Asia is becoming a battleground for startups and — indirectly — for VCs (venture capitalists) and investment funds focused on the potential of blockchain, decentralized finance (DeFi), and Web3.
In the face of regulatory uncertainty, technical challenges, user adoption issues, and a lack of access to suitable funding, Web3 startups begin with multiple hurdles to overcome. VC funding can help these Web3 startups hit the ground running, playing a critical role in enabling adoption and growth as the financial backers of startups.
According to recent data from Nasdaq, tech investments in Asia, encompassing China, India, and Southeast Asia, soared to $146 billion in 2022. Another report from Bloomberg forecasts Southeast Asia’s booming internet economy will double to $363 billion by 2025.
This article will dive into the role of VCs in the Web3 space, how they help startups to grow, and the creative strategies employed by Asian VCs when appealing to Web3 investors.
Education And Inclusion
Animoca Brands, a significant investor with over 450 related projects in its portfolio including Axie Infinity and Star Atlas, recently branched out into a new investment strategy focusing on awareness, education, and financial literacy as levers for future Web3 adoption.
Animoca Chairman Yat Siu explained in our interview, “Education is key to boosting financial literacy and inclusion, which are crucial for growing the digital economy, and also to moving toward a more fair form of capitalism enabled by digital ownership.”
Financial literacy and inclusion are particularly pertinent in areas of the Asian region, such as Southeast Asia, where over half of people are unserved or underserved by the traditional financial system.
Focus On Regulatory Compliance
Although regulators in Asian countries have been far more amenable to cryptocurrencies than the U.S., there are nevertheless still several regulatory hurdles to navigate for Web3 VCs. Japan, Hong Kong, and Singapore are all examples of jurisdictions with relatively strict rules when it comes to managing digital asset investments, yet are financial hubs for the region with a significant amount of wealth concentration.
With an increasing amount of institutional capital flowing into the space, regulated funds and investment instruments are becoming more prevalent. This shift suggests a growing acknowledgment of the sector’s legitimacy within the space and an improved potential for long-term growth.
In my conversation with HashKey Capital Managing Partner Ryan Chen, he provided insights into the company’s recent developments, shedding light on asset management licenses obtained in Hong Kong and Singapore. For the upcoming year, Chen stated that the company plans to focus on the institutional side of things and “introducing more regulatory-compliant funds and digital asset management products.”
Broadening Web3 Horizons
Through collaboration with established financial institutions, tech giants, and other investment firms, Asian VCs can offer Web3 startups access to a broad range of otherwise inaccessible resources. These include target audience market access, tech expertise, and additional routes to more capital.
On Feb 19, 2024, TheBlock reported on Japan’s plans to enable VCs the ability to invest directly in both Web3 and crypto startups by seeking a revision of the existing Act on Strengthening Industrial Competitiveness law. Bolstering Japan’s industrial sector in response to changing economic and social circumstances, this change aims to facilitate strategic investment into Web3 startups with less resistance, enabling certain Asian VCs to invest in projects that issue only cryptocurrencies.
Paired more directly with VCs, Web3 startups focused on crypto would gain easier access to research collaborations, co-development projects, mentorship programs, and more. However, without the initial strategic partnerships in place, fostering the aforementioned increased access to resources for Web3 startups becomes an unlikely luxury for Asian VCs to offer. To ensure this isn’t the case, VCs must prioritize partnerships that offer optimal benefits to Web3 startups.
Focus On The Bleeding Edge
A key challenge of VC investing in emerging technologies such as Web3 is the sheer pace of development. VCs need to take managed risks, and Asian VCs are proving willing to lean into the uncertainty and embrace the bleeding edge of Web3 technologies.
As we saw on Dec. 26, 2023, Chinese VC firm GBA Capital announced a $10 billion Web3 fund during the Guangdong-Hong Kong-Macao Great Bay Area Digital Economy Development Conference. Following the conference, the Bay Area saw a surge in Web3 startups and overseas corporate relocations.
Geekcartel is another example of Asian VCs prioritizing startups that leverage blockchain tech to transform digital finance. Its co-founder, Jiayi Li, shared insights into the firm’s priorities for the upcoming year with me via email, stating, “We anticipate a surge in entrepreneurial ventures capitalizing on modern technological advancements. As key technologies like Zero-Knowledge proofs (ZK) and Artificial Intelligence (AI) mature, there will be a significant reshuffling across various segments this year.”
Through education, regulatory compliance, and community development, Asian VCs are bringing innovation to the Web3 space. These creative strategies tackle the hurdles Web3 startups face, empower both the adoption and growth of Web3 technology, and facilitate a smoother partnership-establishing process. As attention turns increasingly to the symbiotic relationship between VCs and Web3 startups, the potential possibilities only continue to expand.