Blockchain and the metaverse boost startup investments

‘Follow the money,’ the survey of digital-sector investments, shows that funding the technology behind cryptocurrencies and virtual universes has fired in 2021.

2021 is a memorable year, for once not because of the aftermath of the Covid 19 pandemic. The past year and the first four months of 2022 have seen a dramatic change of pace of investments in the startups that populate the digital world. This is one of the findings of the ‘Follow the money’ survey by SDA Bocconi’s Digital Enterprise Value and Organization Lab (DEVO Lab). The survey has analyzed the direction of investments (e.g., venture capital and angel investors) in global digital-tech startups over the past five years, from 2017 to Q1 of 2022. Using investments over 500,000 dollars as a cut-off, more than 140,000 transactions involving 73,592 companies and a total of 4 trillion dollars in investments were examined. The resulting scenario has three main actors: the now well-established artificial intelligence and cloud computing technologies, the overwhelming rise of blockchain technologies, and the explosion of two trends that build on these: the metaverse and Web 3.0.

“Our goal was to understand what kind of investments companies in the digital world had received,” Gianluigi Castelli and Severino Meregalli explain; they are respectively DEVO Lab’s director and scientific coordinator. “What emerged is that, even considering a general market growth of 100%, 2021 saw a surge in investments across all sectors related to digital technologies.”

Leading this general investment fever are AI-related companies, which rise from 36 billion dollars of investment collected in 2020 to 82 billion in 2021 (mostly late-stage investments, showing that these are now well-established technologies), followed by cloud-computing companies, with an increase in investments from 15 billion dollars in 2020 to 43 billion in 2021. Also standing out is the blockchain sector, where enterprises have raised 35 billion dollars in 2021 (the figure was just 3 in 2020). Looking at growth percentages in 2021 over 2020, the blockchain featured the only four-digit increase: +1.118%, followed by +354% in 3D printing, +277% in satellite technology, +225% in computer vision (one of the technologies behind self-driving cars, for example), and +185% in cloud computing.

The only backtrack is in 5G technology investments. A “physiological” decrease according to DEVO Lab researcher Nico Abbatemarco: “As of today, 5G still needs a solid backbone infrastructure, and its implementation is in the hands of a small number of companies, such as national telephone operators or some large digital incumbents; therefore smaller companies such as startups, which are the subject of this research, can hardly find any room in the business.”

Going back to the major growth in the blockchain sector, from an investment perspective this “was a consequence of the rise in the price of Bitcoin in 2020, which generated a great market interest in the technology behind it,” DEVO Lab’s blockchain coordinator Leonardo Maria De Rossi explained. “Savers investing in cryptocurrencies have driven investors’ interest in startups related to blockchain platforms. But beware,” De Rossi added, “the blockchain world is full of promoters and shady projects. Following other people’s investments blindly could be risky.”

Looking at the blockchain sector in more detail, the ‘Follow the money’ study shows that the success of this technology has also spread to Non Fungible Tokens (NFTs): related companies have gone from raising just 44 million dollars in Q1 2021 to 1.77 billion in Q1 2022.

Finally, the metaverse and Web 3.0 (i.e., the blockchain-based decentralized web) chapter. These are technology trends rather than actual technologies, since each of them leverages different elements. They are the trends of the moment: since Facebook announced its name would change to Meta, investments in companies dealing with the metaverse have recorded +4.500%, with a peak between Q3 and Q4 of 2021. The trend was similar for Web 3.0, which saw investments grow by 500% between 2020 and 2021 (from 26 million to 157 million) and by 145% between 2021 and the first quarter of 2022 alone (from 157 million to 385 million).

“2021 was an incredible year when it comes to investments in digital businesses,” Gianluca Salviotti and Lorenzo Diaferia, respectively DEVO Lab’s operations coordinator and researcher in charge of the AI strand, conclude. “AI and cloud computing are mature technologies, and again confirm that they are great collectors of resources, also because they are ‘enablers’ of so many other applications. Blockchain is no doubt the technology that has seen the biggest increase and has driven interest into NFTs. Finally, from the point of view of startup investment the real bombshell is the metaverse.”

SDA Bocconi School of Management