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Web3 Opens Up Venture Capital

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In 1968, a relatively unknown private company debuted on the public markets with the help of the first generation of venture capitalists…

Four letter blocks, spelling out Web 3.0.

Source: Shutterstock

Both the company and investors made big-time money…

The company was called Digital Equipment Corporation (DEC). It was originally backed with a $70,000 investment by American Research and Development Corporation (ARDC).

That initial investment turned into over $35 million, a 500x return!

Although the investment return was off the charts, both the company and early-stage investors were wandering into uncharted waters. Scaling a tiny company up to a publicly traded behemoth, while making enormous profits along the way, was a relatively unknown strategy.

In today’s venture capital world, this strategy is the bread-and-butter technique.

Here’s what the process looks like:

  • Find a great team of entrepreneurs with an excellent idea.
  • Fund that team to execute on their goals.
  • Help the team along the way as they encounter various challenges.
  • Guide the team to a public market debut or major acquisition.

Sure, the process can vary depending on the people involved. But the ultimate goal of venture capital is to build companies that create excellent products or services… and make enormous amounts of money as a result.

That being said, a lot has changed since the early days of venture capital…

Times Change, But the Goal Remains the Same

Originally, ARDC was founded to help veterans returning from World War II start companies and build successful lives in the private sector.

This process really boiled down to personal relationships, closed-door meetings, and strategic business connections. Investing in the olden days of VC was like belonging to a secret society.

Yes, it was about great ideas, hardworking people and strategic decisions…

But it was also about who you knew and what you had access to.

Over the past several decades, the venture capital world has evolved enormously.

In 2020, there were nearly 2,000 venture capital firms in the U.S. alone that deployed capital into more than 10,000 companies. From these companies, it’s estimated that 2.5 million people are employed.

One of the main drivers of this growth within the VC world has been the introduction and growth of the internet. Of course, many of the world’s top tech companies are successful because of the internet… but the internet has also created access for investors to participate in the funding of these companies for the first time.

And that trend of creating access for investors is about to accelerate even more.

Web3 Will Disrupt the VC World

Regular Venture Capital Digest readers are familiar with the Web3 trend sweeping the internet. It’s best simply to think about Web3 as the next phase of the internet… a phase that will change how people will interact with other individuals and companies.

Web3 is the convergence of multiple new technologies. Blockchain technology and token-based economics are the big drivers behind Web3. Both aim to give internet users much more control over how they use the internet.

For the venture capital world, Web3 could be the biggest disrupter the industry has ever seen… and that is overwhelmingly positive for individual private investors.

For example, let’s take a look at Blockzero.

“Blockzero is a decentralized autonomous organization with a mission to build, launch, and scale the next generation of Web3 startups.”

When you break it down, Blockzero is the combination of a bunch of existing platforms and technologies that venture capitalists and entrepreneurs previously have been using independently.

From the organization’s pitch deck:

A slide from Blockzero's pitch deck. It shows a Venn diagram with the company's logo at the center of circles labeled community, capital and connections.

Source: Blockzero

By using blockchain technology, Blockzero is able to facilitate a community that can collaborate, fund, and build the world’s next great ideas. This concept is nothing new, as traditional startup accelerators have been successfully executing on this strategy for years.

One of the most successful accelerators, Y Combinator, has been leading the way since 2005. They have helped launch more than 3,000 companies which now have a combined valuation of over $400 billion.

To say that their model is successful would be a massive understatement. Their list of household name companies is staggering, and they helped create over 70,000 jobs.

However, with the introduction of Web3 technologies, and organizations such as Blockzero, the traditional venture capital investing and accelerating business could be at risk.

But that could mean enormous opportunity for individual venture capital investors.

The New “VC” Fund

Blockzero allows anyone to participate by purchasing their native token, XIO (CCC:XIO-USD). This gives someone the ability to participate in the Blockzero Labs ecosystem as a real stakeholder of all the projects that are being built within the community.

An image comparing and contrasting the qualities of Y Combinator versus Blockzero.

Source: blockzerolabs.io

Again, Blockzero Lab’s business model is not really new, in terms of concept. It’s just that technological infrastructure has finally caught up to facilitate this idea.

Personally, I believe we’ll have several more years before investors understand what this all means. The traditional model of companies going out and raising capital from investors will likely be around for the next decade.

But things are changing fast, and I predict that some of the most influential companies of the future will likely be coming out of community-built incubators and accelerators, like Blockzero Labs.

I’ve said it before, and I’ll say it again. Start getting familiar with cryptocurrencies and blockchain technologies. You don’t have to become a leading expert. Just get familiar.

I believe that it’s highly likely that some of the best investment opportunities we’ll see in the next couple of years will require investors to participate through cryptocurrencies and blockchain-based tokens… and we’ll want to be ready when the time comes.

On the date of publication, Cody Shirk did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

By focusing on megatrends that will shape the future, Cody Shirk uncovers generational wealth in the private investing space. To make sure you never miss Venture Capital Digest, click here to subscribe.

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