Flow launches $725M fund to support its blockchain ecosystem

Flow, the blockchain platform started by NBA Top Shot maker Dapper Labs, has announced a $725 million fund to invest in applications and growth for its blockchain ecosystem.

Flow is layer-1 blockchain that powers non-fungible token (NFT) applications including games, apps and digital assets including NBA Top Shot and NFL All Day. Dapper Labs built it to support lots of transactions per second and to minimize environmental costs, as Ethereum wasn’t sufficient. Now 7,500 developers contribute to Flow.

Investors in the fund include Andreessen Horowitz, AppWorks, Cadenza Ventures, Coatue, Coinfund, Digital Currency Group (DCG), Fabric Ventures, Greenfield One, HashKey, L1 Digital, Mirana Ventures and BitDAO, OP Crypto, SkyVision Capital, Spartan Group, Union Square Ventures, and Dapper Ventures. The fund includes investors who have poured a lot of money into blockchain games.

Mik Naayem, chief business officer at Dapper Labs, said in an interview with GamesBeat that the fund grew organically, as Dapper Labs has been investing in a lot of seed-stage companies. The company shared its investment deal flow with investors and several unicorn companies emerged from those deals. Venture funds poured billions of dollars into startups that were already using the Flow blockchain.

“So this just started to make a lot of sense,” Naayem said. “We also took a different approach. I think we’ll create a more globally diverse ecosystem, which we’re most excited about.”

He said the company didn’t like the usual fund model with a general partner and limited partners, as it pulled capital to a single decision maker. With this, 15 different funds are allocating money to the ecosystem.

“We think that’s really interesting because they will all be individual decision makers in these investment decisions,” Naayem said. “They will create a diversity of folks who get supported but also ensure that these folks are supported by proven investors in the right way.”

According to stat keeper Flowverse, NBA Top Shot’s total primary and secondary sales have topped $1.14 billion to date. That is the top earner by far, compared to No. 2-ranked NFL All Day at $58.1 million. In that sense, the Flow blockchain definitely needs more diversity for NFT sales.

The new fund is the largest joint commitment made towards any blockchain ecosystem. The ecosystem fund participants will provide existing and future developers with support in building applications on the Flow blockchain through investments, Flow token grants and in-kind support.

“We are thrilled to see such a strong vote of confidence in the Flow ecosystem from some of the world’s leading investors in Web3 through their commitment to this Fund,” said Roham Gharegozlou, CEO of Dapper Labs, in a statement. “With their active participation and support, the ecosystem fund has the opportunity to become a real game-changer for the 7,500-plus strong and fast-growing developer community in the Flow ecosystem.”

With a focus on enabling more distributed and equitable web 3 opportunities to developers around the globe, participants will focus on providing support for gaming, infrastructure, decentralized finance, content and creators. The resources are expected to be used by developers for product development, product scaling, team expansion, user acquisition and general operating expenses.

“The ecosystem fund is an opportunity to power the next generation of developers across the global Flow community,” said Dan Rose, chairman of Coatue Ventures, in a statement. “Coatue has already backed multiple companies building in the Flow ecosystem including Dapper Labs, Crypthulu and Faze Technologies, and we are excited to play an active role in enabling more Web3 opportunities.”

In addition to financial support, the developers in the Flow ecosystem will be able to leverage expertise via informational events, office hours, accelerators & incubators, subsidized office space and similar initiatives.

For example, investors will provide Flow teams office space in cities such as Berlin (Greenfield One) and Asia (for AppWorks Accelerator program), and Liberty City Ventures will be providing two scholarships for college students to work on Flow-related projects. In addition, Mirana Ventures will be bringing in strategic collaboration opportunities for Flow projects with Bybit and BitDAO as their Venture Partner.

“These funds will be able to allocate ecosystem grants to those folks, and those grants are going to be tailored to what type of project it is,” Naayem said. “If it is a project that is consumer facing, those grants will be tailored to help them do user acquisition and get to first purchase. If it’s something that is around tooling, a portion of these grants are going to be focused on tooling adoption and usage. And so really it allows for that tailoring.”

Originally developed by Dapper Labs to create more efficient, secure and scalable proof-of-stake blockchain experiences for its NBA Top Shot NFTs, Flow is an open-source, developer-friendly and energy efficient blockchain built for consumer applications, the company said.

With global partners including the NBA, NFL, UFC and Dr. Seuss; unicorn developers such as Animoca and PlayCo; and emerging projects such as Genies, Fancraze and Cryptoys, Flow has seen daily transactions triple since September 2021 and become the No. 1 NFT platform by number of NFT transactions, the company said.

The fund will cover Asia, Europe, and North America, based on the investors involved. Some have experience with accelerators or decentralized autonomous organizations (DAOs).

Addressing NFT criticism

I asked Naayem about the slowdown in NFT sales and the objects from some gamers and game developers to NFTs, which critics say are environmental wasteful, full of scams, and low-quality gamers.

“The industry faced the same issue when we went to free to play games,” said Naayem. “I think that’s natural. But what we’ve seen time and time again is the these new paradigms tend to be additive to the industry rather than just generally bad or cannibalistic.”

He noted that some players have reacted poorly to developers who added free-to-play game mechanics into titles that should not have had it, like existing premium titles. That wasn’t great for the user experience. Similarly, we’ve seen legitimate backlash to NFT game experiences that use NFTs in a way that doesn’t add to the user experience, he said.

“It has to do with the intention. To me, it’s quite clear that when gamers have true ownership of a digital assets and are able to trade that with other users, it creates a net better experience. But those need to be thought of from the ground up for how we create that experience, rather than latched on as an afterthought to try to generate a little more revenue,” Naayem said.

Competition

As for Flow’s competition with other blockchains, Naayem said that Flow’s transactions have reach record levels in terms of daily transactions. And he said are a lot of developers are making next-generation web 3 applications. And avatar companies like Genies are rising, he said.

“The future is trending in the right direction, the future is quite bright,” Naayem said. “Some ecosystems have grown faster than us. But I think that by focusing on entrepreneurs who are we’re really looking to build the things — that do take time but push the industry forward — the full ecosystem is going to be in great shape.”

As for guarding against hacking, Naayem said Flow’s creators have focused on human readable security. That means that when a user approves a transactions, they can see what kind of transaction it is and so it’s less likely that they would be duped.

Slowing NFT demand

As for slowing demand for NFTs, Naayem said that demand is often based on bursts of enthusiasm for a new type of NFT launch (such as the recent launch of the Bored Apes Yacht Club land sales that generated $320 million in revenues). That enthusiasm often races ahead of where the industry’s traction is, he said. He thinks that new kinds of NFTs that have more utility, such as those envisioned for games, help renew the enthusiasm.

“There’s going to be only so many PFP (profile picture) projects that are focused on community,” he said. “I think gaming is a really good example where we have seen this wave of really simple games that have shown promise but kind are not fun enough for regular people to enjoy.”

But he noted more talent is coming into the industry from gaming and those developers have bigger visions.

We wrote a story last week about how gaming VCs say anywhere from 50% to 90% of the pitches they see are now based on blockchain games.

“Mobile gaming has been kind of a red ocean for a while now and we’re seeing a lot of consolidation, as it’s really hard to get folks excited to compete in a place where, at this point, it’s really expensive to compete in,” Naayem said. “And the upside is AR and VR had its moment. With blockchain, and with crypto gaming, we’ve seen some successes. We’ve seen that there is a huge opportunity here. But as I mentioned before, we haven’t seen those amazing games come out yet. And so there’s a massive opportunity here. And so that makes a lot of sense.”