The "picks and shovels" opportunity in web3
We are in the midst of a once in a generation opportunity.
2022 has not been a great year for the web3 space. Since 2021, the price of the market has fallen sharply, several significant exchanges have failed, leaving consumers unable to get their money back, and many in the traditional financial sector are questioning, "Is this the end of crypto?"
In fact, the economist weighed in with an age-old query in one of their pieces from November 2022:
Let's correct the record now and state that they are wrong. Bitcoin and cryptocurrency is still alive. What we have seen over the past year is what happens when excessive excitement in an unregulated market encourages irresponsible wagering. It has been abundantly evident that greed and fraud, not cryptocurrency itself, are to blame for the meltdown. As the value of the crypto market plummeted it exposed all of their irresponsible bets. This has come at the expense of users and more startup failures are coming. In fact, most of the current cryptocurrency startups will and should fail. It's in the nature of innovative technology for the initial projects to be developed by the techies who come up with a solution in search of a problem. These initiatives are excellent for research but horrible for advancing the business of the technology itself. Bad companies must disappear for web3 to continue in order for better alternatives to emerge in their place. Corporations and startups are still investing in and developing the solutions of the future using the fundamental components of web3 while the media calls for the demise of the cryptocurrency market.
As you can see from the graph below, more than 40 firms have put more than $6 billion into investments connected to blockchain technology. Both NIKE and JP Morgan revealed their own web3 projects in the past month, and neither company is showing any evidence that the recent news will slow them down.
What do JP Morgan and Nike know that the others who are proclaiming the demise of web3 don't? They are aware that the web3's underlying technology, blockchain, is enhancing transaction speed and transparency. They are aware, as are we at Athenian Capital, that selling picks and shovels is the key to success in this new technology.
In business, a “picks and shovels” strategy is nothing new. The phrase is derived from the 1840 California gold rush, during which prospectors staked everything on their quest for riches. Most failed to find gold and ended up becoming destitute. The astute businesses that sold the materials, picks, and shovels that each prospector required to try to find gold were the ones who did make a fortune. These businesspeople profited greatly from the gold rush without having to assume as much risk as the miners did.
Because of this, Mark Twain is credited with saying that "it's a good time to be in the pick and shovel business when everyone is digging for gold." The web3 startups provide tools to enable and boost the productivity of blockchain software development and the adoption of the technology are the astute business people who will profit from this gold rush. Investing in "picks and shovels" of web3 will allow savvy investors diversified exposure to the web3 industry without having to rely on the success or failure of the apps developed on top, even if the price of multiple cryptocurrencies varies.
What are web3's “picks and shovels”?
To mention a few, there are defi, DAOs, NFTs, data storage, AI, mining/staking, payments, quantum computing, and wallets. Specifically, usability, transactions, and storage are the top three areas where “picks and shovels” will be developed.
Usability: To increase market adoption, exchanges and wallets must make it simple to create an account and to buy, sell, trade, add, and withdraw money without any problems. This combined with a gorgeous UX design is the recipe for a new market leader.
Transactions: The market needs to be better, faster, and less expensive than the existing version if it is to be more widely adopted. This necessitates the development of improved wallets, services, and businesses that enable speedy and seamless transactions.
Storage: When a user isn't buying, selling, or trading, they'll need a secure location where they can easily access their digital assets, such as NFTs and cryptocurrency, and keep them off the internet.
These are just a few of the applications that companies, and startups need in order to grow and draw in more customers. When it comes to the best startups coming out of elite incubators like MIT, Harvard, Yale, Stanford, and others, we at Athenian Capital are startup mentors with preferred access. We work with collaborative LPs who think that investing in web3 "picks and shovels" is the greatest approach to diversifying a portfolio and who desire the access that only our network can give them. Athenian Capital's commitment to the future of web3 will help you get ahead so you don't get left behind.