Madrona has always been focused on ambitious entrepreneurs aggressively pushing their industries forward. Throughout the course of our history, we have seen and backed new tech solutions in nascent categories – from on-prem to cloud to SaaS to the emergence of intelligent applications – that have led to brand new categories and massive markets. With that backdrop, we see huge possibilities in the world of Web3, and we’re excited to back change-making Web3 founders. Madrona is looking at investment areas across every layer of Web3, but we are most actively excited about wallets as a new form of identity, overlaps between NFTs and gaming, new payment rails, and Ethereum scaling solutions leveraging zero-knowledge proofs.
Initially led by enthusiasm for cryptocurrencies like Bitcoin and Ethereum, the Web3 ecosystem is rapidly expanding as a new computational paradigm. Companies that are unafraid to rethink long-held beliefs and consumers who are eager to interact with the internet in new ways are now leading the charge. The emergence over the last several years of decentralized finance (DeFi), decentralized autonomous organizations (DAOs), and non-fungible tokens (NFTs) highlight the power of revolutionary technology intersecting with customer enthusiasm.
We have had a strong opinion for the past several years that blockchain technology and distributed architecture will be a major influence on the future of the internet. While we don’t think Web3 will replace Web2, we are seeing another layer of the internet emerge built on a Web3 tech stack. Our enthusiasm for this market has not changed and is only growing stronger as Web3 gains steam. Blockchain-related technologies and infrastructure are crucial to building a new world of applications and experiences. Madrona is looking at investment areas across every layer of Web3, but we are most actively excited about wallets as a new form of identity, overlaps between NFTs and gaming, new payment rails, and Ethereum scaling solutions leveraging zero-knowledge proofs.
Madrona has five Web3 or crypto investments in our portfolio. Over the past year, we’ve focused on partnering with Web3 entrepreneurs who are building new Web3 infrastructure and applications uniquely leveraging blockchain technology. Many of our investments are still in stealth or are incubating with Madrona Venture Labs. These companies fall into three broad areas in Web3 that we are excited about: onramps that will bring the next 100 million users into Web3, application analytics, and payments. We see massive untapped potential due to an influx of top talent driven to build the next version of the internet, new consumer behaviors around the use of NFTs, DeFi, and games, and the emergence of infrastructure to enable frictionless use of Web3 applications.
Why Madrona is investing in Web3
The door is open for Web3. Despite token volatility, there has been increased consumer engagement and an influx of talent building Web3 technology over the past two years. Mainstream crypto adoption has exploded, offering more avenues for consumers to experience Web3. More than 81 million people hold non-custodial wallets, for example. And NFT marketplaces are taking off – OpenSea has more than 1 million monthly active users. Other gaming, ticketing, and membership companies are serving as onramps and utilizing NFTs as ledgers and proof of ownership.
When we look at any industry, our primary focus is on companies creating killer customer use cases and solving real pain points. For Web3, the value for users is evolving, but it is rooted in architecture that allows for “trustless transactions,” meaning transactions with no middleman that open the door for peer-to-peer interactions. Trustless transactions enable new ways for users to own their data, and as a firm, we are enthusiastic about partnering with founders unlocking new customer-friendly interactions.
Amid all the excitement, blockchains still need much improvement. Blockchain technology brings decentralization to consumers but at a steep price: transactions are expensive, slow, and irreversible. In some cases, these are features, but in other cases, the core architecture only serves to increase customer pain points. We see this as a major opportunity for new players. Like other emerging technologies, there is an opportunity to leverage what is new and build the missing pieces.
At Madrona, it doesn’t matter whether you’re a Web3 company, an intelligent application, or a marketplace, we invest in the team and the vision of a project. We take a long-term approach and do not look for quick short-term returns on our investments.
As early investors in Taxbit, Sila, RecRoom, and others, we are deep in the consumer, fintech, and infrastructure layers of Web3. But no matter the industry, Madrona partners with companies for the long run. Many in the Web3 world are skeptical of venture investing. After all, Ethereum and Bitcoin were both built without venture capital. They launched tokens and effectively raised funds from their own user community. But there are several benefits for entrepreneurs to partner with venture capitalists, specifically Madrona, when launching and scaling their company.
At Madrona, it doesn’t matter whether you’re a Web3 company, an intelligent application, or a marketplace, we invest in the team and the vision of a project. We take a long-term approach and do not look for quick short-term returns on our investments – we are committed to partnering early with teams to build lasting and impactful businesses. We believe successful businesses are built over time with the guidance and backing of investors that roll up their sleeves and work closely with entrepreneurs to provide a helpful perspective, a network, and access to resources such as hiring, communications and back-office infrastructure. Our strategy is well suited to Web3. With so much volatility in early projects – from unexpected drops in token value to cash limitations, to even things like a global pandemic – Web3 teams are best suited to working with investors who are deeply committed to supporting the company throughout its entire journey.
The Madrona team has enjoyed engaging with the Web3 ecosystem in person as the pandemic has died down. We attended NFT NYC, ETHDenver, and ETHPortland, and recently Madrona Venture Labs hosted a Web3 hackathon, Launchable. Please reach out if you would like to be included in future Web3 meetups, hackathons, and builder events. If you’re building a Web3 company for the long run, all of us at Madrona are excited to connect and learn more!
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