Silicon Valley's latest "unicorn" is a Bored Ape
As a technology, non-fungible tokens are barely 10 years old. Yet venture capital firms are pouring money into NFT startups, turning startups into billion-dollar companies — known in Silicon Valley as "unicorns" — virtually overnight in an investment frenzy that recalls the 1990s dot-com boom.
Yuga Labs, the parent company of Bored Ape Yacht Club — a collection of NFTs featuring profiles of cartoon apes — this week announced a $450 million funding round. That values the company at a staggering $4 billion. In January, NFT platform OpenSea said it raised $300 million, valuing the company at an even more eye-popping $13 billion.
Venture capitalists invested $4.6 billion dollars in NFT companies last year, up from only $145 million in 2020, according to the Venture Capital Journal, citing PitchBook data.
What makes these digital-token startups so attractive? Venture capitalists are swarming to the NFT space for two main reasons, said Jason Heltzer, managing partner at Origin Ventures and an adjunct professor of entrepreneurship at The University of Chicago Booth School of Business.
"NFTs themselves can be valuable, but there are a lot of applications where the underlying blockchain technology could be used," Heltzer told CBS MoneyWatch. "These companies are priced in such a way that their future potential is priced in."
Yuga Labs declined to comment about its latest funding round, but the company plans to use some of its $450 million to expand its its creative and engineering teams, while the company is also developing a metaverse platform called Otherside.
"This capital will give Yuga speed to market on many things underway," tech investor Guy Oseary, who contributed to the funding round, said in a statement Tuesday.
CEO Devin Finzer said earlier this year that OpenSea will use part of its latest funding round to make it easier for artists to create NFTs on their platform. The company is also launching a grant program aimed at NFT developers.
An NFT gives someone digital proof of ownership of objects, or access to services, by way of a unique code linked to an image or video that lives on the blockchain. Because they are unique, NFTs can be transferred or sold but not copied or divided into smaller parts. Some individuals buy an NFT in the hope that its value will soar, while others buy them strictly for bragging rights.
NFT marketplaces are where customers go to buy digital collectibles in the form NFTs. Once a customer makes a purchase, part of the sale goes to the individual who created (or "minted") the NFT and another portion goes to the marketplace. For example, on OpenSea, 2.5% of an NFT's sale price — which is set by the creator — goes to the platform.
NFTs saw their popularity explode in 2021 as celebrities, musicians and athletes used them to sell their work. Justin David Blau, a New York DJ known as 3LAU, sold a collection of NFTs last year for more than $11 million, while NFL player Rob Gronkowski sold an NFT football card of himself last year for more than $1.6 million.
NFTs are projected to grow into a $35 billion global industry this year and $80 billion by 2025, according to analysts at investment bank Jefferies. Venture capitalists are banking on more and more people wanting to buy an NFT in coming years.
"We're paid to take risks and make bets on things we believe will have value in the future," Heltzer said. "But I'm excited about this next phase of NFTs."