Binance raises $500 million fund to invest in ‘Web3’ as crypto slides into bear market

Binance, the world’s largest cryptocurrency exchange, is launching its own venture capital fund.

The company’s venture arm, Binance Labs, said Wednesday it has raised $500 million for its debut start-up fund, securing backing from venture capital firms DST Global and Breyer Capital as well as unnamed family offices and corporations. It comes after Andreessen Horowitz last week announced a mammoth $4.5 billion fund to invest in crypto start-ups.

Binance Labs plans to use the capital to invest in companies building “Web3.” Though still an ill-defined term, Web3 loosely refers to a hypothetical future iteration of the internet that’s more decentralized than online platforms today and incorporates blockchain, the shared digital ledgers behind most major cryptocurrencies.

The launch of Binance’s new fund arrives at a time when bitcoin and other digital currencies are down sharply. Bitcoin has plunged more than 50% since reaching an all-time high of nearly $69,000 in November. That’s taken a toll on publicly-listed crypto companies like Coinbase, whose shares have plunged 69% since the start of 2022. Investors fear the slump will feed through to privately-held crypto start-ups.

While start-up valuations of $1 billion or more are “slowing down a bit,” there’s “no current impact in early-stage private markets,” Ken Li, Binance Labs’ executive director of investments and M&A, told CNBC.

Binance Labs is hoping to capitalize on the recent plunge in digital assets to find founders building what it sees as the next big thing in tech. Its bets will be split into pre-seed, early-stage and growth equity, and the fund will invest in tokens as well as shares.

“We are looking for projects with the potential to drive the growth of the Web3 ecosystem,” Li said. Such projects may include infrastructure, nonfungible tokens, and decentralized autonomous organizations. Binance estimates there are currently around 300,000 to 500,000 active Web3 developers, a number it hopes to grow “substantially.”

Binance has made a series of high-profile equity investments in the past year. This is the first time the company has formally raised a VC fund with financing from external investors.

Binance Labs’ investment portfolio includes business news magazine Forbes and Sky Mavis, the company behind popular nonfungible token game Axie Infinity. It was also an investor in Terraform Labs, the embattled Singapore-based start-up behind failed stablecoin project Terra.

Binance Labs “always does its due diligence and has strong conviction in its investment strategy,” Li said. “We know that investing in early stages involves risks,” he added. “The industry is still young and was younger back then.”

Binance is also planning to take a $500 million stake in Twitter to support Elon Musk’s bid to acquire the social media service, a move the firm hopes will boost its aim of “bringing social media and Web3 together.”

Founded in 2017 by Chinese-Canadian entrepreneur Changpeng Zhao, Binance is the world’s biggest digital currency exchange. The firm handled $490 billion of spot trading volumes in March, according to CryptoCompare data.

In an interview with CNBC earlier this year, Zhao said Binance had “billions ready to invest” in Web3. The trend has been met with skepticism from some notable figures in tech, including Musk and Twitter co-founder Jack Dorsey. Zhao said he’s a believer in the concept, but that it will take time to make it a reality.

“Exactly how it’s going to shape up, what exactly Web3 looks like, which company, which projects — nobody knows,” he said.

“Before Facebook started, nobody could predict that,” Zhao added. “We’ll just have to see what turns out.”