Some venture capitalists are shifting their focus and funds away from A.I. to Web3 and DeFi

March 29, 2022, 6:43 PM UTC

Venture capitalists are shifting some of their focus from artificial intelligence to newer and, arguably, hotter concepts like Web3 and decentralized finance. 

Investors put more cash into nascent startups specializing in Web3 and DeFi than their A.I.-focused counterparts in the third quarter of last year, according to a recent report by deal-tracking firm Pitchbook. Web3 generally refers to a new era of the internet built on blockchain technologies.

“Some of the hype has departed from pure-play AI companies,” said the report, which focused on the state of A.I. investments in 2021.

The total amount of money invested in early-stage Web3 startups was six times more than in A.I.-focused ones, the report noted. An earlier report by the same company revealed that young Web3 and DeFi startups landed investments worth a combined $1.26 billion in the third quarter of 2021 while embryonic A.I. and machine-learning startups received $212.8 million.

To be sure, A.I. is still near the-top-mind for most executives and investors, with Pitchbook estimating that the entire A.I. market was worth $145.8 billion in 2021. By 2024, It’s expected to soar 92% more to nearly $280 billion. 

But the fact that venture capitalists who are focused on early-stage companies are increasingly funding Web3 startups rather than A.I. underscores a potential sea change in the tech industry. However, it’s unlikely to be felt by most businesses until years from now since these companies are so young. 

“We’re seeing a high focus from those leading investors on this particular paradigm shift on Web3 and a lesser focus on A.I.,” Pitchbook senior analyst Brendan Burke told Fortune.

It was just a few years ago that early-stage investors believed that A.I. startups would fundamentally change the technology industry. But while the A.I. industry has grown, it “might not have grown quite as quickly as expectations from the last decade,” Burke said.

Instead of creating a market worth trillions of dollars, A.I. has, so far, birthed a market worth hundreds of billions of dollars—if you can call that disappointing. 

Now, some early-stage investors believe that Web3 represents a change in how people interact with computers, Burke said. These investors believe the concept of decentralized computing, in which apps are powered by blockchain technology that lets them operate on a vast network of personal computers, represents a “primary building block” rather than a “complementary technology,” he said.

It’s unclear whether venture capitalists will be proved correct. Fundamental changes in computing, such as the rise of mobile computing and the smartphone, are difficult for many investors and companies to predict, Burke noted.

And A.I., despite being passed on by some early-stage investors, is still a hot topic with many big businesses. Early-stage investors, however, aim for the “highest growth opportunities” and are setting their sights on Web3, he said. 

Jonathan Vanian 


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From the paper: Within AI, we implemented a reinforcement learning (RL) framework based on a spatially explicit simulation of biodiversity and its evolution through time in response to anthropogenic pressure and climate change. The RL algorithm is designed to find an optimal balance between data generation (learning from the current state of a system, also termed ‘exploration’) and action (called ‘exploitation’, the effect of which is quantified by the outcome, also termed ‘reward’).


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