At EMERGE Live Egor and Lale discussed various topics, including the differences between Web 2 and Web 3 investing, the challenges of investing in startups, the potential for investment in Turkey, due diligence practices, and strategies for finding and investing in early-stage startups. While we've highlighted some key insights below, the full episode provides even more valuable information!Watch full EMERGE Live#3 Challenges of Investing in Web 3 by Egor Abramov
In 2022, Egor made the transition from Web 2 to Web 3 investment, encountering numerous challenges in evaluating Web 3 startups. So, what’s important to know before even think about investing in Web 3? Keep reading to get the insights.
1. Understanding how Web 3 operates is paramount. Web 3 developers focus on building basic infrastructure rather than user-facing apps. That’s why familiarity with the underlying technology and web 3 business concepts is crucial. You need to be an expert or you need to have dedicated researcher in your team.
2. There are no A-stage web 3 startups on the market. A crucial difference between investing in Web 2 and Web 3 projects, is that Web 3 projects often go public after the seed round.
3. Investing in Web 3 projects requires competing with individual investors who typically invest in small ticket sizes (even from $100), making it challenging to outcompete them. Also on pre-seed stage web 3 projects usually don’t need a lot of money, they can raise them via closed communities where lots of people are ready to invest their $100+.
4. Community is very important. If you want to invest in Web 3 you need to build your network from scratch. People from Web 3 don’t intersect with the web 2 community.
5. The traditional mantra of focusing on team, product, and market doesn't apply in Web 3 startups. In Web 3 your clients are your customers who form your product and the market at the same time.The challenges of investing in startups vs traditional investments by Lale Can Gözübüyük
During the discussion, Lale emphasized the abundance of information and liquidity in traditional equity markets, which allows for well-informed decision-making. However, she noted that these factors do not apply in the same way to venture capital, particularly in the early-stage startup space. So let’s deep dive into challenges in startup investment.
1. Unlike traditional investments, startups often lack financial data such as cash flow history and revenue information. Therefore, investors must rely heavily on their understanding of the technology, the founder's vision, and their own opinions.
Insight for startups: It is crucial to be transparent and honest with investors to maintain long-term relationships in the industry. Share the full information about your startup, and available opportunities with investors as It gives an advantage over competitors.
2. Venture capital is a high-risk/ high-return asset class and it should be seen as a supplement to traditional investments. Venture capital has a unique risk profile, which aims for extreme results rather than average returns. In other words, Venture capital is a return enhancer. Investors need to think in a portfolio context and supplement it to their traditional asset class.
For insights into the investment potential in Turkey and Contribution Capital's unique approach to finding early-stage startups to invest in, watch the full episode:Watch full EMERGE Live#3