Investments seems to be soaring as with venture capital (VC) investing in the fields of digital art, non-fungible tokens (NFTs), among others. It is believed that venture capitalists expect that the technology behind NFTs can have a valuation worth billions of dollars.
According to data from PitchBook, a capital market company, venture capitalists made an investment worth $145 million throughout 2020. In 2020, the numbers changed when investments in NFT companies reached close to $4.6 billion, or about 11 times more than the previous seven years combined. “Unlike art, NFTs carry a lot more utility than just capturing beauty. The community-based NFT ecosystem and industries such as music and gaming have shown us that NFTs carry the potential to provide exponential returns to VCs. We have witnessed builders and creators in the Web3.0 ecosystem to create marketplaces and community-enabled decentralised applications (dApps). I believe the ecosystem is just getting started,” Pratik Gauri, co-founder and CEO, 5ire, a blockchain-based platform, told FE Blockchain.
Experts believe that venture capitalists can benefit from NFT-oriented investments, through factors such as an ownership economy platform and access to Web3.0-based gateways for financialisation of new products and services. Insights from BNY Mellon, a corporate investment banking company, showed that an increasing interest from venture capitalists towards NFTs have resulted into a surging number of buyers to incentivise digital artists for creation and sale of their NFTs. Although, NFTs are considered a trend primarily in the NFT world, it is predicted that assets such as diamond, gold or land, could be the next big trend, for which marketplaces would be needed to improvise their adoption strategies.
“The potential of NFTs can play a significant role in development of metaverse and Web3.0. If not directly and immediately, VCs interest in NFTs signal a commencement of VC interest in DeFi and Web3.0. As DeFi is still a regulatory grey area, VCs have been cautious in their approach to the former. Simplified nature of NFTs has increased mass consumer appeal, and may bring DeFi into the mainstream which most VCs still consider to be niche,” Sachin Jasuja, founding partner, Centricity, a wealth technology platform, stated.
Reportedly, VC firms such as AU21 Capital, Shima Capital, NGC Ventures, Sfermion, Magnus Capital, Genesis Block Ventures, among others, have started to bet big on NFT projects. Other marketplaces such as Nifty Gateway clocked $500,000 before being acquired by VC-backed cryptocurrency exchange Gemini for an undisclosed amount in 2019. Australian venture capital firm Tenacious Ventures conducted a $1.1 million seed round for Geora, a company that uses NFTs to link traceability data in agricultural projects.
Gonig forward, investors expect that participation of venture capitalists in NFTs will be impacted by factors such as backend technology infrastructure, retail participation, and the consumer brand appeal related to NFTs. As reported by NFT Tech, a capital market company, traditional VCs such as Andreessen Horowtiz and Sequoia Capital have established their reputations through investing in Web2.0 startups, and aim to enhance their potential through Web3.0-based portfolio diversification. Also, cryptocurrency-focused VCs such as Pantera Capital and Digital Currency Group have been investing in projects across different segments of the cryptocurrency market.
“NFT-based investments are done by Simple Agreement for Future Tokens (SAFTs), for the tokens to be utility-based and help with the representation of the venture capital-backed company. This practice is also expected to push for high networth individuals (HNIs) to take part in the funding rounds VCs. In the next couple of years, a scenario of a Web2.0 company such as Meta buying an NFT company to bolster its Web3.0-backed position can happen, along with NFT companies going for initial public offerings (IPOs),” Amanjot Malhotra, country head – India, Bitay, a cryptocurrency exchange, mentioned.