How do you build a winning investment strategy?
Andrei Grachev’s DWF Labs has emerged as one of the most prominent backers of startups in the Web3 space. Bear market conditions hampering crypto over the past year have done nothing to dampen its belief in the promise of a decentralized web. So, while other VCs have exercised more prudence in their investment strategies, DWF seems to have thrown caution to the wind, growing its portfolio to more than 50 Web3 projects over the last year.
Some might think it’s a risky strategy to be investing in an average of five new projects each month, especially in a space where funding has been getting harder and harder to come by. But for believers in Web3, it makes a lot of sense. Diversification is one of the most common ways in which investors hedge against risk. They can’t be sure that every promising project they back are going to succeed, so instead, they put their capital into multiple startups that show strong potential.
For Grachev, diversification is a no-brainer. He’s 100% convinced that the decentralized web is on the verge of taking off, and he wants to be a very big part of it.
“At DWF Labs, we believe in the potential of the entire web3 ecosystem, which is why we see diversification as a way to participate in all of its promising verticals,” Grachev said. “We understand that diversification is often seen as a risk mitigation tool, but for us, it’s also a way to stay ahead of the curve and remain adaptable to the evolving needs of the market.”
Diversification makes sense because the Web3 world is incredibly diverse. The term Web3 is a catch-all for a better internet, and there are thousands of projects each building it’s a little part of this brave new world. They span verticals ranging from decentralized autonomous organizations (DAOs) to DeFi and trading, to infrastructure, media, entertainment, the metaverse, GameFi, and non-fungible tokens (NFTs). Smartly, DWF’s portfolio of investments spans the entire gamut.
“We are particularly excited about the potential of NFTs and the numerous innovative use cases of these that have emerged recently,” Grachev said. “We also see significant growth potential in infrastructure projects such as blockchain layers, crosschains, and bridges. In addition, we also recognize the importance of fun and entertainment in the Web3 ecosystem, and so we’re supporting projects that promote social interaction, such as social media, metaverse, and gaming.”
DWF’s portfolio is expansive. On the media side, DWF is looking to fulfill one of the biggest promises of Web3 and decentralization, which is giving users back control of their private data. One of its most recent investments is in the blockchain-based marketing technology WOM Protocol, which replaces traditional ads with user-generated content. WOM Protocol enables advertisers to find, track and reward word-of-mouth recommendations, while rewarding creators based on their content engagement and quality ratings. With WOM, they can build an entirely new advertising model that isn’t reliant on using personal data to target users.
Infrastructure is another big area of interest for DWF. It’s currently backing no less than 23 Web3 infrastructure projects, with one of its hottest prospects being TON, a Layer-1 blockchain that was created by the founders of the Telegram app, Nikolai and Pavel Durov, before being handed over to the open-source community. Since renamed The Open Network, it comes with the promise of being able to support millions of transactions per second. In addition, DWF believes there’s big potential in so-called scaling solutions, as illustrated by its backing of Orbs, a Layer-3 virtual chain infrastructure for dApps that provides high security, low transactions at fast speeds, and multi-chain interoperability.
In gaming, DWF is associated with some of the most prominent names, including the play-to-earn gaming guild Yield Guild Games and the mobile gaming metaverse Kingdomverse, while one of its biggest DeFi bets is Coin98, a project that’s making decentralized finance more accessible to the masses.
Grachev explained that DWF’s wide portfolio is not just a matter of spreading its bets and backing as many horses as possible. Rather, it employs a multifaceted approach to diversification. “We prioritize innovative projects and bold founders who are committed to creating impactful change in the world,” he said.
Just as important is that its projects show strong fundamentals. “We look at factors such as token volume, liquidity, and community engagement when evaluating listed and unlisted projects,” Grachev continued. “We believe that investing in a diverse range of projects with varying degrees of risk and return potential is key to having a successful diversified portfolio.
DWF is also keen to see that its portfolio projects can play nicely with one another. Those who’ve been following DWF closely may have noticed that there is a lot of cooperation going on. For instance, last year the Orbs Protocol expanded into the TON ecosystem in a big way, developing multiple Layer-3 applications for TON, such as TON-Access, TON Minter, and TON Verifier. With this partnership, TON became the first non-EVM blockchain to explore Orbs’ innovative technologies. They further cemented their relationship this year when Orbs was announced as the main sponsor of two upcoming TON hackathon events.
Grachev said DWF spends a lot of its time encouraging its portfolio projects to collaborate, believing that by getting them to work with one another, everybody becomes stronger.
“We see synergies between different projects as essential to building a robust and interconnected web3 ecosystem,” Grachev explained. “By fostering communication and collaboration, we believe that our portfolio companies can learn from each other’s experiences, share resources, and ultimately achieve greater success.”
