Ultimate Guide to Web3 Companies

What is web3?

An English computer scientist born in 1980, a guy named Gavin Wood, coined the term "Web 3.0" in 2014, a few years after the last Web 2.0 Summit that had ran from 2004 - 2011. The term morphed into web3 and spread like a California wildfire. As it spread it's developed many meanings to many different people but the overarching theme is that it's supposed to be a new internet with protocols and technologies that eliminate middlemen and protect freedom for businesses and consumers. Bitcoin launched in 2008 as a response to the financial meltdown, web3 has risen largely in response to monopoly gatekeepers like Amazon, Google, Facebook, Apple and Microsoft that control how we interact and transact with each other in the digital realm.

Mr. Wood is credible in the web3 space because he cofounded the ethereum blockchain and served as CTO of the Ethereum Foundation for two years. He's an accomplished academic and computer scientist, with a PhD in human computer interaction and he served as a research consultant for Microsoft for four years. Wood went on to make another cryptocurrency called Polkadot which brands itself as a "multichain vision of Web3". Mr. Wood also founded an organization called the web3 foundation that provides grants and research for crypto projects. He also started a London-based business called Parity Technologies that provides consulting services and software to other businesses, especially business that consider themselves to be a part of the web3 future.

In case you really want to get in the weeds, below is a slide shared by Stanford grad Juan Benet in a conference talk called what exactly is web3 (2018) that's shared on the web3 foundation's about page. If you're new to the space most of these terms are completely meaningless but to me it's notable that the inventors of the web 3.0 view the technology they're building, Polkadot as foundational to the whole vision and ecosystem.

Mr. Benet, who founded and runs a business called Protocol Labs which claims to drive "breakthroughs in computing to push humanity forward". From the talk and Gavin Wood's original essay why we need web 3.0 it's clear that the originators view web3 in social and political terms not just technological ones.

Where did web3 come from?

Much of this will be paraphrasing from Mr. Benet's talk describing what web3 is. At the time of giving the talk Mr. Benet's company had recently gone through an Initial Coin Offering (ICO) worth nearly $8 million from institutional venture capitalists like andreessen horowitz, sequoia capital, Winklevoss Capital and union square ventures.

From the web3 perspective web 3.0 is a phase transition with the internet. Over the past eighty years our species has moved from a pre to a post computing society. We've grown up with the internet, phase transitions are happening very fast decade after decade.

Human society has moved from mainframes to personal computers to using Graphical User Interfaces (GUI) to being networked with the internet then the world wide web. Since the turn of the century there has been Web 2.0, a mobile revolution, the development of blockchains and now the latest in this series of evolutions is web 3.0. Web3 proponents assert that web3 is the most recent wave of technological progress.

One thing to note that Mr. Benet calls out in his talk is that the superpowers of technology are defined and constrained by the properties of those technologies. Properties of software systems include: how they work, how reliable, how correct, how fast, how open, how accessible, how safe, how they fail, who controls them and how they're governed. Technology isn't something that pops up out of nowhere it has properties determined by the society we live in. Only a minority of people know how to build software systems but they affect a lot of people.

Internet - wires, networks and connectivity protocols

The internet protocol (IP) was first introduced in 1974 more than a decade before the World Wide Web. This internet provided physical wiring and network protocols for machines to talk to each other. It was primarily for academic and military use and heavily backed and subsidized by American military defense spending. This innovation started in the 1960s and 1970s resulting in messaging boards, chat and email.

World Wide Web - commercial adoption and explosive growth of the internet

Internet opened for commercial use in the 1990s. This is noteworthy because it took decades for the protocols to be standardized and the technology to progress to the point where widespread commercial use was possible. Those decades of research were largely funded by the American government. Marc Andreesen built the Mosaic web browser as one of the first graphical user interfaces for the world wide web. Microsoft later killed Netscape Navigator during this "web 1.0" era by bundling Internet Explorer with their computers for free. There was huge euphoria and mania about the potential for the world wide web followed by the immensely destructive dot com crash.

