What crypto investors want to see in 2023
Regan Bozman from Lattice is sharing insights about the current web3 trends.
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This is a guest post from Regan Bozman, GP at Lattice.
It’s almost been a year since the crypto industry entered a bear market. UST, FTX, SVB, and multiple hacks have deteriorated the market conditions and made life harder for founders, especially regarding fundraising.
Rounds take longer to get done. Investors have a lot more leverage, they don’t need to move as quickly as they used to. The valuations are down by 30-50%. The bar is higher around traction.
In a sense, the market is healthier. There’s less noise and bullshit. Use cases get truly challenged.
It doesn’t mean rounds don’t get done though. There’s still lots of capital in the industry. Good teams are getting funded.
The things we’re bullish on
At Lattice, we’re excited when we see humble founders laser-focused on solving real problems with a deep will to understand their customers' problems and a compelling vision/story for how the company is going to get big. It’s more important to us at an early stage than specific metrics, but we still want to see some early cohort of customers whose problem gets solved by the solution.
The web3 market movements are hard to predict, there’s little we’re absolutely confident in. What is clear is that we need more ways to get new users in the space. Most of the crypto products are crypto-native ones and we’re drinking our own hopium if we think there are useful things to do on-chain today for 1B people. We need to build useful products and make it interesting for people to perform actions on-chain.
Some use cases we’re excited about:
Stablecoins as internet-native dollars applied to specific markets such as remittances/cross-border payments
On-chain communication which is absolutely necessary to build on-chain acquisition channels
Consumer apps and especially social (Farcaster)
Token-powered physical networks, often called TIPIN or DeWi (DIMO, React)
Security tools with active monitoring and proactive contract switches
Wallet infrastructure with account abstraction, gasless experiences, or MPC (Tholos)
The things we’re careful about
Founders with short token unlocks, bullshit titles such as chief visionary officer, and poor knowledge of existing solutions are huge red flags.
Moats are something we take very seriously. Most products in crypto don't have moats: it's hard to build them in a world of open-source software. It matters to us a lot that teams try to think about where they can build something defensible. Good examples of moats are branding (Uniswap), partnerships, integrations, and overall doing hard things (Maple invested a lot in building institutional relationships on the capital side).
DAOs in their current form are also bad ways to run companies. They work for specific crowdfunding needs, but not to run operations. Founders should be more focused on building a product that solves a problem rather than thinking about their internal organization.
There are a few narratives we’re skeptical about:
Metaverse: Digital worlds will be bigger in the future, but 99% of crypto takes on it are stupid. Kids using Roblox or Fortnite don’t care it’s centralized. Teams need a specific wedge in the market that offers something unique.
L1s: Cosmos & EVM will probably eat everyone’s cake. There is a huge moat there and it's not clear that TPS or whatever is what is holding it back.
DeSci/ReFi: It feels like people are searching for the next big thing, but are a bit lost in the woods.
Security tokens: They basically went nowhere.
RWA: They might have their day, but we’re skeptical anything meaningful emerges from there in the next 1-2 years. There’s just so much uncertainty on the regulatory side.
Pure play NFT lending: Not sure why people want to borrow dollars at a high rate against NFTs right now, there are no obvious yield opportunities on-chain. It’s probably not a huge market long-term.
It’s time to KISS - keep it simple stupid:
Have a very narrow focus. Take one problem and solve it really well.
Don't chase shiny objects like new chains and crypto noise.
Recognize that building a crypto company is hard and the path will not be a straight one.
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