Related Practices & Jurisdictions
The metaverse is shaping up to be the next frontier in digital commerce, with businesses across industries spending millions of dollars buying digital real estate and investing in platforms to be market leaders. This has made companies with metaverse operations hot targets for venture capitalists and other investors looking to get in on the ground floor. Although metaverse-involved companies offer exciting opportunities, investors need to pay special attention to legal issues present for these targets. This alert highlights a few key legal issues for investors to keep on their radar while conducting diligence and negotiating investment documents.
What is the Metaverse?
At its core, the metaverse is the next generation of the Internet. Built largely on decentralized, blockchain technology instead of centralized servers, it consists of immersive, three-dimensional experiences with vibrant digital marketplaces, persistent and traceable digital assets, and a strong social component. While some elements remain aspirational, consumers are already flocking to metaverse platforms and spending significant sums on digital assets, making it an exciting opportunity for virtually all businesses, even those relying on physical space or face-to-face interaction, to generate revenue. Meanwhile, many tech companies are working on next-generation consumer electronics such as smart glasses that they hope will take e-commerce to the next level and make today’s two-dimensional web browsing a thing of the past.
All of these developments lead to fertile ground for venture capitalists and other investors placing bets on which technologies will pay off in the future.
Diligence Issues in Metaverse-Involved Transactions
Investors evaluating targets with metaverse operations should carefully evaluate these operations. Here are three key diligence considerations:
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Custody of digital assets. Metaverse-involved businesses often possess and rely on digital assets such as cryptocurrency and non-fungible tokens (“NFTs”), which are uniquely vulnerable to loss and theft. Investors should ensure that potential targets have set up a secure blockchain wallet and adopted appropriate access and security controls.
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Platform Terms and Conditions There are multiple metaverse platforms, and they all have tradeoffs. Some, including Roblox and Fortnite, offer access to more consumers but generally give businesses less control over content within the programs. Others, such as Decentraland and the Sandbox, provide businesses with greater control but smaller audiences and higher barriers to entry. Investors should critically evaluate the terms and conditions of the platform selected to ensure that they align with the target’s business objectives.
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Registered IP. Investors should ensure that targets …….