Globalization as an economic and political philosophy was at it's height during the 90s and the internet was seen be ushering in a "global village". According to Tim Berners-Lee who invented the internet the democratic potential of the network was aparent right away.

During this early internet era standards and protocols were invented and/or built upon like HTTP, IP, DNS, TCP and Internet Service Providers.

Some companies from this early internet era include: Google, Amazon, AOL, msn, lycos, Yahoo! and e-trade.

The World Wide Web consortium is an organization of businesses and developers that kept the web together as one instead of fracturing or being taken over by a company or government. Tim Berners-Lee and took care of his baby and during this time.

Web 2.0 - the network is a platform: users add value

What I find most interesting about the "Web 2.0" movement is that it mostly came true. Not only that but a similar transition happened to America during the early 19th century Gilded Age too. There was a flourishing of new technologies like combustion engines, railroads and telephone lines that ended up being consolidated in the hands of a few major trusts like Standard Oil, AT&T and railroad companies being broken up by antitrust lawsuits, legislation and executive action. Capitalists consolidated using the power of network economics. When they got too big and powerful the government stepped in to decentralize power out of their hands.

Web 2.0 is shares a similar trajectory with the trusts of the previous century. In the words of Tim O'Reiley the cardinal rule of Web 2.0 is the network is a platform: users add value. Within this definition it's clear that the Web 2.0 was defined by flywheels and networks. The winners of the Web 2.0 built products that got better as more people used them. As the marketplaces got better network affects took over and we ended up with winner take all marketplaces like Amazon, Facebook, Apple, Uber and Airbnb. The speakers at the first San Francisco Web 2.0 conference in 2004 remain today's titans of industry: Jeff Bezos, Mark Cuban, John Doerr, Mary Meeker, Craig Newmark, Marc Andreessen, Cory Doctorow, Bill Gross, Lawrence Lessig, Halsey Minor, Louis Monier and Jerry Yang. Web 2.0 was defined by building platforms with network affects that ultimately consolidated power in the hands of a few companies. Web 2.0 emphasized network and platform economics.

A central feature to dominate a market via networks and a platform is predatory or below cost pricing. One suprising feature of the Web 2.0 era is the government stood idly by or even assisted monopolists in rolling up their industries. The government bank bailouts of 2008 are the most well known example of government propping up the powerful but there are other tech examples too. For instance Amazon used its market power in the e-reader market to price below cost and chase out rivals like Apple, Sony, Barnes & Noble and Google. During the Bush administration there were exactly zero antitrust cases and no blocked mergers. This allowed winners in one area to win in other areas simply by buying competitors or companies that could emerge as competitors.

For example, Facebook won in desktop social networking and then they were able to win in mobile social networking buy buying Instagram. After winning in those sectors they were able to buy Occulus the leader in virtual reality. The Federal Trade Commission (FTC) miraculously managed to rule that these market forming plays were not threats to competition in America. Without innovating Facebook was able to gobble up multiple markets.

This phenomenon of companies buying their competition, therefore not having to innovate or compete was a central feature of Web 2.0 and is by no means unique to Facebook.

• Amazon won in online book sales and has then was able to acquire hundreds of companies, consolidating dozens of markets. How Amazon did this and escaped government scrutiny is outlined in great detail by current FTC commissioner Lina Khan's detailed work Amazon’s Antitrust Paradox. If you're interested in learning more about the current state of the web and corporate consolidation in the internet era I highly recommend it!

• Google won in online search and then was able to acquire Android and YouTube to win market-share in mobile and video, in addition to buying DoubleClick consolidating the online advertising industry.

• Microsoft bought LinkedIn and GitHub among dozens of other startups that could have emerged as threats.

In all of the above cases an enfeebeled FTC and American government stood by to let capitalists consolidate our once competitive markets. A central feature of the web3 movement is around building an alternative to this paradigm in conjunction with a lack of faith in government to solve structural market problems.

