DWF Ventures Investment Thesis 2023

In the nascent field of Web3, we can expect the odds to be poorer than the standard start-up survival rates. To help us invest against the odds, we first need to understand these odds. To do so, we have to look at past investment cycles in a bid to systematically invest in the future.

Brief History of Previous Investment Cycles

Looking back at previous investment cycles in the Web3 space, we can see how the market has evolved and matured over time.

The origins of cryptographic digital currency can be traced back to the 1980s, with eCash white paper. It was not until the launch of Bitcoin in 2008 that the potential of blockchain technology was realized. Bitcoin peaked at around US$260 in April 2013 and this ushered in the season of alternative coins and Initial Coin Offerings (ICOs) from 2014 to 2017. While many of these projects did not deliver as promised, Ethereum emerged as a game-changer that helped to further the potential of decentralized blockchain technology. The ICO boom also brought Bitcoin into the spotlight, with mainstream news outlets covering the exponential rise of Bitcoin to US$20,000 in December 2017.

After the price frenzy for Bitcoin, the markets corrected and Bitcoin was down to US$3,200 in December 2018. The previous attention and drastic price fluctuations brought regulatory attention to the cryptocurrency and blockchain scene. During this period of time, ICO teams that remained started to deliver the promised products, and blockchains with smart contract capabilities allowed for more sophisticated products to be built on-chain.

This brings us to the most recent investment cycle. At this point, institutions and sophisticated investors start to notice the potential value proposition of Bitcoin and other cryptocurrencies. With more investments and liquidity in the ecosystem, teams could experiment with various smart contract projects. Decentralised Finance (DeFi) Summer began in 2019. This overlapped with the Non-Fungible Token (NFT) frenzy in 2021 where crypto flirted with the potential implementation of mass retail adoption. The accumulation of institutional and retail attention allowed Bitcoin to reach an all-time high of US$68,000.

After all the euphoria, the gradual price depreciation of Bitcoin ultimately led to the subsequent domino fall of Terra & Luna, 3AC, celsius, and FTX. During this winter, the price of Bitcoin once dropped to as low as US$15,800, before gradually recovering to today’s price at US$28,000.

Reassessing the current web3 landscape

The previous bull cycle and current winter market prove that there is much resilience in this space, demonstrating how the space has evolved. This winter has peeled away the speculative layer, allowing the Web3 community to focus on delivering value in the space. This cycle has also helped to establish new potentials and highlight the importance of the following areas:

  1. The importance of decentralisation to reduce the singular points of failure
  2. Multi-chain versus cross-chain future
  3. Importance of privacy and self-ownership
  4. A growing potential market of sophisticated derivatives products for risk management
  5. The potential of mass retail usage through non-financial-focused products

DWF Ventures Investments Focus

In venture investing, funds distinguish themselves in three main areas:

  1. Stage of Investments
  2. Investment Verticals
  3. Geography

Stage of Investments — Early stage (Mainly pre-seed to seed rounds)

For stages of investments, DWF Ventures will be focusing on pre-seed to seed rounds. This allows us a front-row view of the innovative ideas attempting to push to boundaries of the Web3 space. Later-stage projects are welcomed only if they consist of a solid team leading at the forefront of their field.

Investment Verticals — Focused on Derivatives protocols, Consumer Dapps/Products, and Data & Privacy Infrastructure

For investment verticals, the team is focusing on three main verticals:

