The crypto space has been facing waves of uncertainty in recent months, with looming regulations from authorities worldwide and a lingering market downturn.
Despite the state of the industry, investors are still backing new ventures in the space. Data shows that in 2022 alone, European decentralized finance startups experienced increased venture capital (VC) funding of almost 120%.
Cryptox spoke with Martin El-Khouri, a senior director at Bertelsmann Investments, during the Proof of Talk blockchain conference in Paris about why major investment firms still see Web3 as a way forward.
Bertelsmann Investments is one of the world’s major VC investment firms, with around 1.7 billion euros invested in over 400 companies worldwide.
El-Khouri told Cryptox that the firm’s BDMI fund made its first investment into the Web3 space in 2016, and the current market state helps investors distinguish between “noise and sound.”
“Now that the hype is gone, investors can see where the actual value is being accrued, which projects are just artificially inflated and which ones are built and based on a solid foundational framework.”
He said he considers investments in Web3 a “hedge against disruption.” However, he says it’s sometimes “difficult to convince” executive leadership in large global corporate entities to dedicate attention to Web3 due to the industry’s fluctuating reputation.
However, he highlighted that regulations help the industry in terms of investments because it gives investors more clarity about what is being built.
“When you invest in a project, you want to understand whether there is a big regulatory risk that could prevent this business and business model or idea from flying.”
“The more regulatory clarity we get,” he said, “the easier it becomes to evaluate different types of businesses.”
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He also pointed out the shift of interest toward generative artificial intelligence and AI startups. According to data from MarketsandMarkets, the AI market is projected to hit $407 billion by 2027, compared to $86.9 billion in revenue in 2022.
El-Khouri said that although investors are pivoting toward AI, “blockchain and crypto are going to be more important than ever before.”
“The interesting thing is that the main value propositions of Web3 are significantly magnified via what we’re seeing right now with generative AI.”
He concluded that, especially regarding AI content creation, blockchain will help solve the “double-spending problem without the need for an intermediary, and it gives provenance to digital assets.”
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