AWeb3VC - Funding Round Up #22

🗓️ Week of: May 28 - June 3, 2023

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💡 Web3 Funding Snapshot

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

$184M+ was raised across 19 funding rounds in Web3. Deal count dropped this week, hitting the fourth-lowest level of 2023, alongside another week of <$200M of capital being raised and announced. Granted there were a few non-seed deals as companies and projects still push to obtain funding. However, when examining the week's largest deal (Magic), it appears that bridge rounds may persist as companies grapple with the frothy valuations set in 2021. Investors are undoubtedly maintaining caution, though it is promising to still see eight-figure deals getting done.

Interestingly, this marks the first week of 2023 in which DeFi didn’t capture any funding. It's likely a one-off week with deals and announcements being reserved for the start of June.

🏆 Largest Funding Round

➡️ Magic announced $52M in a strategic funding led by PayPal Ventures and included participation from Cherubic, Synchrony, KX, Northzone, and Volt Capital. Magic is a wallet-as-a-service provider that facilitates the onboarding of users into Web3 and also behind the wallet, Fortmatic. Its SDK integrates seamlessly with applications to generate and provide instant wallets for end users. What makes Magic special is its completely passwordless system, where authentication is handled through magic links, similar to platforms such as Slack and Medium. It employs email or social logins, doing away with the need for seed phrases and browser extensions, which effectively makes it indistinguishable from standard Web2 experiences that everyday users are accustomed to. Magic accomplishes this through a carefully designed security architecture that incorporates Zero-Knowledge Proofs for authentication, and Delegated Key Management through private keys encrypted on Hardware Security Modules (HSMs). These HSMs are provided by Amazon Web Services' Key Management Service (AWS KMS).

Magic provides features for end-to-end Web3 onboarding and access to over 20 blockchains. Its solutions are trusted by leading brands in both the Web2 and Web3 spaces, including high-profile names such as Mattel, Macy’s, Xsolla, and Immutable, among others. To date, it has facilitated the creation of more than 20M wallets and is actively used by over 130K developers.

Why this matters?👉These guys truly epitomize the process of bridging Web2 into Web3. They provide one of the most user-friendly digital asset wallets for both end-users and developers looking to offer Web3 applications, all while maintaining the security level expected by crypto natives. Magic’s Formatic wallet has been on the scene for some time and gained considerable popularity during the NFT boom in 2021. However, they seem to be gaining more traction by going the enterprise route - offering their SDK to developers instead of directly targeting users in an already crowded wallet market.

The $52M funding round is undeniably impressive given the current investment climate. It seems, however, that this was raised through a convertible note, which might suggest that they were unable to secure a higher valuation from their Series A round in 2021. Regardless, they can leverage this bridge financing to build, gain traction, and potentially raise another priced round when the funding climate improves, likely in 12-18 months from now. We should expect to see more deals of this nature in the coming months (i.e., large bridge rounds).

😎 Noteworthy Company

➡️ zkMe is a decentralized Web3 credential network that capitalizes on zero-knowledge proofs to facilitate secure and private issuance and verification of credentials. The network's identity oracle allows users to selectively disclose their credentials to authorized parties, thereby preserving their privacy and enhancing control over their digital identities. In addition, zkMe enables Web3 protocols to utilize zero-knowledge credentials for verifying users' identity-based data. This can effectively be used to eliminate fake accounts and comply with KYC protocols, among other identity or data verification requirements.

The core components of the zkMe network include:

• zkMe App: Secure and decentralized Self-Sovereign Identity (SSI) wallet that utilizes Multi-Party Computation (MPC) cryptography. It allows users to store and manage anonymized identity information, including Verifiable Credentials (VCs) from trusted entities.

• zkMe SDK / Widget: SDK the provides web3 developers with the ability to integrate credential verification features into their applications, offering libraries and APIs for easy interaction with the zk-credential network.

• zkMe Biz: Dashboard tailored to a DApp’s needs, specifically for conducting user eligibility checks (e.g., KYC).

• zkMe Smart Contracts: Suite of smart contracts that enable the protocol and verifiers to process verifications autonomously.

The project recently announced $2M in seed funding from Circle Venture, Spartan Group, CMS Holdings, Fenbushi Capital, NGC Ventures, Arkstream Capital and other investors.

Why this matters?👉Zero-knowledge proof technology continues to fuel innovative developments in Web3. Besides providing scalability and privacy-preserving transactions, zk-based verification is another use case poised to gain traction beyond Web3, particularly in areas such as KYC, which heavily rely on sharing identification information and trusted verification. This is why zkMe is noteworthy in developing a solution for this significant use case. However, it's still early to predict who will capture adoption around this use case, as there are already several companies building in the decentralized identity space, many of which are also utilizing zk-proofs.

