'As AI Rises, is Web3 Dead in the Water?'

Inc. reports that funding for Web3 startups in 2023 'declined 73% from 2022, according to new data from Crunchbase.'

In total, Web3 startups netted $7.8 billion in 2023, compared with the $21.5 billion raised in 2022. It's part of a broader and sobering comedown from the stratospheric highs of tech's pandemic boom time, in which investment flowed to startups at historic rates, valuations soared and unicorns emerged seemingly every week. Last year firmly belonged to AI, with $17.8 billion invested in the sector, according to Dealroom.

Even as some remain convinced of Web3's future, uncertainty lingers over certain stumbling blocks, including how the technology can be farmed out to a massive user base on par with today's biggest tech firms. 'I haven't seen [a company] that screams to me, 'this is what's going to get people on board,'' says Jillian Grennan, a business and law professor at UC Berkeley who studies Web3. Web3 startups are failing to net the investment indicative of revolutionary tech as AI steals the show and the dough. The reasons vary: Many have pointed out that defining Web3 is tricky, and Grennan mentions that appetites for navigating digital worlds may have been dented by pandemic-born Zoom fatigue.

Beyond that, there's the question of how to regulate crypto — a marquee aspect of the Web3 universe--which may have given investors some pause. 'In this next period, we're going to get some important regulatory clarity that we just haven't had,' Richard Dulude, co-founder and partner at Underscore VC tells Inc. 'A lot of people sit on the sidelines until they have that....'

Interest rate hikes and the bloated startup valuations of 2021 have meant VCs can't throw their weight behind exciting ideas alone, Dulude says. The sector is undergoing 'this transition from chasing growth, and trying to grow at all costs to actually investing behind the growth,' he says.... All the investment couldn't compensate for one vulnerability: The technology is hard to use... Macroeconomic factors are of course important, but an industry resurgence depends first on whether Web3 can become easier to navigate for average people and provide them with a reason to hang around. 'It's still pretty cumbersome to interact with the technology,' Dulude explains. 'Until it's made usable, it's really hard to break out of the current market environment we're in.'

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