AWeb3VC - Funding Round Up #19

🗓️ Week of: May 7-13, 2023

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💡Web3 Funding Snapshot

(See "Funding Rounds" section for the complete list of deals)

$131M+ was raised across 26 funding rounds in Web3. While this represents an increase from the previous week, venture funding for Web3 is slowing down despite promising signs in early April post the March banking crisis. At this point, half of the rounds have been at earlier stages, (Seed or Series A), making it difficult to determine which segments of the industry are showing traction or promise, as funding tends to follow these types of bets regardless of the environment.

However, despite the somewhat disappointing performance in the past four weeks, we are witnessing a diversification of categories receiving funding beyond infrastructure. Financial services (e.g., CeFi), DeFi, and NFTs are seeing more deal volume and capital. Nevertheless, the regulatory environment, particularly in the U.S., remains a significant concern, which is likely causing investors to exercise caution, not only in venture, but also across the broader crypto markets.

🏆 Largest Funding Round

➡️ LimeWire announced $16.5M in funding through the public sale of its token, LMWR. The sale concluded on May 11, with the token becoming available on major exchanges thereafter. The project had previously raised $10.4M in a private sale in June 2022, led by Kraken Ventures, Arrington Capital, GSR, and other notable investors, including Hivemind Capital, Crypto.com Capital, SwissBorg Ventures, and DJ DeadMau5.

The project is a revival of the infamous peer-to-peer file-sharing program of the early 2000s, which was shut down in 2010 following legal battles due to its role in enabling copyright infringement. In May 2022, it was announced that the brand would be revived under a new company, serving as a platform for music artists and creators. The platform enables creators to monetize their content through cryptocurrency rewards, payments, and subscriptions. Content on the platform is stored and represented as non-fungible tokens (NFTs), and access to content and subscriptions can be gated behind NFTs and other tokens.

Why this matters?👉LimeWire "2.0" has already generated a significant amount of buzz due to its iconic brand. The original LimeWire and other peer-to-peer file-sharing platforms can be credited with laying the groundwork for what has now become Web3. However, it may take more than just branding for the revived LimeWire to achieve the same scale as its predecessor. User engagement for NFTs and other Web3-focused creator platforms has been declining. Decentralized social platforms like Lens Protocol have experienced underwhelming daily active users (less than 1000), and NFT creator royalties have diminished. Therefore, it remains to be seen if LimeWire can attract the user base that its peers have struggled to maintain.

😎 Noteworthy Company 

➡️ Blockworks is a financial media brand and a source for news and insights on digital assets. In under 5 years, they have built an extensive collection of editorial content, newsletters, podcasts, and have become the host of the annual Permissionless conference. Besides being a trusted source for news within the crypto industry, they have also launched Blockworks Research, an investment research platform that combines data, analytics, real-time news, and protocol governance tools.

Last week, the company announced a $12M investment led by 10T Holdings, with participation from Framework Ventures and angel investor Santiago Santos. The latest funding round valued Blockworks at $135M.

Why this matters?👉IMHO, Blockworks, CoinDesk, and The Block are among the top media outlets geared to the crypto industry. However, among the three, Blockworks seems to be targeting the institutional investor community the most. With their growing Research platform, they are shifting from an ad-supported monetization model to a subscription-based SaaS model. When compared to another research platform like Messari, I personally believe that Blockworks has an edge with their news serving as an effective top-of-funnel to drive subscriptions to the higher margin SaaS product.

However, what really captured my attention about Blockworks is the investors who participated in their latest funding round. 2 out of the 3 investors, Framework Ventures and Santi Santos, regularly co-host or participate in Blockworks' content and podcasts. We are currently in an era where venture firms are also creating media companies, such as a16z's Future.com. Although not all firms have the necessary management fees to build a venture from scratch. Thus, if you can’t build one from scratch, you might as well invest in one and leverage their platform and audience… boom goes the deal flow!

👀Observations, Trends & Themes

➡️ Family Office Interest Drops

According to a recent Goldman Sachs survey, 26% of global family offices have invested in digital assets, up from only 16% in 2021. However, over 62% of family offices that have not invested in digital assets still expressed no interest in crypto, primarily in the Americas and EMEA regions. Interestingly, this sentiment significantly varies in Asia, where 30% of family offices have invested in or hold cryptocurrencies. Goldman’s survey captured responses from 166 family offices worldwide.

Why this matters?👉Among institutional investors, family offices have been among the earliest capital allocators to crypto. This has occurred either through direct investments or indirectly through their limited partner (LP) stakes in venture capital firms that were early backers of cryptocurrencies or related startups. Therefore, it is somewhat disappointing to see a decline in interest, which may be particularly concerning for new crypto funds (i.e., venture or hedge funds), as family offices often form the LP base for most emerging managers. However, despite this global trend, interest in crypto has been growing in Asia. This could explain why some of the largest funds launched this year have been based in Asia.

➡️ Qualified Custodian Saga Continues

As reported in Funding Roundup #7 on February 15th, the US Securities and Exchange Commission (SEC) announced a proposal for a new custody rule for registered investment advisors (RIAs), specifically expanding the coverage to include digital assets. Since the announcement, the proposed rule has entered a public comment period, during which the industry has raised concerns. Among the most vocal opponents to the new rule are venture firm Andreessen Horowitz (a16z) and Coinbase. Their primary concern revolves around how the new rule could effectively prohibit RIAs from using centralized exchanges to hold cryptocurrencies or execute trades for their clients. This is worrisome considering that centralized exchanges play a significant role in the crypto market. Coinbase and a16z are not alone in their opposition, as other crypto firms have expressed similar concerns, and even JP Morgan and the US Small Business Association (SBA) have submitted comment letters.

