Today we are excited to announce our latest venture fund, Venture Fund III, a $430M fund that invests $500K-$25M in early-stage opportunities all the way up to $100M+ for later-stage projects when combined with our evergreen liquid fund.
We’ve been investing in crypto for about 5 years now, and have watched innovation slowly move up the stack. While we continue to make deep tech and infrastructure investments, we are spending an increasing percentage of our time on things that directly face consumers and that are poised to reshape massive consumer-facing markets. Here are some of the areas we’re most excited about:
Proof of Physical Work
As we previously wrote, one of the most powerful features of crypto-economic protocols is their ability to create incentive structures that allow anyone in the world to permissionlessly contribute to a set of shared objectives. These incentive structures can be finely tuned to facilitate large-scale coordination to achieve specific goals. While the vast majority of crypto-innovation has been focused on coordinating digital communities and economies, tokens also create opportunities for innovation in capital formation and human coordination that extend beyond the digital world and into the physical.
We refer to this thesis as “proof of physical work.” Protocols that fit this thesis incentivize people to do verifiable work that builds real-world infrastructure. The two most notable in our portfolio today are Helium and Hivemapper; however, we’re increasingly interested in this space actively looking for projects to disrupt incumbent industries with this model (e.g., Web3 AirBnB, Uber, microgrids, etc.)
DataDAOs are a spiritually similar idea to Proof of Physical Work, but for data instead of physical infrastructure.
There is a lot of fragmented data that, if aggregated, would be more valuable than the sum of the parts. Right now, that data cannot be aggregated because it’s either too sensitive or personal, or because the aggregators are not subject to governance by users. Crypto helps to solve this by 1) creating stronger incentives for users to contribute data that outweigh the current risk-reward, 2) by creating a decentralized, permissionless, trust-minimized data intermediary that expands access and inclusion, and 3) by pushing the governing power from the hands of a few to a community of many (aka credible neutrality in crypto speak). Crypto incentives are the key to inviting participating and unlocking data that is more valuable than the sum of its parts.
We recently invested in our first DataDAO, Delphia. Delphia is aggregating investor-contributed data to improve a trading algorithm that gets smarter with every new investor and contributor that joins up (i.e., the DAO).
While creator monetization is certainly not a new idea, the opportunities for it are actually just coming into view now as the underlying platforms and rails are now mature enough to support it. The archetypes for next-generation creator monetization tools are being invented as we speak. Right now, it's a world-wide experiment to invent the most effective and profitable model, but once the mold is casted there are millions of creators waiting on the sidelines to enter the game. The opportunity for creator monetization will happen slowly and then all at once.
We expect millions of new creators to build meaningful new businesses across a myriad of online platforms leveraging crypto for payment rails, DeFi, NFTs, social tokens, and more. As an example, Kyle talked extensively about the idea of Music VC DAOs in his 2021 keynote at the December 2021 Multicoin Summit.
We’ve already invested in a number of creator monetization tools and platforms including Metaplex, the NFT standard on Solana, Audius, a web3 digital streaming platform, Strata Protocol, an open-source protocol to launch tokens around a person, project, or idea, and FanTiger, an NFT song platform.
As the underlying infrastructure systems mature (Solana, Aptos, Ethereum, etc.), it’s becoming easier to build consumer-facing apps of all forms. Myriad web2 entrepreneurs are discovering crypto, and aiming to build world-class consumer experiences that leverage the unique properties of crypto systems to unlock new consumer behaviors.
We have invested in a few consumer social products that we haven’t announced yet, but that we expect to flag bearers of the industry in terms of UX and showing the world how to build world class crypto-native consumer experiences.
New Business Models for Collaborating on IP
One of the most misunderstood super powers of crypto is the mechanism by which crypto enables novel forms of capital formation. Bitcoin pioneered this with mining, and there have been a wave of capital formation innovations since then: ICOs, air drops, liquidity mining, NFT mints, Helium’s proof-of-coverage, and more.
Before the Internet, there were only a handful of major media companies in the U.S. (Hearst, NYC, Sinclair, News Corp, etc.). However, over the last 20 years, the media landscape has been radically inverted with the rise of blogs, newsletters, social media, and more. There are now billions of media sources around the world.
Similarly, today there are only a handful of major IP studios in the US (Disney, Marvel, Comcast, Warner, Paramount, etc.). We expect the next wave of IP studios to be crypto native and community driven.
We’ve written extensively about the Web3 Stack (see here, here, and here) and the opportunities in it. We’ve been one of the most active investors in Web3 infrastructure investors since early 2018 with our investments in Livepeer and The Graph.
Open Finance is one of our Crypto Mega Theses. Open Finance, often referred to as Decentralized Finance (or DeFi, which we view as a subset of Open Finance), is one of the most important innovation playing fields in crypto. Over the course of 2018-2021 we saw the rise of DeFi summer and an explosion of innovation. The market since then has cooled but certainly not gone away. We talk with founders everyday building new DeFi tools that seek to supplant the status quo or create an entirely new category. Innovation is alive and well at the front lines.
There are lots of markets that can be (re)built to be more inclusive and open using DeFi rails. One such example is BetDEX, which is focused on sports betting, which is a highly-restricted space today. Another is DFlow, which is pioneering payment-for-order-flow markets in crypto.
We expect to invest in many more, and hopefully to see higher-level applications built across our creator monetization and permissionless finance theses that take advantage of composability.
We believe that India is particularly well positioned to adopt web3 technologies given 1) the the difficulty in market penetration for American and Chinese tech giants, and 2) the opportunity to build and own Indian native web3 businesses, 3) relatively young, tech savvy and English speaking demographics, and 4) the proliferation of remote work.
We also believe that Indian entrepreneurs will be best able to design products that serve their local markets and intend to invest significantly in Indian Web3 startups like FanTiger.
We are seeing early experiments at the intersection of crypto and online communities around shared interests that can scale. Crypto supercharges such community formation because of the ability to tap into global talent and capital pools. However, better coordination infrastructure is required to realize this vision at scale. We are actively following the space and engaging and investing in it.
Work With Us
Although we have grown substantially over the last few years, the way we operate has not changed. We are still thesis-driven and we are still founder-first. Every member of our investment team works directly with all of our portfolio companies, regardless of who leads the investment. Our combined skillsets is the leverage we deploy to help the best crypto ideas succeed.
While we catch flack for running against the grain at times, our reputation with founders is what we care most about. We have chosen to deliberately remain small and focused as an organization. We vet each member of the team to ensure they contribute in new and differentiated ways. We avoid groupthink at all costs and strive to add value in ways no other investor can. If you’re building anything that fits any of the theses above, we’d love to speak with you and hear your ideas. Our DMs are open and you can reach any member of our investment team via email or on Twitter here.
Disclosure: Multicoin has established, maintains and enforces written policies and procedures reasonably designed to identify and effectively manage conflicts of interest related to its investment activities, and may hold similar or related investments in different investment vehicles that follow different investment strategies from those of Multicoin Venture Fund III.