Why Andreesen Horowitz Is Betting Big On NFTs

The venture capital firm believes that NFTs are a new distribution and monetization vehicle for content creators that will help expand the market. JL

Mark Sullivan reports in Fast Company:

Andreessen Horowitz believes NFTs have real and lasting utility and are not a passing fad. The VC sees NFTs as a distribution vehicle for digital content that lets the content creator better control and profit from their work. “NFTs  can accelerate the trend of creators monetizing directly with their fans." NFTs will let content creators spend much less on customer acquisition or intermediaries because fans are attracted to the idea of owning a unique piece of content (such as a limited edition artwork or piece of music). “[U]sers feel like owners—they have skin in the game. It’s true peer-to-peer marketing."

Andreessen Horowitz is placing a big bet on NFTs, leading a huge $100 million funding round for the largest of the NFT trading marketplaces, OpenSea. With the round, OpenSea, founded in 2017, has a valuation of $1.5 billion.

Users connect their crypto wallet to OpenSea’s platform, and then are able to buy, sell, or create NFTs (non-fungible tokens). OpenSea takes a 2.5% fee on each transaction. NFTs have had a big 2021: OpenSea says it sold $160 million in digital assets on its platform during June, and saw a 45X increase in volume growth in the first half of 2021.

An NFT is a cryptocurrency token connected to the blockchain that represents a digital good, and permanently and traceably marks its ownership and uniqueness. So far we’ve seen NFTs for digital art, videos, music, gifs, games, text, memes, and code, but that list will likely grow.

NFTs are a new technology, and many see the tokens as something collected by crypto nerds, and that can’t hold much value because the assets they represent are digital and easy to copy. NFT prices have seen dramatic highs and lows, as their perceived value has been influenced by the rises and falls of Bitcoin prices, by speculative trading, and by internet hype about cryptocurrency itself.

But a $100 million investment in the largest NFT marketplace led by a top-tier VC like Andreessen Horowitz makes a statement. The investors believe that NFTs have real and lasting utility and are not a passing fad. Indeed, the VC sees NFTs as a distribution vehicle for digital content that lets the content creator better control and profit from their work.

“NFTs . . . can accelerate the trend of creators monetizing directly with their fans,” wrote general partner Chris Dixon in a blog post from earlier this year. “Social platforms will continue to be useful for building audiences (although these too should probably be replaced with superior decentralized alternatives), but creators can increasingly rely on other methods including NFTs and crypto-enabled economies to make money.”

Dixon argues that NFTs will let content creators spend much less on customer acquisition or intermediaries because fans are attracted to the idea of owning a unique piece of content (such as a limited edition artwork or piece of music). “[U]sers feel like owners—they have skin in the game,” Dixon writes. “It’s true peer-to-peer marketing, fueled by community, excitement, and ownership.” NFTs also let creators design different tiers of products, at different prices, to match the enthusiasm level of the fan/buyer.

OpenSea cofounder and CEO Devin Finzer tells me that as people spend more time within digital worlds, they’ll better understand what NFTs do and what they’re worth. Looking forward, he says NFTs might become very big within the gaming world, where more users will buy digital goods inside games.

“Virtual worlds like Fortnight already sell billions in digital items to their communities,” he says. “This allows games to become free market economies.” In Fortnite, gamers use a form of cryptocurrency called V-Bucks to buy things like character outfits.

Finzer says OpenSea will use the new investment money to expand its platform and hire new talent–both traditional Silicon Valley engineering talent and people with crypto experience.

A few months after OpenSea launched in 2017, it announced a $2 million seed funding round led by Founders Fund. Andreessen led the company’s $23 million series A round in March 2021, with contributions from names such as Ron Conway, Mark Cuban, and others. The new Series B also includes investments from Michael Ovitz, Kevin Hartz, Kevin Durant, and Ashton Kutcher.

NFTs might not yet be a mainstream technology, but OpenSea’s new round could be part of a wave of investment that will help them get there.