Selected News Coverage:

Why this matters?👉First and foremost, it is great to see the industry standing firm and pushing back against the SEC. However, it is important to note that if the rule goes into effect as it currently stands, it could significantly restrict the participation of registered investment advisors (RIAs) and funds in the crypto market due to the limited number of suitable "qualified" custodial options available. Apart from the concerns raised by Coinbase regarding centralized exchanges, this issue is even more critical for DeFi given its self-custody nature. Under the proposed rules, self-custody would no longer be allowed, potentially preventing trading, lending, and other market activities conducted through smart contracts. Therefore, we hope that the other commissioners in the SEC pay attention to the industry's discourse on this rule. Lord have mercy in their decision 🙏

💸Funding Rounds

Top 15 Rounds

Want access to our complete dataset or propose an update? Contact: [email protected]

All Rounds

Aether Games - Seed ($4.5M) | Transmedia development studio that creates immersive gaming and entertainment experiences for both Web2 and Web3 audiences: https://aethergames.io/

PlaceWar - Strategic ($3M) | Decentralized strategic play-to-earn artillery battle game: https://placewar.io

Siphon Labs - Seed ($1.2M) | Developer of a derivatives exchange (Tradeify) and liquid staking protocol (Liquidify) built on the Sui network: https://www.siphonlab.org/

Webb Protocol - Seed ($7M) | Cross-chain bridge protocol that uses zero-knowledge (ZK) proofs to enable private cross-blockchain asset transfers: https://webb.tools/

Artifact Labs - Seed ($3.3M) | Web3 company that works to preserve records of historical events on the blockchain using NFTs: https://www.artifactlabs.com/

Cloudburst - Seed ($3M) | Realtime monitoring solutions and cyber threat intelligence tools to help track fraud in the cryptocurrency markets: https://burst.cloud/

MetaZ Holdings - Seed ($1M) | NFT marketplace for sneakers: https://metaz.io/

Antimetal - Seed ($4.3M) | Cloud cost optimization platform that uses AI to analyze and optimize cloud spending: https://www.antimetal.com/

Blockworks - Strategic ($12M) | Financial media brand that delivers news and insights about digital assets: https://blockworks.co/

Blocktorch - Seed ($4.2M) | End-to-end observability platform designed for Web3 applications: https://www.blocktorch.xyz/

Pudgy Penguins - Seed ($9M) | Web3 IP brand that produces content, merchandise, toys, and digital collectables: https://www.pudgypenguins.com/

Triple Lab - Seed (Not Disclosed) | One-stop development platform for decentralized applications (DApps) development and deployment: https://www.triplelab.xyz/

LimeWire - Public Sale ($16.5M) | Blockchain-powered membership platform for content creators to connect with their fans: https://limewire.com/

Lavita AI - Seed ($5M) | Private health data marketplace powered by AI and blockchain technology: https://www.lavita.ai/

Tabi (fka. Treasureland) - Seed ($10M) | Cross-chain NFT platform for NFT issuance, trading, auction and tailored in-shop services: https://treasureland.market/

Taboo - Seed ($10M) | Adult content and media streaming platform: https://taboo.io/

MintStars - Seed ($600K) | NFT subscription platform for creators, models, and their fans: https://www.mintstars.com/

Polylastic - Private Sale (Not Disclosed) | Digital asset index token: https://polylastic.io/

Odsy Network - Seed ($7.5M) | Network of decentralized wallets (dWallets) that provides a secure, programmable, access layer to Web3: https://odsy.xyz/

Artizen - Seed ($2.2M) | Web3 culture-focused crowdfunding platform that leverages tokenization and gamification to crowdfund niche projects in the arts: https://www.artizen.fund/

Aqex Technologies - Seed ($7.5M) | No-fee, Membership subscription-base, institutional grade cryptocurrency exchange and trading platform: https://www.aqex.in/

Cookbook - Seed ($2M) | Open source smart contract directory: https://www.cookbook.dev/

Smilee - Seed ($2M) | On-chain protocol to turn impermanent losses into on-chain options and derivatives enabling volatility trading at scale: https://smilee.finance/

Polynomial Protocol - Seed (Not Disclosed) | Decentralized derivative exchange powered by the Synthetix protocol on the Optimism network: https://www.polynomial.fi/

Cable - Series A ($11M) | All-in-one testing and monitoring platform for financial crimes compliance geared to banks, fintechs, and digital asset companies: https://cable.tech/

The Game Company - Seed ($5M) | AI-driven cloud and Web3 gaming platform: https://www.thegamecompany.ai/

New Funds

No new funds announced this week.

Cool Resources

Token Terminal is a platform that aggregates financial data on the leading blockchains and decentralized applications to enable investors to perform fundamental analysis and valuations on tokens.

About

AWeb3VC is a source for venture funding news, emerging startups and trends across Web3. I've been closely following cryptocurrencies and digital assets since 2013 and started working in space since 2018. Now I'm on a mission to build the most extensive venture ecosystem for BUIDLERS in Web3, starting first by tracking those BUIDLERS.