  1. Derivatives Protocols: DWF Ventures is particularly interested in Derivatives Protocols for two primary reasons.
    - Firstly, they have proven to be a perfect fit for crypto users, often being their first interaction with the cryptocurrency space. Many individuals start with buying and selling tokens and then venture into derivatives like perpetuals or options to enhance leverage and returns.
    - Secondly, DWF Ventures, as part of its parent company, DWF Labs, can provide synergistic value additions to derivatives protocols, drawing from its trading expertise and more
  2. Consumer Dapps/Products: As mentioned earlier, a significant portion of crypto users initially enters the space through trading, primarily driven by profit-seeking motives. However, retaining their interest becomes challenging when profits wane. Hence, consumer Dapps, offering additional appeals like social features, tooling, content, and more, hold the potential to retain and attract a broader mainstream audience.
    It’s important to acknowledge that predicting the exact nature of future consumer Dapps is challenging, given the unpredictable historic evolution of social apps in web2. Hence, we are maintain an open-minded approach to the evolving landscape of crypto, allowing us to adapt to its dynamic nature.
  3. Data & Privacy Layer in the Web3 Stack: Investment in infrastructure stacks has historically proven highly profitable for most VCs. However, the world of web3 technology is complex and always changing, with new terms and categories emerging.
    To navigate this ever-changing landscape, DWF Ventures has outlined the relevant verticals in the diagram below.
Source: Exploring Web3 Infrastructure Stack

Given the expansive nature of the infrastructure domain, our current focus lies in the Data & Privacy Layer. This focus stems from the growing significance of data and privacy, which not only contributes to providing more sophisticated experiences but could also broadens the user base for the blockchain space.

— reworded on 9th oct 2023

Geography — The whole Internet

DWF Ventures is a global firm covering multiple time zones across key crypto hubs. Our teams can be found in Switzerland, Dubai, Singapore, Hong Kong, the British Virgin Islands, and Korea.

Especially in the space of web3, where teams tend to be decentralised and global, we believe that where there is an internet connection, teams can build in web3. With that, our geographical mandate will cover as far as the internet can reach.

DWF Ventures Investment Framework

Based on a study by Coresignal, there are over 490 startups starting in the first half of 2022. More startups mean a more rigorous judging criterion. Here at DWF Ventures, we follow a basic investment framework focusing on three main areas:

  1. Favorable web3 verticals
  2. Project’s Level of Innovation
  3. Compatibility to collaborate with projects on launching and growing

Favorable web3 verticals

DWF Ventures would prefer to focus on the three verticals, Web3 Infrastructure, Derivatives Protocols, and Consumer-focused Dapps/Products.

However, the thought process for picking those verticals is to ensure that the projects have healthy addressable markets and demand. Given the evolving space, we are willing to stand corrected and give the benefit of the doubt that new verticals can form over time.

Project’s Level of Innovation

In the field of innovation, there are different levels and each level has varying scales of impact. We can classify innovation into four main quadrants:

  1. Incremental Innovation: Small and gradual improvements on existing products. Eg: Introducing a new order type on DEXes
  2. Market Innovation: New marketing methods or techniques. Eg: Sushiswap community-driven approach
  3. Technical Innovation: New and improved versions of existing products. Eg: Launch of Curve stablecoin pools with a new algorithmic formula
  4. Radical Innovation: New product with an entirely new business model. Eg: Launch of Ethereum in 2015

At DWF Ventures, we typically seek out projects that fall into the realm of market, technical and radical innovation.

Fundamentally, we are not looking for a project that will solve the next problem statement. We want to find a project to set the next industry standards in their lead vertical. In our opinion, most of the time it is not about solving the next problem, but it is about creating an irreplaceable want.

Compatibility to collaborate with projects on launching and growing

Based on The Block Research, there are large amounts of undeployed capital in the web3 space.

Source: The Block

While we can still deploy capital as a sleeping partner, the journey from zero to one is tumultuous, especially in the web3 space. As investors, we want to provide support that is complementary to the founders’ vision and mission. The areas of support we provide include Go-to-market strategies, tokenomics, and even trading expertise.

Ultimately, we believe that the investment works more as a partnership where both parties are aligned in helping to create value for the space. Therefore, if you are looking for an investor to buy into your vision and a partner to help build, feel free to reach out to DWF Ventures!

Interested parties can pitch their project on our website at https://www.dwf-labs.com/ventures