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In 2022, blockchain venture funding hit record highs, with $26.8 billion worldwide. However, following the FTX collapse and a general downturn in crypto markets, there has been a shift. The 4th quarter of 2022 saw a steep downturn in VC investments in crypto, reflecting broader financial instability and a lack of investor confidence.
Additionally, the practical use and adoption of crypto assets continue to evolve, with significant growth outside the United States, particularly in regions like Latin America. However, regulatory enforcement, especially by the Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC), continues to shape the landscape, with a focus on addressing criminality and ensuring proper market conduct. These regulatory challenges have also stifled growth in the U.S., underscoring the need for a more accommodating framework.
A major shift has been the rise of AI, which started to dominate the VC space around the same time as the FTX collapse. This shift has seen blockchain startups struggling to attract VC funding, as investors turn towards the burgeoning AI sector. In 2023, AI projects received almost $28 billion, capturing a significant portion of global VC funding. This trend has compelled many blockchain projects to integrate AI components to regain investor interest.
An Economics Major Turned Crypto Crusader
To understand these dynamics and get into the nitty-gritties of VC funding for blockchain, I took on a call Ashima a.k.a Ash Arora, the youngest partner at LocalGlobe, a UK-based VC firm focused on seed and impact investments, former Investments Lead at Polygon Labs, founding Program Manager, and one of the 22 women VCs to watch by Business Insider.
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Since her graduation in 2017 as an economics major from Lady Shri Ram (LSR) College for Women, one of India’s leading institutes for Accounting and Finance, Arora has been a part of multiple world-class projects. Her journey, however, started from Citibank in Bombay where she was initially a part of the sales team and later on started taking up research projects.
It was through one such project that she discovered Bitcoin, which introduced her to the vast world of cryptocurrency and blockchain. Arora was so fascinated by it that at the end of 2017, she made the bold decision to invest her Christmas bonus, amounting to 2-3 lakh INR, in cryptocurrencies, against her father’s advice to opt for a fixed deposit. Blockchain has since remained an integral part of her life.
The Influence of AI on VC Funding in the Blockchain Sector
Given her experience of working with top VCs globally, leading funds, managing teams and raising funds, Arora offered valuable insights into the future of blockchain in the realm of VC funding. She stressed the fact that every emerging sector has its moment in the sun as has been the case with the future of work in 2019, health tech in 2020-21 and blockchain in 2022. Understandably and naturally, in 2023, it is AI that has briefly stayed under the spotlight.
The future of crypto is entirely going to be dependent on certain countries that will allow crypto tech and advancement. The attraction of global crypto talent will also happen in that geography. It would also include thinking of expats, immigrants, and visas.
But what impact does the sheer popularity of AI and other emerging tech sectors have on the funding landscape for blockchain, particularly in a situation where we have not yet fully recovered from the bear market? “As far as venture capital funding is concerned then investors follow founders, not the other way around. Currently, the companies we are investing in at LocalGlobe, 30% to 40% of our daily show is AI, which was merely 10% to 15% until last year. So, AI is a super hot industry for now. But questions like whether it will be able to create an impact in the world, prove to be sustainable, and gain enough traction will only be answered by the end of 2024”, Arora pointed out.
Has Crypto Followed Capital Influx and Not Advancement?
Throughout her successful and thriving VC career, Arora has extensively studied the dynamics of funding. What makes her perspective crucial is her profound understanding of the role played by policy structures in the tech field. Arora served as the founding program manager at a non-profit philanthropic foundation working on improving India’s air quality called A-PAG, co-founded by Ashish Dhawan, an Indian philanthropist, investor and founder, wherein she gained a firsthand understanding of the significance of regulation and policy in the tech industry.
As far as venture capital funding is concerned then investors follow founders, not the other way around. Currently, the companies we are investing in at LocalGlobe, 30% to 40% of our daily show is AI, which was merely 10% to 15% until last year.
In the case of blockchain, recent developments have hinted how policymaking and crypto regulations are hindering the progression of the sector and limiting its advancement in some regions. As per Arora, there is no technology as geopolitical as blockchain. She also believes that we are yet to be at a stage where we fully recognize and acknowledge the true potential of blockchain and its use cases. Additionally, the future of crypto in the United States is very political and it is eventually going to depend on the ruling party. This is primarily because crypto policy and regulation have followed capital influx and not advancement. Hence, there are regulations in every different geography, while the advancement, at an infra level, is still very young.
Polygon Labs and the Future of Blockchain
Arora’s big blockchain break came when she was hired as an Investments Lead by Polygon Labs, an opportunity presented to her by a Polygon angel investor. She led its $100 million fund and invested in Web3-focused startups, with the help of one of the world’s best business development (BD) teams at Polygon. Arora and her team sifted through 450 pitch decks in three weeks. While she loved her job, she realized that it was high time she led investments. Hence, she joined LocalGlobe.
Undoubtedly, her vast experience in the Web3 startup ecosystem equips her with ample expertise to predict the future trajectory of blockchain technology as a whole. She mentioned that it is discouraging to see certain geographies where regulation has already happened and is bearish while some regions, like the UK, the Middle East, Southeast Asia, Hong Kong, and China, are actively positioning themselves as blockchain hubs to seize an opportunity they missed during the dot com boom.
“The future of crypto is entirely going to be dependent on certain countries that will allow crypto tech and advancement. The attraction of global crypto talent will also happen in that geography. It would also include thinking of expats, immigrants, and visas. So, all of these considerations will play a role and then based on that, we will see potential hubs come out. I do feel that there would be a couple of hubs in Europe, specially in London and Paris, the Middle East, Dubai, Singapore, Hong Kong and parts of Australia, Korea and Japan as well”, Arora concluded.
Humans of Web3 is a flagship program of Metaschool and its sole aim is to highlight and bring to the fore individuals’ Web3 journeys that go unsung. If you are someone or know someone who has had such a journey, you may reach out on Twitter (@0xmetaschool) for a quick chat.