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With markets facing turmoil, investor sentiment towards Web3 investments is often tepid, with most skeptical about their ability to weather the crisis.For example, in the case of Bitcoin, some believe it is doing well because it has reached new all-time highs, while the cryptocurrency market in general has grown from From $3 trillion to $1 trillion in November 2021 When we start the second half of 2022.
However, Bitcoin ended up joining the unfortunate downward market movement.bitcoin price down more than 70%.UST/Luna collapsed, Three Arrows Capital (3AC) was insolvent, Celsius froze withdrawals, and it didn’t help.
Still, not everyone is giving up on Web3 investments. Of all the crashes, blockchain is considered the biggest winner as it continues to demonstrate transparency. This on-chain transparency provides markets with valuable information that traditional finance could never provide. With this in mind, anyone interested in Web3 assets must carefully evaluate their options.
Since 2016, I have founded Raise venture capital And invested in more than 50 Web3 investments. Through this first-hand knowledge, I learned what to look for and where to look for opportunities.
Related: Understanding Noise in Web3
Sometimes there is over-optimism in bull markets and unnecessary fear and doubt in bear markets. Here are five elements to evaluate before investing in a Web3 startup.
Starting a Web3 business idea is easy, but running, maintaining and growing it is a whole different game. It doesn’t make sense to invest in a business without competent leadership and consistent members.
At the very least, look at the top three co-founders of the Web3 business: Chief Executive Officer (CEO), Chief Technology Officer (CTO), and Chief Marketing Officer (CMO). All three play a critical role in business success, with the CEO directing the planning and execution of the program, the CTO providing technical expertise, and the CMO responsible for promotion. There should be reasonable evidence that they are enthusiastically cooperating with each other and not trying to compete unhealthy.
It also helps build a credible advisory board. The agency can provide useful guidance in planning and implementing growth strategies, acquiring and retaining employees, building company culture, and finding investors and growth strategies.
The good news is that everyone in the organization is on the same page about their business model and plans. Rumors or news about management disagreements or even labor issues should be enough to reconsider investing in the company. Organizations run by people in conflict rarely have anything good.
2. Markets and Opportunities
The market is another key factor. Businesses continue to operate normally and even thrive even during a recession, especially if the market is sizable and demand for a product or service is deemed essential.
However, finding such a company in the Web3 space is tricky. Among the hundreds of companies seeking funding, it’s hard to find one that stands out in serving a market that’s less likely to fail.The niche market served by businesses in the decentralized web is still very narrow, especially given the Internet penetration Outside the “developed countries”.
Even in developed countries, knowledge and understanding of the modern technologies provided by Web3 enterprise offerings leaves much to be desired. Even now, many people don’t actually understand or simulate crypto, NFTs, and other blockchain products.
It is important to select investments with high potential that challenge not only current market conditions but also the preconceptions and prejudices of consumers, users, regulators and the media.
3. Product or Technology
Similar to traditional investing, it is advisable to look for companies that engage in services deemed important to day-to-day activities. Fintech companies focused on innovative payments and other financial services are a good place to start.
In some cases, the company provides products or services that are not considered essential. Nonetheless, they may come up with a groundbreaking or highly innovative solution with the potential to change conventions or create new market segments or serve institutional clients.
It is recommended to choose a company that can protect its product or technology. It should be patented to ensure that others cannot simply copy what they provide. If their business model can be taken over by copycats, or even legally and technologically out-competed by industry giants, they cannot make a profit.
In addition, for companies that do not yet have a technical founder or CTO, when the company’s technical requirements are critical, large-scale technical upgrades are required, and the company needs decisive and experienced technical leadership, it may be necessary to consider hiring a CTO. In the context of deciding on technology purchases and communicating with technically knowledgeable customers and business partners. Avoid investing in companies that don’t demonstrate sufficient technical expertise and leadership, especially when it comes to Web3.
related: Why do we need to invest in startups?
4. Customer or User
A viable investment is a profitable one, and it is only profitable if it has existing customers that can bring further growth. Never invest in a Web3 company that hasn’t tested its business model or product idea. By identifying and researching existing customers, you will understand whether the business model is effective and has growth potential.
If a business is not even serving actual customers, there is no market sentiment to measure. It is rare to gamble on novel product concepts or business ideas. If you have the guts to take risks, you have to study the market and potential customers’ reactions carefully.
Take an oversized phone, for example. Previously, the media ridiculed the use of phones that were almost as big as the user’s face. Phones with screens larger than six inches are now the norm. The same happens with product ideas at Web3 companies in the context of customer reception. You just have to study the trends carefully.
5. Contacts and strategic partnerships
Also, it is important to look at the strategic partnerships or connections of Web3 companies. Research company-related organisations or trade associations, business partners, pundits and established business players. Check to see if these connections actually contribute to the success of the business. Also, make sure this is a sensible long-term strategic partnership and not just a superficial or ad hoc connection.
Products become more acceptable when supported or promoted by strategic investors and partners who have the potential to convince customers to use the product or service.
However, watch out for fake influencers. An influential billionaire businessman makes a random positive comment on a cryptocurrency that causes its value to surge, not necessarily the kind of strategic connection you’re looking for. It only makes strategic sense if the billionaire will actually accept cryptocurrencies to sell his products or pay transaction fees within his business.
related: Web3 is more than technology, thanks to its inclusiveness
make the right decision
Evaluating each component requires rigorous due diligence, intuition and in-depth analysis to determine a score for each criterion.
Of course, there are many criteria that can provide a basis for making Web3 investment decisions. A good investment choice should not just be a good business idea. It also needs to be backed by a strong team, aligned with market conditions and current opportunities, clearly embraced by a large number of clients, and strategically linked to key industry players or authorities.
Always think about how you can contribute to the project. If the project resonates with your curiosity, knowledge or passion. Start participating in the community, ask questions and find ways to support. This is a great way to get to know the teams and communities involved.