Nowadays almost everyone is talking about Web3, the third iteration of the internet, which is mainly based on blockchain technology and has spawned an army of Web3 enthusiasts and startups.
According to Crunchbase Web3 Tracker, there are 15,648 Web3 startups worldwide that have produced 79 unicorns.
Despite the growing number of Web3 startups, African Web3 startups account for less than 1% of the total number of Web3 startups and have only raised about half a billion dollars in funding compared to $88 billion raised globally.
In October 2021, the Adaverse accelerator was founded by EMURGO (parent company of the Cardano Foundation) and Everest Ventures Group, a Hong Kong-based venture studio. They created the Accelerator to address this imbalance and support blockchain founders in Africa and Asia with funds, mentoring and technical infrastructure to scale Web3 solutions globally.
Over the past year, the $100M-funded accelerator has backed big-name African startups like Zimbabwe-based pan-African freelance marketplace Afriblocks, crypto infrastructure startup Cassava Network, defi startup Stakefair and 10 other African startups. The accelerator invests between $50,000 and $750,000 in startups.
Speaking to TechCabal, William Phelps, investment manager at Adaverse, explained how the accelerator invests in African Web3 startups.
Daniel Adeyemi: One thing you emphasized at the recent hangout of blockchain founders in Lagos is that the Adaverse doesn’t just want to invest in cryptocurrency exchanges because blockchain is more than just cryptocurrencies. Why is this important to you?
William Phelps: I find it interesting that you mentioned crypto exchanges, which is a good start when it comes to the whole web3/blockchain space. A big problem worldwide is that when people talk about blockchain, they automatically associate it with cryptocurrencies. And while crypto is part of the blockchain, the blockchain is not about crypto. I think the problem that causes this kind of thinking is that there is a kind of mixing up that is very unhelpful because people assume that the only use and advantage of blockchain is to be able to trade quickly from and stock exchange functions.
One thing we’ve seen with Adaverse, and in Africa in particular, is that there are a variety of use cases that blockchain can provide. And the reason I say that is because I think there are some very well-defined pain points in African markets, be it finance, access to services, infrastructure, etc. And blockchain offers solutions to each of those problems on a very large scale innovative and diverse ways.
So a large part of our investment strategy is not just looking for investors, but looking for projects that target specific pain points and have real impact and grassroots benefit.
We look beyond just innovation for innovation’s sake.
DA: What do you look for when investing in startups?
WP: We are an accelerator; We don’t invest in projects that are too early because if it’s just a concept we can’t rush it. We look for projects that have a Minimum Viable Product (MVP) and have some initial traction. We are also looking for tokenization potential as at Adaverse we specialize in tokenomics and token support and due to our connections to Cardano we enjoy working with projects open to tokenization on Cardano and developing those tokens with Adaverse.
However, in general it is very important to see a strong founding team, because I think something that is under-discussed in the startup space is co-founder synergy: the ability of co-founders to work together with the same goals. From an investor perspective, if we see discord within the actual founding team, that doesn’t inspire confidence.
In addition, the existence of the team is very important in the first place, because although it is very noble to be a sole founder who builds everything yourself. It’s very difficult to scale on that basis.
It’s worth noting that Adaverse is very flexible, while we focus on investment strategy and philosophy, all the things I mentioned are not red lines of any shape or form.
DA: Can you explain what you mean by tokenization?
WP: We’re looking for an openness to build on and tokenize on Cardano, a popular blockchain platform. Adaverse offers a lot of token support, particularly through the Accelerator program. We help companies that want to issue tokens, create tokenomics plans and look at the technology behind them. The best way we can do that is if they tokenize on Cardano, given that our position within the Cardano ecosystem gives us very deep access to the network for tech support connections.
DA: What is different about the Adaverse accelerator?
WP: There are two main selling points for the accelerator: compound and composition.
I think our position within the Cardano ecosystem makes us the top ranked investor and accelerator for projects looking to build on the Cardano ecosystem as we have a very deep network of technical support and fundraising support than other VCs and institutional Investors I Know.
Adaverse is unique among many investors and accelerators because we are very active on the ground in Nigeria, in Africa and globally.
We pride ourselves on having a very strong grassroots and early stage focus which lends itself well to our accelerator program. So I would say that we better understand the market and how blockchain works in this market to actually make the right investment decisions and support these projects. This is very beneficial from a business perspective and also for the development of the African tech ecosystem.
DA: How long does it take to decide whether to invest in a startup?
WP: So when we receive an application, we usually take a very basic look at the nature of the project, the founding team, and the traction behind the project. Since, as I mentioned, we are an accelerator and not an incubator, it is important that projects have some traction and at least have a basic MVP and go-to-market strategy.
Once we are satisfied that the application meets these criteria, we proceed to an initial meeting to better understand the project, its direction and funding needs. Then we will have another conversation with the Cardano Foundation and if we then decide to invest, we will make a commitment.
In terms of an exact timeline, it’s difficult to say as all projects are different in terms of the information we need from them and how quickly they can provide that information.
We would try to decide within a month. People can apply through the website or email me.
DA: What are some red flags?
WP: The first thing that always comes to mind is the desperation for an Initial Coin Offering (ICO) before there is actually a product. We see many founders issuing a token or their own cryptocurrency as a quick route to funding.
We meet people claiming that they will mint a billion tokens, each worth $1.
So whenever we see projects that lead with a token and don’t have a product yet, that automatically gives us a red flag that they’re not so much concerned with developing the product, but are instead busy making a quick buck.
I say this to all startups, if you can’t describe in one sentence or less what your company is up to, it probably isn’t a very good company. So far, simplicity is the key. Know why you’re building it, what it’s supposed to do, and what problem it will solve.
The third and final thing is that for solo founders, especially those who may not have the best technical foundation in blockchain, it is very tempting to outsource much of the development and technical work to third-party developers. These third party developers have no obligation or commitment to the project and can actually bring a lot of risks when it comes to things like intellectual property and the go-to-market strategy. That’s always a red flag that makes us less willing to commit to a project, knowing it won’t be created by a full-time team.
DA: What important trends do you see in the Web3 space?
WP: I think we are at an interesting time, and even at a crossroads to some extent, for two reasons. From a regulatory point of view, we are starting to see a trend towards regulatory acceptance of blockchain, digital assets and cryptocurrencies. This, in turn, I think gives the founders more confidence to actually start building bigger and better solutions, knowing they won’t be penalized or shut down by regulators for doing so.
Of course, this is all still at a very early stage. We know that the central bank of Nigeria has not shown acceptance and in other African countries the regulators are pretty quiet.
Also in terms of investment, there is a lot of optimism for the future of this technology. A general trend I observed earlier was that the majority of companies in Africa that have received investment were either started by Africans who were educated abroad or by Africans who grew up abroad and returned to Africa.
While we are now beginning to see the rise of what we might rather call indigenous projects, projects built in Africa by founders who grew up in Africa, and applicable to the African market as they are real solutions for real problems are .
These two points overlap, meaning that over the next three to five years we will see the true fruition and flourishing of the African web3 and web2 space as we have seen in Southeast Asia. This is exciting for both investors and founders.