Problems with Web 2.0

A clear reason for a web3 is to address problems that Web 2.0 has created. While reasonable minds can disagree on the solutions laying out the problems with the current internet economy should be pretty easy: Many industries are controlled by a small handful of corporations. Those corporations are able to buy hundreds of lobbyists to influence government on any action that might hurt them. Users suffer from data lock in and lack of privacy. There are structural incentives for companies to monopolize data and "rent seek" instead of creating new value. Our internet economy is largely controlled by middlemen. The advertising model exists to keep people engaged and keep them on sites, anger drives some of the best engagement so companies are incentived to keep us angrily looking at our phones. We live in a fantastic time and technology makes our lives pretty awesome but there is, shall we say, room for improvement in the current system. In the words of Mr. Gavin Wood in his post about why we need web3 he says the internet today is "broken by design".

With so much of the world’s data channelled through so few cables, the inconvenient truth is that unless we put in place open software protocols, our increasingly digital society will continue to be at risk from malicious “authorities” both within society and (as in the case Russian tampering of our elections) from outside.

Here Mr. Wood outlines that corporate consolidation is a problem, though he defines the solution as open software protocols, leading us to...

Web 3.0 - turning centralized apps into decentralized protocols

Instead of relying on government antitrust enforcement, common carrier laws or the courts, Web3 seeks to solve the internet economy's problems by changing technology itself. Mr. Wood argues "Centralization is not socially tenable long-term, and government is too clumsy to fix things". We have centralized corporate power and controlling our lives and Mr. Wood does not believe govenment is capable of standing up to these powers and setting things right. Instead the web3 movement is built around the idea that new technology, apps and protocols can be built with verifiability, peer to peer connectivity and no centralized powers.

Some common themes and terms you'll hear with web3 projects revolve around trust. Rather than simply trust that Amazon Web Services (AWS) isn't going to cannabilize your business web3 companies aim to depend on protocols and technologies that everyone can depend on but no one needs to trust anyone. I'm not entirely sure when fear of trusting people became such a huge motivator of technological progress but here we are. These are come central tenets of web3:

• trustless and decentralized infrastructure: In a web3 world adherents want to be able to use and trust things without worrying businesses or technologies might turn against you. AWS using your data to undermine your business or gain unfair advantage is a current fear many Web 2.0 companies share. One way web3 is looking to mitigate this in through decentralized computing and trustless interoperability. Decentralized computing in the context of web3 means no one entirely owns the servers your applications run on. Instead new technologies and protocol allocate server space based on proof of stake or proof of work models. Trustless interoperability comes from new network protocols like Polkadot that provide a system where theoretically anyone can plug into them. A key piece that makes decentralized computing and new protocols possible is the rise of "fully autonomous applications". These are technologies that run whether or not you're there to run them in the future. No system in the past has had this property. All systems in the past had to be maintained by some organization, some group of people that cared about continuing to run this thing. The reason it is possible now is through "very strong economic incentives" where computers collect and mine tokens for running.

• removing intermediaries: Related to lack of trust is removing middlemen from our economic systems. In economic terms middlemen are often called "rent seekers" and generally can extract value from those that produce or supply goods that people need. Not having to trust that some party is not going to become a rent seeker is a driving force in the development of web3. Many web3 companies will talk about peer to peer (P2P) connectivity, which ironically enough was a central feature of web 1.0 where people connected directly through sites like Napster, Kazaa and Craigslist.

• giving users power and ownership over their identity, security and transactions: This focus on verifiability, transactions and immutability comes from blockchain transactions. NFTs are an offshoot of this. I think a lot of it is in response to Facebook and Google routinely mining their users for data. Web3 as a concept aims to give individuals more control of and visibility into their data so that if a company claims to not be sharing your data you can verify that using blockchain technology. Bitcoin is a completely separate technology from the internet but it reminded people about the power of peer to peer connectivity. Web3 adherents believe that web3 is taking what bitcoin did to money and performing the same transformation to other segments of our society.

