In a recent interview with Juliet Su, the Fund Partner and Ecosystem Lead at NewTribe Capital, Unlock Blockchain delved into the world of venture capital (VC) investment in the MENA region, particularly focusing on the blockchain and Web3 sectors. The discussion also covered broader market trends and what lies ahead.
Challenges in Measuring VC Investments in MENA
Juliet shed light on the challenges of quantifying venture capital investments in the MENA region, especially within the Web3 space. The absence of comprehensive data arises from the fact that some investments in Web3 are made by traditional funds, making it challenging to separate and identify them accurately. Many investments in the web3 space originate from traditional web2 funds, which primarily provide data on their overall investments, with web3 investments constituting only a small fraction, typically around 1% or 2%.
As Juliet, explains, there are approximately 30 web3 venture capital firms claiming Dubai as their base. However, these Venture Capitals often have a presence beyond Dubai and may have additional entities elsewhere. This complexity makes it difficult to gather precise data on web3 investments in the MENA region.
Changing Landscape of VC Investments: Reduced Speculation and Focus on Post-Money Valuation
Juliet highlighted a shift in Venture capital investment strategies due to the prolonged bear market. VCs that began their journey in 2017 faced liquidity issues, causing a significant drop in overall investments. Conversely, newer VCs, having raised funds before the bear market, approach investments with caution, focusing on quality over quantity.
The Web3 space has witnessed a decline in speculative investments, with a growing emphasis on post-money valuations. After extensive discussions with various projects, Juliet highlights that a significant portion of fundraising activities now focus on Post-Money Valuation. This approach involves companies with established products and decent revenue seeking to expand their communities and accelerate business development. To achieve this, they opt for a small round of fundraising based on the post-money valuation, often involving token warrants.
In general, Web3 projects now aim to establish a robust product with substantial revenue before considering token launches. This shift reflects a maturing industry that prioritizes sustainable growth.
Web3 Investment Strategies: Token Investments Versus Equity Investments
Walid Abu Zaki, CEO at Unlock Blockchain, believes that Venture Capital firms are not being responsible when they invest in Web3 tokens. Just keeping their money in token investments, VCs are simply looking to make a quick buck by pumping and dumping the token price, without any regard for the long-term success of the project, he argues.
Juliet, on the other hand, believes that the market is changing although what Walid discussed is possible and is still happening within the meme token space particularly. She sees that VCs are starting to take a more responsible approach to investing in Web3 tokens. the bear market has made the space more transparent, and that VCs now need to prove to investors that their tokens have real value before they can raise money, argues Juliet.
Juliet noted a trend toward equity investments in Web3 projects, particularly for infrastructure-focused initiatives. Investors seek to support projects with a clear path to utility and market adoption. This approach aligns the Web3 market more closely with traditional Web2 markets.
NewTribe’s Investment Strategy Transformation
Juliet emphasized that NewTribe’s investment strategy underwent a transformation during the summer. They have adopted a more balanced approach, allocating 80% of their investments to long-term opportunities and dedicating 20% to token investments. This 20% allocation is considered a higher-risk endeavor, but NewTribe sees it as a valuable means of adding liquidity to their fund.
The remaining 80% primarily consists of equity investments, and Juliet acknowledges the absence of a clear exit strategy for these equity-only investments. However, she expresses strong optimism about the potential of wallets, wallet SDKs, and wallet infrastructure. These components play a critical role in onboarding new users to the Web3 space, Juliet argued.
Juliet’s keen interest in wallet investments leads to a key realization: developing a token for wallets may not be a logical choice, as there are no successful examples of wallets themselves demonstrating strong token performance. Consequently, NewTribe leans toward pure equity investments for wallet projects, even though they face uncertainty regarding exit strategies.
Bridging the Gap in Web3 Infrastructure
A hybrid approach comes into play when a project plans to launch a token and the underlying infrastructure is sufficiently mature to ensure its utility. In such cases, NewTribe considers equity investments coupled with token warrants. This approach provides a compromise that aligns with the project’s token launch plans and the infrastructure’s readiness.
Juliet clarifies that NewTribe’s overarching industry focus is on investing in infrastructure. Their goal is to bridge the gap between Web2 and Web3 by creating the necessary infrastructure to facilitate the seamless transition of Web2 users and institutional players into the Web3 space. This strategic direction aims to accelerate the growth of the industry and create a pathway for wider adoption by bringing key stakeholders into the ecosystem.
The integration of Web3 into Web2 super apps, partnerships like ChainLink with SWIFT, and Visa’s collaboration with Solana signify a positive trend. These developments are expected to facilitate the next bull market by attracting traditional players and liquidity, believes Juliet.
NewTribe Capital’s Support for Dubai’s Web3 and AI Ecosystem
Newbrite Capital actively supports Dubai’s initiative, led by DIFC, to foster Web3 and AI startups. The upcoming launch of a new facility with an accelerator program and government subsidies for startups in these sectors is poised to attract talent and innovation to Dubai, says Juliet.
The government’s support serves as a magnet for top-tier talent and innovative venture capitals, drawn to Dubai by the government’s generous 90% subsidy for web3 and AI startups. This subsidy facilitates an easier startup journey and paves the way for these companies to thrive and expand.
The DIFC initiative represents a remarkable opportunity for Dubai to position itself as a leader in the web3 and AI domains. Juliet expressed her enthusiasm for what lies ahead, deeming this initiative a significant stride forward for Dubai. As a Venture Capital firm, NewTribe aligns with this initiative and is in the process of registering in DIFC, with the licensing procedures set to conclude shortly.
Dubai’s Web3 Landscape: Challenges, Opportunities, and Collaborative Growth
Walid believes that Dubai grapples with a scarcity of developers and founders due to the generous incomes expatriates earn in traditional businesses. This financial comfort often deters them from pursuing entrepreneurial ventures. In comparison, regions like Europe and Asia, offering lower salaries for similar skill sets, tend to inspire individuals to explore Web3 opportunities and disrupt industries.
Juliet, on the other hand, highlights that not everyone fully comprehends the abundant opportunities in the UAE, especially within the realm of blockchain technology. She underscores the presence of large corporations, institutional players, and banks in the UAE, all keenly interested in blockchain but requiring intermediaries to bridge the trust gap between the Web3 space and these corporate giants.
Juliet expresses her endorsement of the DIFC initiative, involving partnerships with major players as sponsors and partners for an accelerator program. She believes that collaborating with entities like NewTribe Capital, Chainlink, and other blockchain organizations can authenticate the excellence of the projects being introduced. In Juliet’s view, this collaborative approach enables developers to remain in the UAE, as the technology accumulates practical use cases, attains widespread adoption, and secures partnerships with traditional players in Dubai and the MENA region, ensuring a steady influx of revenue without necessitating developers to relocate.
The Path Ahead
Looking ahead, Juliet anticipates a significant bull market, with Bitcoin halving expected in the coming April. However, she emphasizes the need for time to establish credibility and transparency in the market, cautioning against overly optimistic short-term expectations.
In conclusion, the venture capital landscape in the MENA region, particularly in the blockchain and Web3 sectors, is evolving rapidly. While challenges persist, such as data tracking and market maturity, the shift towards responsible and sustainable investments, coupled with the integration of Web3 into traditional markets, is expected to shape a promising future for the industry.