The Investment Philosophy of Venture Capitalists when Investing in Web 3.0

The Investment Philosophy of Venture Capitalists when Investing in Web 3.0 

Web 3.0 and NFTs are changing the way we do business in a variety of industries. As an entrepreneur or executive, it's important to keep your finger on the pulse of these technologies and explore how they can benefit your business. According to a recent report by CB Insights, blockchain, and cryptocurrency startups raised a record-breaking $17 billion in venture capital funding in Q1 2021 

So the question has to be asked: Must we be openly skeptical and prepare to adjust to the ripples caused by the advent of Web 3.0 and NFTs? 

 Cypher Capital, a leading strategy venture firm that focuses on investing in Web3 infrastructure and applications that will drive the new digital economy, is at the forefront of this trend. 

To understand the role of Web 3.0 in emerging businesses and get an insight into the perspectives of Venture Capitalists with regards to this space, we spoke with Karan Gandhi, Senior Investment Associate at Cypher Capital. 

Karan Gandhi, Senior Investment Associate at Cypher Capital


Q. Can you discuss your investment philosophy and what types of companies and industries you typically invest in? 

Our approach is very open-minded, and we look for a simple thought process to explore the important parameters needed for success. While there are many factors that go into our diligence process, we always start evaluating the product use case, what the start-ups are trying to build or solve, and how capable the entrepreneurs are of executing the use case and achieving product market fit. 

Overall, our investment philosophy is grounded in a commitment to finding and supporting talented entrepreneurs who have the vision and drive to build successful companies in the blockchain and cryptocurrency space. 

Q. Can you walk us through your investment process, from identifying potential companies to closing a deal? 

Our investment process involves a thorough screening of proposals to ensure that there is sufficient market potential for the venture. We mitigate investment risk by conducting thorough due-diligence on the startup by examining formation documents, reference checks, ecosystem and partner checks and conducting internal audits of smart contracts. Only when we conclude that the project is strong enough and meets our investment mandate, we take the next steps on capital deployment.

We have recently invested in a layer one blockchain Mysten Labs (SUI) and an NFT marketplace (Few & Far), both of which have significant growth potential. While NFTs already gaining strong momentum we believe that they will gain a prominent stature in the field within the next five to ten years. However, we emphasize the importance of proper regulatory controls in this area, like the need for compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations. 

Overall, we are confident in our investment approach and are excited about the potential for growth in the blockchain and cryptocurrency space. 


Q. Can you talk about any trends or changes you have seen in the venture capital industry recently? 

Many investors, including us at Cypher Capital, are focused on exploring ways to onboard more users and drive the adoption of blockchain technology. 

While blockchain is a great back-end technology, there is a growing interest in consumer tech scaling solutions that can help accelerate adoption in this space. As a venture capital firm, we are particularly excited about the infrastructure that can optimize development time, reduce costs, and create new, robust solutions. This includes the development of general development tooling infrastructure that can help optimize the development process and create stronger solutions. 

Overall, we see significant potential for growth and innovation in the blockchain and cryptocurrency industry, and we are actively seeking out innovative startups with the potential to make a significant impact in this space. 

Q. How do you approach working with a company post-investment, and what kind of support do you provide? 

Once Cypher Capital has vetted a company's proposals and entered into a deal, the post-investment plan begins. We identify the risks and potentials of the company and areas where they need support. Our dedicated support system follows up on a bi-weekly or monthly basis and assesses progress based on milestones. This process enables us to understand the needs of the investee and arrange for getting capital from Cypher if required. 

If a project needs high-quality talent, we leverage our venture partner who is a group HR for one of the largest tech companies in Asia to help with recruitment. We also provide a free co-working space in Dubai where necessary. Additionally, we assist start-ups in going to market and finding partnerships. 

Q. Can you discuss any advice you would give to entrepreneurs looking to raise capital from venture capitalists? 

To all the upcoming startups approaching Cypher Capital, I would advise you to firmly believe that you are creating a business and building a sustainable business model. As you start building your startup, it's important to think about how to optimize or build the right business model behind the whole problem. 

If you're planning to approach us for funding, it's crucial to have a clear idea of the problem you're trying to solve and a well-thought-out plan to address it. With a strong business model and a creative approach, your startup will be well-positioned for success. 

By prioritizing investment in startups that build sustainable business models first, rather than just launching a token, we’re optimistic about a strong foundation for long-term success and growth. As more startups build on blockchain technology and Web 3.0 principles, we can expect to see more innovation and disruption in various industries, and investors stand to benefit from this growth.

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