How to evaluate NFT projects that have been invested in by venture capitalists?
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How to evaluate NFT projects that have been invested in by venture capitalists?
Higher floor price, but lower cap.
Navigating Web3 tides with focused insightsWritten by: Azf.eth
Translated by: TechFlow intern
Most popular NFT projects have received VC funding:
● Doodles — @sevensevensix (N/A)
● Proof / Moonbirds — @sevensevensix ($10 million)
● Yuga Labs — led by @a16z ($450 million)
● Rumble Kongs — led by JDS Crypto ($4.5 million)
● Jenkins the Valet — led by @16z ($12 million)
What does this mean for NFT holders?
As NFT traders, we're often told to "buy NFTs from strong teams," because NFTs follow the same logic as angel investing. For such an early-stage product, the only constant is the team.
But if I'm betting on those strong teams via NFTs, does that guarantee profitability? There are three key differences between holding equity vs. holding NFTs:
1. Holder benefits + expectations
2. Where value comes from
3. Responsibility to holders
By the end of this article, we’ll understand the expected ROI (return on investment) for NFT holders.
1. Holder Benefits + Expectations
NFT holders own a specific digital asset that forms the foundation of a community and brand. Because they've bet on this asset, they expect some form of utility in return.
Especially during bull markets, due to increased demand and popularity of risk assets like NFTs, there's also an expectation of positive investment returns. Finally, NFTs are used to signal wealth, status, Web3 identity, and affiliation with Web3 culture.
What about equity holders?
Equity holders have just one benefit/expectation: positive financial ROI—and that’s it. For pre-IPO VCs, this positive financial return is even more nuanced. VCs operate like calculated lotteries backed by ultra-wealthy individuals:
1. VCs raise large funds from LPs (limited partners) to invest in startups. LPs expect returns above the S&P 500.
2. The VC invests across N startups within their expertise.
3. Most startups fail, but a few "winners" cover all losses.
4. LPs get their capital back through these wins, the VC earns carry and builds reputation to raise future funds.
5. The cycle repeats.
So what happens when this capital enters NFT projects?
Because VCs need success big enough to offset losses, they only invest in projects with massive market opportunities and growth potential (typically >$1 billion). Projects offering 2x or 3x returns aren't enough—they need ~100x.
For NFT projects, this means the products/services created may not directly benefit NFT holders but instead serve mass audiences. OG NFT holders act as great marketing catalysts, but they cut into long-term profits—this tension affects ROI projections (see end of article).
2. Where Value Comes From
Both types of holders derive value from strong brands/products. However:
NFT holders want free products/services because they increase token prices and provide more utility.
Equity holders extract value from more dollars.
This creates a conflict of interest.
3. Responsibility to Holders
Finally, this leads to the last point—what responsibility do NFT projects have toward their holders compared to equity?
If an NFT project sells 10,000 units at 0.08 ETH and the floor price rises to 10 ETH, are they obligated to deliver 10 ETH worth of value?
With equity, companies have fiduciary duties to shareholders who expect the company to grow and generate profits from their investment. This balance will vary by project but involves certain forms of value creation.
With NFTs, it depends on expectations set at mint. Founders can’t control floor price, but they can control how funds are used. If an NFT explicitly states it expires after 3 years, holders can't complain about receiving no benefits afterward.
On the equity side, businesses must find ways to create value—not just "buy" value—while rewarding NFT holders. What does this mean?
For example: @veefriends launched merchandise collaborations, giving Productive Puffin holders free items while publicly selling the same goods.
Veefriends Inc. makes money from the brand it's building while delivering value to specific NFT holders. Specifically, the cost of producing merchandise is far lower than what holders originally paid, regardless of current floor price.
Alright, now that we understand the differences between being an NFT holder versus an equity holder, what should you expect from VC-backed NFT projects? Here's my final ROI prediction:
1. Higher Execution Capability
Companies raise funds to execute visions, access top-tier networks, and hire experts. Providing catering for a free event, building software, scaling a brand, manufacturing products—all require capital and talent.
With VC involvement, founders can't simply say "oh, I quit" and walk away with the money. As mentioned earlier, VCs expect either 100x returns or failure.
These NFTs are "relatively safe investments" because you know they'll at least attempt to complete their roadmap—the rug pull risk is significantly reduced.
2. Brand Appreciation and NFT Dilution
Topshot is a perfect example. After raising over $600 million, Dapper Labs has a fiduciary duty to its shareholders to generate profit. Their primary business model has always been selling more "Moments," which increases brand value but dilutes existing NFTs.
Doodles recently announced they'll build more products on Ethereum, allowing the brand to reach entirely new communities. More holders and broader brand exposure—but at the cost of NFT dilution.
Summary:
1. NFT holders expect utility from betting on a brand/company.
2. VCs expect ~100x returns.
3. Tension between NFT holders and equity holders leads to more low-cost value offerings.
Finally, here's my price prediction for VC-backed NFTs—NFA:
NFTs: higher floor prices, but lower ceilings.
Funding brings strong execution, but any brand growth will be monetized by the company. NFT holders receive expected utility—but nothing beyond that.
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