Tomasz Tunguz’s Theory Ventures invests $12 million in Initia, ‘iOS for web3’

Blockchain’s promise to change the world has not materialized. The technology has mostly allowed people to speculate on a new asset class.

As Web3 advocates argue, the biggest obstacle to blockchain reaching its full potential is that decentralized services are incredibly difficult to create. Tomasz Tunguz, known for his popular initiative blog and has made successful SaaS bets at Redpoint Ventures, believes he has found a company that will greatly lower the barriers to building blockchain applications.

That company Beginningrecently closed a $14 million Series A round, with about 90% of the capital coming from Tunguz’s Theory Ventures, TechCrunch has exclusively learned. The funding, which gives Initia a token valuation of $350 million, represents Theory’s first investment in both stock and tokens.

Theory is splitting its $230 million funding among around 12 startups, focusing on: three themes: data, artificial intelligence and blockchain.

“Ethereum is worth seven Snowflakes in total,” Tunguz told TechCrunch, comparing the second-largest blockchain network to the cloud storage company. (In our interview in mid-September, Ethereum’s market cap was around $293 billion; Snowflake’s was $37 billion.) “These next-generation databases and computing platforms can produce big results,” he added.

The new round brings the total raised by Initia to $22.5 million, including: previous funding From Delphi Ventures, HackVC and Binance Labs.

The fragmented garden

The development environment for decentralized applications is highly fragmented. Instead of using a general-purpose Layer 1 network like Ethereum and Solana, developers are increasingly turning to specialized chains or application chains designed with optimal performance in specific blockchain features like transaction speed and security.

However, these private chains often lack interoperability with each other, and that’s where Initia comes in. The initiative, which bills itself as “iOS for web3”—a bold ambition—runs a Layer 1 network that gives different application chains programming compatibility with each other and the flexibility to adjust their execution environments as needed.

“If you want to build an application within Web3, it’s a five-layer pie. You probably want to start with a reasonable pie and change out different layers as you grow,” Tunguz said. These layers include functions like consensus (where network validators agree on the state of a blockchain) and data availability (where the state of the blockchain is sent to the blockchain).

Developers may also want to tweak certain “core performance characteristics” of decentralized databases without compromising security. “For financial applications, you want low latency. For different types of applications, you might want a lot of security… These are roll-ups or L2s as a service,” Tunguz said.

“Initia combines these two innovations and instant compatibility with most blockchains, so if you’re a developer it’s a great place to start because you have great defaults,” the investor said.

Having a unified development environment also makes it easier to move money between decentralized networks, increasing liquidity and ultimately bringing convenience to users. Initia co-founder Stan Liu explained how Initia simplifies the user experience of crypto-based prediction markets, where people bet on the outcome of certain events.

“Recently, with all the presidential debates, prediction markets have come back to the forefront,” Liu told TechCrunch. “The big problem is that to facilitate all these types of transactions and have real volume, you need a really large amount of underlying liquidity in the protocol itself.”

Liu gave the example of Polymarket, a popular prediction market. To place a bet, a user must deposit USDC stablecoins into the platform. To do so, they must pay a transaction fee or gas fee in the form of ETH on the Polygon blockchain. This means that the user must first acquire some ETH from an exchange or other source, and then “bridge” the currency to Polygon. Finally, to actually execute the bets, the user needs a wallet compatible with the Ethereum Virtual Machine, not just any crypto wallet.

On the other hand, Contro, an Initia-powered prediction market, allows people to bet on any cryptocurrency using any wallet, Liu said. This process is possible because Initia supports multiple blockchain execution environments; application chains written in any of these environments can interact with each other by residing in Initia.

Token investment

Theory’s bet on Intia shows that web3 startups continue to attract capital from mainstream VCs despite highly volatile coin prices and ongoing public skepticism about the utility of cryptocurrencies beyond financial speculation. Theory’s investment in Initia provides it with a token guarantee and the right to purchase the startup’s token should it launch in the future.

Spencer Farrar, a partner at Theory Ventures, explained the logic behind pursuing a token round. “One is, how do you kickstart open source development and foster a productive ecosystem? A token can play a role in that. I’m taking a company public and raising money, which has historically been a long and costly process, and potentially tokens provide access to global actors.”

Farrar, who previously developed a project on Solana, also saw Initia’s developer relationships as a selling point.

“What’s unique about (Initia founders) Zon and Stan is that they have very deep technical expertise but also the ability to work collaboratively with developers,” Farrar said. Notably, he noted that some of the projects built on Initia use Move. Open source programming language developed in Meta and continued to be used by blockchains such as Aptos and Sui.

Despite all the hype around app chains, the industry is still in its infancy. According to estimates from fellow Initia co-founder Ezaan Mangalji, there are only about fifty app chains in active development. So far, eight projects are being tested on Initia, which is preparing for a mainnet launch in the next two months. The testnet has recorded over 125 million transactions and nearly three million unique wallets.

Tunguz is hopeful that efforts similar to Initia will help scale the multi-chain ecosystem.

“As you modularize the database and take out different components like the data availability layer, the execution layer, or find different types between full nodes and lightweight nodes to scale, you have a lot of people working on different parts of the full database to make them perform better,” the investor said.

“The other reason is we’ve seen a 600-700x improvement (in blockchains) in the last three years, so there’s current evidence of meaningful performance improvements with different design choices.”