Editor’s note: SCB 10X is one of the VC firms which participated in Life’s a pitch! in May 2022.
For the last two years, Web3, widely seen as the future of the internet, has become a hot buzzword in the tech sector.
But after a record-breaking 2021 which saw more than $30 billion invested in this burgeoning space, investors seem to be taking a pause, according to data platform Crunchbase.
Funding to VC-backed Web3 startups, as well as the number of deals, dropped to its lowest since the end of 2020, with the sector mirroring the venture market in general, Crunchbase said in a report recently.
While investors may seem to be slowing down their investment, Web3 is still one of the interesting areas for venture capital firms, including the ones in Southeast Asia.
TechNode Global recently talked to Kris Supavatanakul, Portfolio Growth Manager of SCB 10X, the venture arm of Siam Commercial Bank in Thailand, to learn more about the development of Web3 in Thailand and in Southeast Asia.
“Our pipeline deals in Southeast Asia mostly come from Singapore. Thailand is still in need of homegrown successes with the potential to go public as unicorns, an achievement that would pique the interest of institutional investors and encourage the country’s brightest minds to launch their own businesses,” he said. “We are seeing a lot of activities and entrepreneurs interested in this field but hope to see more firms, DAOs, and teams based out of Thailand.”
“Innovative technologies/solutions that have the potential to be deployed universally throughout the Web3 tech stack is what we look for. We focus on crypto projects/ organizations that work on infrastructure development particularly on digital assets and NFTs, since we think that fundamental infrastructure will provide the most value for the Web3 sector,” he said, when asked about the venture arm’s preferences in the Web3 space.
In the interview, Supavatanakul also shared his views on the potential of Web3 sector in Southeast Asia, the firm’s preferences and his suggestions for Web3 startups.
Below is the edited excerpt:
How is the potential of the Web 3.0 sector in Southeast Asia? Has it gained traction in the region yet? How’s the deal flow like?
There is no limit to what may be accomplished with Web3. Web3 gives people the ability to own a piece of the internet and paves the way for major new prospects. We have seen several categories of NFTs emerge, but it’s still very early days. For instance, a significant number of Thai artists have already begun marketing and selling their work through NFTs in local marketplace solutions. Thai gaming studios have also picked up P2E gaming and are allocating resources to the Metaverse, building complex storylines and in-game architecture to impress fellow peer users. Permissionless financial services have flourished thanks to Web3 and blockchain technology (“Web3 wallets”), especially in regions with a large unbanked population and widespread lack of access to conventional banking. To sum up, Web3 has signaled a significant shift in how people work together to create new businesses and find solutions to problems that Web2 has not yet addressed.
We are seeing a lot of activity and entrepreneurs interested in this field but hope to see more firms, DAOs, and teams based out of Thailand. Our pipeline deals in Southeast Asia mostly come from Singapore. Thailand is still in need of homegrown successes with the potential to go public as unicorns, an achievement that would pique the interest of institutional investors and encourage the country’s brightest minds to launch their own businesses.
To improve the dealflow and Web3 activity in Thailand, SCB 10X aims to bolster the country’s startup and blockchain ecosystem by providing more knowledge-sharing sessions and bringing in global partners to Thailand.
Could you share your experiences investing in Web3 startups? Is it more difficult to evaluate? What are the challenges?
When it comes to investment in Web 3 startups – we see both token related and non-token related deals (i.e. typical equity investment). Some of the challenges we have seen from both type of deals would be around evaluating: 1) competitiveness (since Web3 is almost entirely open source), 2) technical assessment (requires blockchain knowledge in order to assess the technical capability.
At SCB 10X, we leverage this technical knowledge from blockchain advisor and in-house developers who are constantly tinkering with new DeFi concepts, 3) potential market size (usually it can be too small for niche solution or seem too big for the entire web 2 model changing to web 3.0), and 4) anonymous founders (difficult to evaluate personalities). In addition, for token related deals, the allocation could be another challenge if not done right to align incentives to founding team, investors, and community.
Do you have any preferences within the Web3 sector? Any particular segment you see more opportunities or more popular?
Innovative technologies/solutions that have the potential to be deployed universally throughout the Web3 tech stack is what we look for. We focus on crypto projects/ organizations that work on infrastructure development particularly on digital assets and NFTs, since we think that fundamental infrastructure will provide the most value for the Web3 sector.
Infrastructure-centricity implies a commitment to the long term and a preference for considering initiatives beyond their immediate horizon. As the interest of institutions grows, it also gives us an advantage by looking ahead of the multichain future and dealing with complicated institutional requirements.
Aside from NFT infrastructure, we also believe that decentralized identity and institutional-grade security custodian are critical to the success of web3 as they embody the core tenet of decentralization. Decentralization is a fundamental principle of Web3 technology. It gives people ownership, access, and control over their own data without depending on intermediaries from large technology companies. Examples of our investments in these areas are Spruce and Gnosis Safe.
What are the criteria you’d consider when you are investing in Web 3 startups? How is it different or it is the same as other tech startups?
One of the most important criteria that we are emphasizing stronger in Web3 than traditional startups is having a strong technical founder and team with industry knowledge. Building a Web3 product with the goal of decentralization requires a technical competent team with a clear direction and vision.
After a minimum viable product (MVP) has been developed and the product’s future direction has been defined, the biggest factor we consider when assessing mid-stage deals is the strength of the community.
Web3 has been a digital gateway for people to quickly learn about specific topics of interest and join cohesive communities. Unlike other tech startups, it is essential for any web3 firms to enable an environment where early adopters work together and that brand ambassadors advocate for the solution’s viability. These passionate community members are the backbone upon which new product concepts, prototypes, and iterations are built. Web3 projects should strive to foster a minimum viable community (MVC) that represents their target audience and aids in the realization of their long-term goals.
In the long-term, any Web3 startup should look at conventional growth metrics like revenue, user retention, and product stickiness. Projects should begin to consider actual market demand and supply, resulting in tangible revenue from product sales or service income. We prioritize startups with economic substance and have clear commercial roadmap in growing revenue.
Do you have any advice for the Web3 startups? How can they improve?
Crypto winters are always the best time to create products, build community with real interest, and grow talent. Focus on securing world class talent to attract the brightest minds into Web3 and crypto overall.
The rise of Web3: Asia Pacific expected to grow at fastest rate