What is Web3 anyway? Inside AirTree’s latest $50 million fund

Alicia MacDonald (third from left) and the AirTree partners. Source: supplied.

Aussie VC AirTree has unveiled its $50 million Web3 fund, the first of its kind in Australia, and as we face the frontier of web disruption, it could fuel the tech goliaths of the new world.

The funding comes as part of AirTree’s latest $700 million windfall for investment into Aussie startups.

Split across three funds, that includes $200 million for early-stage startups — the largest seed fund in Australia — plus $450 million in growth capital to support businesses through the scale-up phase and to IPO.

The other $50 million forms AirTree’s Web3 fund — a fund focused on startups building tech using crypto and blockchain technology.

“This is really about the ethos of decentralisation,” AirTree partner Elicia McDonald tells SmartCompany.

“At the heart of that is blockchain-based technologies.”

AirTree’s Web3 fund will focus on three main areas:

• Decentralised finance, or DeFi, solutions, which technically remove the need for a central bank or agency to approve transactions;
• Tech around non-fungible tokens, or digital assets that are not currencies; and
• And decentralised autonomous organisations (DAOs) — web-native businesses with decentralised ownership and leadership, which offer tokens for voting rights, without a traditional hierarchical structure.

Building the future of the internet

The fund is the first of its kind in Australia, but the move is not as left-of-field as it may first appear.

At its core, the fund has always invested in disruptive technologies, McDonald notes. Diving deeper into the blockchain and Web3 ecosystem is the “logical next step”.

At the same time, more and more use cases are emerging for these technologies.

“We’re right at the beginning of Web3 becoming more mainstream,” McDonald says.

Between May and October 2020, the total value locked into DeFi projects, globally, increased from less than $10 billion to more than $100 billion.

Since then, AirTree has invested in five projects across the DeFi, NFT and DAO sectors, including NFT trading platform Immutable and Zeta Markets, a decentralised derivatives platform built on the Solana blockchain network.

DAOs, in particular, are not necessarily structured in the same way as your typical venture-backed business. They’re communities built organically online, made up of people who are aligned in their values and receive equal economic benefit from their successes.

For AirTree, that means being flexible in what it means to be an investor. But McDonald sees this as a “massive opportunity”, she says.

These are the businesses that could ultimately become the Googles and Amazons of the new web.

“We would love to be a part of part of that story right from beginning,” she says

“We see the Web3 fund putting our ambitions ahead of the curve. We feel privileged to be backing early breakout successes in a space that could be very, very influential on the future of the internet.”

What makes a great Web3 investment?

When it comes to what AirTree is looking for in Web3 startups, the criteria isn’t much different to a typical seed-stage business.

The partners are looking for strong founding teams with an “unfair advantage”; people who are doing their life’s work, have big ambitions, and who can attract others to join them on that mission.

For the Web3 fund, McDonald notes that the ‘unfair advantage’ element is perhaps all the more important. It’s likely successful founders will have a depth of knowledge in the crypto and blockchain space, giving them that edge of credibility.

“This is a new world,” she says.

“The people who are founders are founding companies have been quite deep in the crypto world for a number of years.”