Sydney-based venture capital firm King River Capital has banked $50 million of an intended $150 million to form a new fund focused on so-called Web3 opportunities, with plans to buy into fast-growing cryptocurrency related projects.
The new fund is the latest of a growing number of local VC firms looking to dabble in Web3, and will be incorporated offshore in a move that co-founders Zeb Rice and Chris Barter said would allow it to avoid dealing with the ambiguity of Australian crypto regulations.
King River has brought in former macro hedge fund manager David Adams as a partner and digital assets fund portfolio manager to help run the fund. Most recently he was chief investment officer at Sydney-based hedge fund Reminiscent Capital and previously worked at hedge fund manager Brevan Howard and Morgan Stanley.
“The next waves of innovation aren’t traditional and the way they’re funded isn’t traditional either,” Mr Rice said when asked about the reason for starting the new fund.
“But there’s a confluence of technologies that have been unlocked thanks to the blockchain innovation, and we want to write the first cheques that get us in at the ground floor.”
Instead of selling off bits of their company through private shares, crypto businesses often raise money by issuing tokens that can have utilities other than just representing fractional ownership.
Last year, Senator Andrew Bragg suggested the government look into redefining “financial assets” to recognise tokens that give holders governance rights or other permissions, as part of the Australia as a Technology and Financial Centre report.
Projects are exploding
King River’s new Digital Asset Fund is the latest in a spate of Web3-focused venture capital kitties hoping to get in early. AirTree this month launched a $50 million Web3-focused fund, and TPG’s Jack Teoh backed a $50 million metaverse-focused fund run by 22-year-old Ishan Haque.
Venture capitalist Mark Carnegie is also snapping up new Web3 tokens through his MHC Digital Asset Fund. These funds are domiciled in Australia and can access crypto token sales.
In addition to their initial cheques, Australian venture capitalists are widely using SAFT (simple agreement for future tokens) contracts to ensure they can participate in future token sales. These contracts mirror the more common SAFE (simple agreement for future equity) provisions used by tech start-ups around the country.
The development of Web3 projects has exploded alongside the proliferation of non-fungible-token (NFT) technology, which gives unique identifiers to digital assets and tracks their provenance on a blockchain.
Web3 is often characterised by users owning and controlling their data, which they can then monetise.
For comparison, Web2 features gatekeeper platforms such as Google, Facebook or Amazon that persuade consumers to spend money in return for a digital service that mines their data.
“One great characteristic of Web3 is it is open source,” Mr Rice said. “Imagine if Amazon’s one-click shopping or the AI recommendation engine was open source, how much more competition and markets we’d have now.”
Still in its infancy, many Web3 projects have taken the form of video games where players buy in-game assets that they can own and trade, as well as earn currency while playing.
“Ownership of assets in a digital environment is a profound change to many business models,” Mr Barter said.
“Tokenomics changes the way value is distributed. It gives it back to the user who changes their behaviour, their spending, their allegiance to a product or service and develops a new kind of ‘hive mind’.”
Communities of connected people
By issuing tokens, rewarding players for their attention and giving them marketplaces to trade and barter these assets, Web3 businesses aim to build valuable communities of connected people, Mr Rice said.
King River Capital’s new fund aims to invest in Web3-related tokens, crypto infrastructure technologies, NFTs and related tools, DeFi (decentralised finance) protocols, metaverse and gaming businesses.
The firm has already invested in Immutable, a Sydney-based scaling solution that recently signed a deal with popular “memestock” Gamestop to build an NFT marketplace and launch its own $US100 million ($140 million) fund.
The fund also boasts investments in Discord, a widely used chat platform; FinClear, a local start-up building on the ASX’s distributed ledger; Splash, an AI-driven music game; and Paystand, a business-to-business payments company.
NFTs have dominated headlines in recent times as speculative investors pour into highly prized digital artworks that are minted to a blockchain. While Mr Barter said the core idea of artists solidifying ownership of their work in an immutable way was a breakthrough, the rampant speculation in NFT markets showed the immaturity of the industry.
“There’s an elite type of investor pouring money into digital art, and a lot of this is more status than art,” Mr Barter said.
“But the utility of NFTs will start to take hold soon and, undoubtedly, when interest rates move, the heat is going to start coming out of the market.”
Read full story on Financial Review