Combined these tenets: 1) trustless, decentralized web infrastructure 2) immutable transactions via blockchain and 3) removing rent seeking middlemen ake up the core of what web3 aspires to be. In the words of Mr. Wood and Mr. Benet Web 3.0 is "turning centralized apps into decentralized protocols". They see web3 as building verifiability and trustless computing into the core layer of the internet, opening new possibilities for societies and business.

Now that we've covered the theory about what web3 is let's examine the businesses building web3 today.

What are web3 companies?

Web3 companies are businesses or organizations that are working towards the tenets outlined above. Often they're building protocols, currencies or services that aim to allow people to interact in different ways. Many web3 companies are exchanges or marketplaces that provide easy to use UIs for people to interact with blockchains and/or tokens. NFT, standing for Non Fungible Token is a buzzword we will see a lot.

Number of web3 companies

In the Employbl database we currently have 333 Web3 companies that are headquartered in the United States, though in coming weeks we'll be adding more. On this site we focus on U.S. based companies so don't exclude foreign web3 companies like FTX even though it's founded by an American that's spending billions of dollars to influence American politics it's still headquartered overseas.

Top funded web3 companies

From our list, these are the top web3 and top crypto companies that have raised the most money from financiers. This includes traditional venture funding rounds like Seed and Series A but also money raised from Initial Coin Offerings. We only list companies that are not public and haven't been acquired by other companies at the time of publication.

new web3 companies

These are the most recently founded, venture backed web3 companies on our list. They're all headquartered in the United States. To explore all the data with company logos, investment information and more feel free to log in to the Employbl dashboard. It don't cost a thing.

Top Investors in web3 Companies

Examining our data of all 333 web3 companies we can look to see what investors have backed the most companies. We only really track investments from top VC firms but if you click on an individual company profile you can see all the investors that have backed the company and which round they participated. To see all of the companies that each of these investors have backed click on the investor name.

On the Employbl dashboard you can filter for "Company Collections > Web3 companies" in conjunction with "Venture Capital Firms > " to see all the web3 companies a VC firm has invested in.

Here is the list of VC firms plus how many investments they've made in web3 companies. This only looks at the 333 web3 companies that are on our list right now, but this list will expand going forward. To be up to date with the latest data check out the Employbl companies dashboad :)

Honestly these numbers are pretty conservative and the totals will definitely go up as we add to our custom list of web3 companies. I do think it's representative though to see Andreessen Horowitz near the top of the list for web3 investments. YC invests in many more companies though typically at much smaller check sizes.

Criticisms of web3

I'd be remiss if I didn't mention there are a lot of shortcomings of web3. First it's worth acknowledging that it's much harder to build protocols than it is to build platforms. The internet predated the World Wide Web for several decades while protocols were worked out and agreed upon. Ony after the protocols were built and defended, often with public money, could businesses thrive.

There's also an inherent hypocrisy in some of the web3 movement where adherents preach decentralization while building centralized hubs. It's clear that institutional investors like a16z and Coinbase Ventures are backing most of the top web3 and crypto companies. Additionally some major players like ConsenSys (which owns MetaMask among other products) have built centralized hubs for accessing blockchains. OpenSea and Coinbase also provide centralized hubs for the allegedly decentralized future. This begs the question of is web3 just swapping one set of gatekeepers for a new one? Venture Capitalists make money from backing monopolists that can escape competition, which is somewhat at odds with building a decentralized economy.

There's also a constant stream of crime, robbery and failure associated with web3, as chronicled on the website web3 is going great.

Crypto companies like Coinbase and FTX are pouring millions into American politics. This could sway the market in the favor of accumulated capital. Additionally if the market continues to crash these crypto and web3 companies could take taxpayer money in the form of a bailout. Bitcoin rising out of anger and frustration from the 2008 bailout to spawning new companies that engineered a new financial crash to get a new government bailout would pretty much be the ultimately irony.

Matt Stoller of the American Economic Liberties project as also written about the scammy nature of cryptocurrencies. YouTube video Line Goes Up – The Problem With NFTs is another longform piece outlining issues and inherent problems in the web3 space.