Cait Brumme is Chief Executive Officer at MassChallenge. Cait has over a decade of experience in the field of re-imaging capitalism.
getty
The world has seen an extraordinary rise in interest in and funding for Web 3.0 applications over the past two years. Funding across blockchain and cryptocurrency skyrocketed, tripling from under $10 billion in 2020 to more than $30 billion in 2021, according to Pitchbook data, fueled by the rising number of investors in this sector. Not surprisingly, this funding fury has driven up valuations, resulting in nearly 40 new crypto unicorns in 2021 alone.
Web 3.0 is built on the premise of decentralized ownership, authorship and collaboration — where users participate in both the creation, the governance and the economics of the internet. Where Web 1.0 was about reading and getting information produced by a limited set of individuals, and Web 2.0 added to these capabilities by enabling the creation of content and information, Web 3.0 will enable reading, writing, creating and owning. While the specific implications in daily life are still on the horizon, the potential for disruption is enormous as Web 3.0 frameworks and capabilities usher in the next wave of innovation.
And yet, as someone who straddles mainstream and mission, I can’t help but be struck by the awkward chasm between venture capital’s enthusiasm for the underlying premise of Web 3.0 — decentralization and collaboration — and how the standard venture capital process framework remains private and closed.
Venture 1.0
The typical venture capital process starts with a partner leveraging personal networks and relationships to generate a large pipeline of potential investments. This partner then uses pattern recognition and social signaling to quickly determine which companies deserve additional attention and diligence. For example, was this company referred by someone in their personal network? Did this entrepreneur come from a reputable computer science program? Due diligence is conducted primarily by the investment team, which gets to know the founders and their business through comprehensive due diligence across the technology, business model, market, etc.
Investment decisions are then typically made based on a summary assessment and recommendation by the investment team. This recommendation is made to and discussed by an investment committee comprised of a venture firm's partners or a carefully selected panel of elite experts. In some firms, while the investment may be discussed by a committee, the final decision may lie with a single investment partner.
Venture capitalists’ approach to assessment and decision-making is closely intertwined with the narrative of the venture capitalist as exceptional, and an individual whose smarts, expertise and experience give them unique insights into the future. This unique individual or group, therefore, has the knowledge and insights to identify the best companies in a centralized and closed-door process.
Time For Venture 3.0?
Venture capital has most certainly fueled highly scalable and profitable companies in an extraordinary post-dot-com explosion. However, general investment practices remain remarkably similar to the 1.0 approach developed before the internet as we now know it.
As new (and old) venture capitalists embrace a Web 3.0 future built on the cornerstones of decentralization, collaboration and crowd-based wisdom, I can’t help but wonder what the future of venture capital and the face of entrepreneurship could look like if venture embraced these same cornerstones in their investment process. What might "Venture 3.0” create?
It is hard to know what the future will hold, but imagine a more globalized, diverse and community-centric generation of entrepreneurs and investors than we have seen to date. Imagine a decentralized Silicon Valley characterized by a globally distributed network of entrepreneurs proximate to new problems and customers. Imagine decentralized methods of identification, selection and underwriting or novel economic structures in which fund economics incentivize collaboration across peers. Now that would be transformative.
Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?
