# How Web3 VC differs from Traditional (Web2) VC

By [ReshapeTech.eth](https://paragraph.com/@reshapetech-eth) · 2023-02-15

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Advantages of investing in Web3
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1.  **Web3 disrupts Web2 business models.** Web2 business models are middlemen-type models. Web3 inherently cuts middleman out, reducing friction. Additionally, Web3 enables the instant coordination of human & capital resources on a global basis.
    
2.  **The potential for high returns,** which is driven by the early stages of Web3’s innovation S-curve, small market size relative to total addressable market, low regulation, fragmented industries, and increased investment from large corporations and funds.
    
3.  **Improved liquidity,** with the ability to exit in 2-5 years and receive tranches of liquidity starting from 24 months.
    
4.  **Regulation,** is currently a challenge, but has the potential to bring clarity and validation to Web3 tech, attracting mainstream consumer brand and investment capital.
    

Challenges of investing in Web3
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1.  **Web3 start-ups have access to ‘easy’ speculative capital** creating more competition for investors to access deals, and quicker investment decisions (typically 10 days after 1 meeting with founders)
    
2.  **Lower standards in Web3 attract low-quality start-ups,** such as unproven business models, newer (higher risk) technology, anonymous leadership, limited legal obligations from founders & limited intellectual property rights.
    
3.  **Web3 offers smaller ownership stakes to VCs (<5%).** Web3 start-ups prioritize a diverse stakeholder base and being governed by active users (over passive investors)
    
4.  **The pricing of Web3 investments is cyclical and volatile** due to an unclear path to profitability
    
5.  **Web3 faces unclear, but imminent, regulation**
    
6.  **Web3 requires specialized staff with expertise in token economics,** blockchain development, web3 culture, and regulation.
    
7.  **Web3 investments pose more demanding asset custody challenges,** such as cold storage and multi-signature key management.
    
8.  **Web3 tech is self-disruptive,** a combination of open-source code, no IP rights and fast innovation causes tech to quickly become obsolete.

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*Originally published on [ReshapeTech.eth](https://paragraph.com/@reshapetech-eth/how-web3-vc-differs-from-traditional-web2-vc)*