Tomasz Tunguz's Theory Ventures bets $12M on Initia, the 'iOS for web3'

The promise of blockchain to change the world hasn't materialized. For the most part, the technology has instead enabled people to speculate on a new asset class.

A big hurdle to realizing blockchain's full potential, web3 proponents argue, is that decentralized services are incredibly hard to build. Tomasz Tunguz, best known for his popular startup blog and successful SaaS bets at Redpoint Ventures, believes he's identified a company that will greatly lower the barriers to building blockchain apps.

That company is Initia, which recently closed a $14 million Series A round with around 90% of the capital coming from Tunguz's Theory Ventures, TechCrunch exclusively learned. The funding, which gives Initia a $350 million token valuation, marks Theory's first investment in both equity and tokens.

Theory is allocating its $230 million fund across roughly 12 startups, focusing on three themes: data, AI, and blockchain.

"Ethereum is worth seven Snowflakes put together," Tunguz told TechCrunch, comparing the second-largest blockchain network to the cloud storage company. (Around our interview in mid-September, Ethereum's market cap was about $293 billion; Snowflake's stood at $37 billion.) "These next-generation databases and programming platforms can produce huge outcomes," he added.

The fresh round brings the total raised by Initia to $22.5 million, including previous funding from Delphi Ventures, Hack VC and Binance Labs.

Fragmented garden

The development environment for decentralized apps is highly fragmented. Rather than using a general-purpose Layer 1 network like Ethereum and Solana, developers increasingly turn to specialized chains, or app chains, that are designed with optimal performance in certain blockchain characteristics, such as transaction speed and security.

Nonetheless, these bespoke chains generally lack interoperability with each other, and this is where Initia comes in. Billing itself as the "iOS for web3" — that's quite a bold ambition — the startup runs a Layer 1 network that gives disparate app chains programming compatibility with each other while offering them the flexibility to tweak their execution environment as needed.

"If you want to build an application inside of web3, it's a five-layer cake. You probably want to start with a reasonable cake and as you grow, swap out different layers," said Tunguz. Those layers include functions like consensus (where network validators agree on the state of a blockchain) and data availability (where the state of the blockchain gets posted to the blockchain).

Developers may also want to change certain "underlying performance characteristics" of the decentralized databases without compromising security. "For financial applications, you want low latency. For different kinds of applications, you may want a lot of security... That's the roll-ups as a service or L2s," said Tunguz.

"Initia combines both of those innovations plus instant compatibility with most of the blockchains, so if you are a developer, it's a great place to start because you have great defaults," the investor said.

Having a unified development environment also makes moving money easier across decentralized networks, boosting liquidity and eventually bringing convenience to users. Initia's co-founder Stan Liu explained how Initia is streamlining 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 to the forefront again," Liu told TechCrunch. "The big problem is that in order to facilitate all these types of trades and have actual volume, you need a really big amount of underlying liquidity on the protocol itself."

Liu gave the example of Polymarket, a popular predictions market. To place a bet, a user needs to deposit USDC stablecoins onto the platform. To do so, they need to pay a transaction fee, or gas fee, in the form of ETH on the Polygon blockchain. That means the user needs to first acquire some ETH on an exchange or another source, upon which they will have to "bridge" the currency to Polygon. Finally, to actually execute the bets, the user needs a wallet that's compatible with the Ethereum Virtual Machine, not just any crypto wallet.

Liu said Contro, an Initia-powered prediction market, on the other hand, allows people to place bets in any cryptocurrency using any wallet. The process is possible because Initia supports multiple blockchain execution environments; app chains written in any of those environments can interact with each other by settling on Initia.

Token investment

Theory's bet on Initia shows that web3 startups continue to attract capital from mainstream VCs despite highly volatile coin prices and ongoing public skepticism about crypto's utility beyond financial speculation. Theory's investment in Initia grants it a token warrant, giving it the right to buy the startup's token should it launch in the future.

Spencer Farrar, a partner at Theory Ventures, explained the rationale for pursuing a token round. "One, how do you bootstrap open source development and encourage a fruitful ecosystem? A token can play a part in that. I'm taking a company public and raising money, which historically has been a long and expensive process, and potentially, tokens offer access to global actors."

Farrar, who previously built a project on Solana, also saw Initia's developer relations as a selling point.

"A unique characteristic about [Initia's founders] Zon and Stan is they have very deep technical expertise but they are also able to work collaboratively with developers," said Farrar. Specifically, he noted some of the projects building on Initia were using Move, an open source programming language developed at Meta and continued to be used by blockchains like Aptos and Sui.

With all the hype for app chains, the industry is still in its infancy. By the estimates of Ezaan Mangalji, the other Initia co-founder, there are only around 50 app chains with active development. So far, eight projects are testing on Initia, which is gearing up for a mainnet launch within the next two months. The testnet recorded over 125 million transactions and nearly 3 million unique wallets.

Tunguz is hopeful that efforts like Initia will help scale the multichain ecosystem.

"As we modularize the database and pull out different components, whether it's the data availability layer, the execution layer, or come up with different kinds of light nodes versus full nodes in order to scale it out, there are lots of people working at different parts of the full database to make them perform better," said the investor.

"The other reason is just we've seen 600-700x improvement [in blockchains] in the last three years, so there's existent proof of meaningful performance improvements with different design choices."