👀 Observations, Trends & Themes

➡️ The Ongoing AI Narrative

Following Nvidia's remarkable quarterly results and the growing adoption of ChatGPT and other mainstream large language models (LLMs), AI continues to rise in prominence within tech investment circles, especially in venture capital. Highlighted in a recent Coinbase research report, intriguing opportunities for the synergistic pairing of AI and blockchain have emerged, including blockchain-facilitated open-source training, reinforcement learning from human feedback, decentralized compute supply, and assured provenance for deep fake detection. WorldCoin's recent $115M Series C funding round offers a glimpse into how crypto could complement AI's future.

However, despite these promising avenues, Travis Kling of Ikigai Asset Management noted in his June 2023 update that the crypto ecosystem might not be ready to seize these opportunities. Recurring issues such as the lack of sustainable economic models in token ecosystems, the underperformance of blockchains during high usage periods, regulatory risks, and subpar user experiences remain prevalent. Moreover, the recent rise of AI as a more appealing investment option has further underscored crypto's shortcomings. Without addressing these fundamental issues, the crypto sector risks repeating its past mistakes, thereby jeopardizing its future viability and the potential for a meaningful intersection with burgeoning AI technology. Now, more than ever, it is crucial for the crypto ecosystem to strengthen its foundations and prepare to leverage the opportunities presented by advancements in AI.

💸 Funding Rounds

Top 15 Rounds

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All Rounds

Nutrios - Seed ($500K) | AI-driven food technology platform and recommendation engine enabled by blockchain technology: https://www.nutrios.co/

White Shark - Private Sale ($16M) | AI-based layer 1 blockchain network: https://whiteshark.ai/

zkMe - Seed ($2M) | Decentralized Web3 credential network that leverages zero-knowledge proofs to enable secure and private credential issuance and verification: https://zk.me/

Blocktrade - Private Sale ($4.81M) | EU-regulated and gamified trading platform for digital assets: https://blocktrade.com/

TradeWaltz - Strategic ($11.78M) | International trade collaboration platform enabled by blockchain technology: https://www.tradewaltz.com/

Transak - Series A ($20M) | Single integration for applications to enable fiat-crypto on and off ramps for a global user base: https://transak.com/

DeGame - Series A ($6.5M) | Web3 game aggregator enabling players to discover, download, and review the newest games in one place: https://degame.com/

MetaZone - Seed ($3M) | NFT minting platform and distribution platform designed for creators building in the open metaverse: http://metazone.io/

Illuvium - Private Sale ($10M) | Decentralized game studio building an Interoperable Blockchain Game (IBG) universe centered around role playing games (RPG): https://illuvium.io/

Magic - Strategic ($52M) | Wallet-as-a-service solution that uses email or social logins to remove the need for passwords or seed phrases: https://magic.link/

M80 - Seed ($3M) | Web3 enabled eSports organization: https://www.m80.gg/

Fusionist - Seed ($6.6M) | Blockchain-based gaming company that offers games featuring collectible NFTs: https://www.fusionist.io/

Anoma Network - Private Sale ($25M) | Proof-of-stake blockchain protocol that enables private, asset-agnostic cash and private bartering among any number of parties: https://anoma.net/

RealBlocks - Series A+ ($10M) | Digital platform to manage the entire lifecycle of private investment funds: https://www.realblocks.com/

CityPay.io - Strategic (Not Disclosed) | Platform for business to accept cryptocurrency payments across web-payments, email payment orders, point of sale (POS) terminals, and initial deposit channels: https://www.citypay.io/

Quantum Blockchain Technologies - Private Placement ($1.24M) | Research & Development and investment company focused on innovation in blockchain, cryptocurrency mining and other advanced applications: https://quantumblockchaintechnologies.co.uk/

Hogwarts Labs - Seed+ ($8M) | Developer of DApps and Appchain, and is the creator of QuestN, a suite of services enabling projects to attract, acquire, and analyze users: https://hogwartslabs.com/

Demox Labs - Seed ($4.5M) | Developer of privacy preserving technology leveraging zero-knowledge proofs; Its first application includes the Leo Wallet, a wallet designed for the Aleo blockchain: https://www.demoxlabs.xyz/

Kakrot - Seed (Not Disclosed) | Ethereum Virtual Machine (EVM) written in Cairo that enables smart contract deployment on Layer 2 networks including Starknet: https://www.kakarot.org/

New Funds

No new funds this week. However, Tribe Capital is reported to be raising a new crypto fund with a $100M target raise.

🙌 Cool Resources

As liquidity in the crypto markets begins to run thin, tracking fund flows, especially among institutional crypto products, is now crucial. CoinShares' Digital Asset Fund Flows Weekly has long been a trusted source, helping investors understand the drivers behind recent price moves and investor sentiment in the digital asset world. Their weekly publication is a concise summary of investment inflows and outflows in popular Exchange Traded Products (ETPs), mutual funds, and Over-The-Counter (OTC) trusts referencing Bitcoin, Ether, and other digital assets.

🐕 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.in