Crypto winter thaws as VCs re-enter the market

As venture capital firms focused on the cryptocurrency and blockchain sectors raise billions, their investments have declined. But how much of that is caution and how much is investing fewer dollars for more value as the crypto market itself shrinks remains a looming question.

It’s easy to take crypto investor David Pakman’s announcement Wednesday (August 17) of the launch of CoinFund, a $300 million venture capital fund focused on Web3 projects, as a sign of confidence in an industry stuck in the heart of a crypto winter.

Mostly because the announcement today is not that unusual.

Because while private cryptocurrency investors are either fleeing or hibernating as bitcoin led most other cryptocurrencies by falling more than 65% since its all-time high in November – witness Coinbase’s announcement that trading volume fell 38% in Q2 – there has been a clear lack of withdrawal of venture investors.

That includes some giant new funds, starting with the $4.5 billion crypto fund Andreessen Horowitz announced in May, with $3 billion earmarked for venture capital and the other third for seed funding. It more than doubled its digital assets to $7.6 billion, Bloomberg reported.

Others include FTX Ventures, the $2 billion crypto exchange FTX CEO Sam Bankman-Fried raised in January; Andreessen Horowitz veteran Katie Haun’s $1.5 billion raise of Haun Ventures in March; Electric Capital’s $1 billion raise (between two funds) in February; and in July, Multicoin Capital announced last month that it will direct an additional $430 million to crypto startups.

See also: Musk, Dorsey Hint VC Money Puts Web3 Vision at Risk

That included some huge rounds, including institutional custodian Fireblocks, which raised $550 million at an $8 billion valuation in January, and March’s $450 million raising at a $4 billion valuation by Yuga Labs, the NFT firm and potential metaverse builder behind. top collection project Bored Ape Yacht Club.

Up or down?

Still, how good a year it’s been for crypto depends on whether you’re looking at VC raises or investments.

Crunchbase reported on July 15 that only $9.3 billion had been invested in crypto companies in the first half of the year. That’s a far cry from the $12.5 billion invested in the first half of 2021, and up from the full year’s $23.5 billion.

However, CrunchBase noted that the number of venture, seed and pre-seed deals made in the first half of 2022 – 534 – was significantly higher than the same period in 2021, when there were 456 deals.

In part, this decline in value, despite an increase in volume, was due to a drop in deals at the high end of the spectrum, CrunchBase said. They pointed out that in Q1 2022 there were six rounds where at least $400 million was raised by a crypto firm. That number dropped to just one round in Q2 as it became clear that a crypto winter and likely a broader recession was in the foreseeable future.

“We’ve seen this story before,” Jordan Nof, a co-founder and managing partner at Tusk Venture Partners, told CrunchBase. “If you think this is a fad, you’re probably leaving the market, but we don’t hear that anymore.”

Buy the hype

A hot area of ​​funding is Web3, the movement to build a new World Wide Web on blockchain infrastructure. It is a segment that also includes the very hot metaverse and blockchain gaming industries.

That is the goal of CoinFund, Pakman said in the announcement.

“Tech entrepreneurs and venture investors are taught to look for architectural transitions that disrupt previous models and create new ground for companies to build tremendous value,” he said. “In my 30 years in technology, I have never seen a bigger opportunity than crypto and web3.”

This is a sentiment shared by many VCs. Among them crypto investor Variant, which announced $450 million for a fund that will put $300 million behind existing portfolio projects and $150 million in Web3 seed funding in July.

Also, VC funding seekers know it, Ethan Kurzweil, a partner at Bessemer Venture Partners, told VentureBeat in May.

“Many founders quickly rewrite their pitches to include a Web3 element,” he said. I’m not sure if it’s VCs pushing the Web3 zeal or vice versa, but the Web3 pendulum has actually swung to the extreme.”

It happens enough that Block CEO Jack Dorsey had a high-profile Twitter conversation with Tesla CEO Elon Musk about venture capital firms putting the free-from-corporate-control vision of the movement to build a new World Wide Web on a blockchain infrastructure in danger.

Read more: Musk, Dorsey Hint VC Money Puts Web3 Vision at Risk

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