Crypto’s Venture Capital Gap

Decentralization is a hotly debated topic in Web3, but one area where it may be stifling innovation is venture capital. In Web2, the concentration of venture capital in the Bay Area created a clear hub where founders knew they needed to be. Today, with top builders scattered across the globe, the lack of a central hub may be preventing some of the most promising innovators from accessing the resources they need to build, launch, and scale the companies that could drive the industry forward.

Consider the example of a founder building an artificial intelligence (AI) company in Web2. If you’re developing AI products anywhere in the world, it’s widely accepted that you need to find your way to the Bay Area. This is because the Bay Area hosts many of the world’s top venture capitalists (VCs), a high concentration of talented professionals, successful companies that serve as inspiration, and accelerators like Y Combinator.

Of course, there are drawbacks to this concentration, as with any situation, and opportunity costs exist on both sides. To name a few challenges, obtaining a U.S. visa remains one of the most difficult hurdles for international founders. On top of that, the exorbitant cost of living in the Bay Area is well-documented. For most people, relocating means moving to a place where they have no friends or family, which brings its own set of mental and emotional health challenges.

Additionally, figuring out how to build a network in a new city, often far from anything familiar, is no easy task. Yet, there are numerous examples of people who have successfully navigated these challenges, building companies worth billions over the decades. While it’s not easy, the conventional wisdom around it suggests that it is still achievable.

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Now, contrast this with a founder based in Ghana, Argentina or Vietnam. Builders from regions like South America, Africa, and Southeast Asia often have real use cases where blockchain can improve daily life, particularly due to the lack of robust infrastructure in areas like banking, or because younger populations are more willing to adopt new technology. While there are likely phenomenal builders in these regions, without established networks or relationships, they are at a significant disadvantage when it comes to scaling their projects into fully developed companies. Without a concentrated hub or strong relationships, these builders face significant challenges in bringing their innovations to a global scale.

Building hubs of innovation requires more than just venture capital, but since it’s the job of VCs to find and fund the best companies, a major obstacle arises when there’s a disconnect between top builders and the venture money that could fuel their ideas. This likely means that, even with groundbreaking ideas and the talent to build on them, many potential entrepreneurs are left without access to the necessary resources. In this context, having some degree of centralization — particularly in innovation hubs — can actually serve as a positive catalyst for growth.

There’s a prevailing sentiment on Crypto Twitter is that nothing exciting is happening and that no one is building consumer applications to onboard the masses. Some even believe that venture capitalists aren’t funding these projects because they’re seen as caricatures of capitalism, focused solely on backing the next infrastructure company for their own gain.

But what if we’re looking at the problem from the wrong angle? Isn’t it possible that some of the best builders, particularly in the Global South, simply don’t have access to the resources needed to launch companies that could bring users on-chain? If we accept that premise, then the solution would be to build the necessary bridges, wouldn’t it?

The reality is that it’s neither feasible nor likely for venture capital to be present everywhere at once. Even as the industry matures and more venture capital flows into Web3 companies, it’s unrealistic to expect that funding can be equally distributed across the globe. We’re already seeing certain hubs emerge as go-to destinations for innovators, drawn by factors such as regulatory ease, visa access, cost of living, climate, and time zones. Cities like New York, Lisbon, Dubai, Singapore, and Buenos Aires are among those places slowly becoming hubs. But as this maturity will take time, the question remains: what can we do in the meantime to catalyze innovation?

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None of this suggests the future is bleak. There are numerous credible examples of both online and offline initiatives aimed at onboarding builders globally. Pop-up cities and network states like Zuzalu and Edge Esmeralda are gaining popularity, focusing on unconventional locations for tech innovation and bringing together young innovators from around the world. Projects like Developer DAO are working to educate and onboard more builders into Web3, while BuidlGuild focuses on doing the same, with an emphasis on Ethereum.

Events like ETH Accra and ETH Vietnam, which take place year-round in a decentralized manner, are gathering builders in global cities to work on exciting projects. Companies like ETHGlobal host hackathons both digitally and physically throughout the year, and the Ethereum Foundation’s (EF) Devcon Scholars Program has successfully onboarded new talent by covering the costs for participants from around the world to join and learn about Ethereum.

The EF also gives discounted tickets for locals who want to attend. The folks putting efforts towards builders and growth are there and these are examples of how venture capitalists can deploy capital more intelligently, allowing their sourcing to be done for them. And the smartest of them will do so. Some already are.

Decentralization comes with challenges and opportunities. The problems discussed above will eventually be solved — likely by innovative thinkers who build bridges between those with resources and those who need them to create companies. In hindsight, it may seem simple, but the key will be funding the people on the ground doing the hard work. Often, those pushing the industry forward are the least well-funded. If we want to accelerate the pace of adoption, we need to speed up the rate at which we’re funding those tackling the toughest challenges.

So, for those venture capitalists trying to figure out where to put their marketing budgets, don’t do the fancy dinner at the next conference, do something different by directly funding the initiatives that bring builders together, onboard new talent, and tackle the real challenges of scaling Web3.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.