of capital that they have to deploy in the next few years. And they’ll need to be careful and intentional with how they use that capital.

The thing about dry powder is that it ignites, and the crypto landscape has already evaporated tens of billions of dollars in investor funds during its bull run.

That’s why comparing where the VC money flows in 2024 and beyond to where it went in crypto’s flashier heyday of 2021 and earlier will provide a look into a landscape that has been bruised and battered by a drumbeat of failures, frauds and blowups.

Eyes on the Prize: No One Likes to Talk About Venture Failures

Nine out of every 10 startups that raise money end up failing over 10 years. At the same time, observers believe that venture-backed startups fail at higher numbers than the industry usually cites.

That’s why VC investors, across both AI and crypto, appear to be focused more on infrastructure plays than in the past. Funding is being directed much less to service providers in favor of building foundational ecosystems, and a16z’s funding of EigenLayer is a prime example.

But it is also worth unpacking where the VC sector’s biggest bets in the crypto sector have gone, and whether they are going anywhere in the future.

FTX and FTX.US, which collectively raised $1.3 billion, collapsed in a cloud of criminal smoke and mirrors. They represent both the crypto industry’s largest fundraise, and its most visible failure.

See also: Crypto Continues to Serve as Case Study in Behavioral Economics

Forte, a blockchain video game company that received the second-largest single amount of funding in sector history with a $725 million Series B, has been relatively quiet over the past year, with its last announcement coming in August via X, formerly known as Twitter. The company’s own news page had its last update in February 2022.

Sorare, a fantasy sport cryptocurrency-based video game, raised $680 million in a 2021 funding round and appears to still be actively providing updates.

Two of the other top-five crypto firms by funding amount, MoonPay and YugaLabs, are embroiled in a scandal representative of crypto’s endemic fractures. According to a lawsuit, the two firms are accused of “a vast scheme between a blockchain startup company, Yuga Labs, … a highly connected Hollywood talent agent (Defendant Guy Oseary), and a front operation (MoonPay), who all united for the purpose of promoting and selling a suite of digital assets.”

Representatives from Sorare, Forte, MoonPay and Yuga Labs did not immediately reply to PYMNTS’ request for comment.

For a market that at one point knew no bounds, the crypto space certainly found some — and quick.

Now, the money is moving toward AI, with observers believing that AI’s utility is more immediately and easily understood than that of crypto’s bold and big promise to create its own financial system.

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