Crypto Funding Dropped in 2022, But VC Chief Sees Areas of Opportunity for 2023

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Venture capital investment in blockchain startups hit a record $25.2 billion in 2021, driven by bullish optimism and funding surges for non-fungible tokens (NFTs) and decentralized finance (DeFi) projects ). In 2022, funding has slowed significantly and is expected to be around a third of the 2021 record, following a wave of failed companies including hedge fund Three Arrows Capital, lender Celsius and exchange giant FTX .

David Pakman, managing partner and head of venture capital investing at crypto-focused venture capital firm CoinFund, discussed what the investing landscape will look like in 2023 and which crypto verticals could emerge more strengths in the post-FTX world in an interview with CoinDesk.

“Crypto saw a lot of self-harm in 2022 and it fuels the narrative that were already battling: Oh, scammers doing fraudulent things. And here’s yet another example,” Pakman said, noting that FTX’s downfall was due to human behavior, not a technological failure. Hopefully they eliminated them from the system.

Investment Landscape 2023

CoinFund was an early investor in FTX and had a small amount of equity, which has now been written off, Pakman said. The company did not hold any FTT tokens, but had what it believed was a very small trade in progress when the exchange crashed. The FTX investment preceded Pakman, who joined CoinFund last year after spending 13 years at tech and healthcare-focused venture capital firm Venrock.

CoinFund announced a $300 million Web3-focused fund in August, and regulatory filings last month revealed plans to raise $250 million for a seed investment fund, indicating the company has continued to fundraise despite the macro environment.

We were nervous even at the start of this year, and are getting more and more nervous as the year progresses given the macro environment and what is happening in crypto. Pakman spoke about CoinFunds’ own fundraising efforts. But we’ve been very lucky to have LPs who actually prefer to see us investing in this price environment.

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Predictions 2023

Pakman believes crypto investments will continue to focus on areas that were in the works before all the turmoil, including layer-1 and layer-2 blockchains, NFTs, games, and the Web3 development stack that is maturing enough to incentivize. Web2 developers to take the leap. The collapse of a centralized exchange has also put more emphasis on decentralized finance (DeFi).

“The FTX and Celsius stuff and all the other failures could lead to renewed interest in producing DeFi in a way that is easier for institutions and individuals to access. Because DeFi is not very easy to access. access, Pakman said.

Post-FTX path

How to get out of this loop of bad events that is happening largely because of a human-directed CeFi error that exposes all sorts of other risky behaviors that lead to this domino effect of more companies going bankrupt ? Pakman asked. We don’t want a lot of businesses to fail.

Companies should focus on risk management and careful use of leverage, he said, although startups should try to avoid using leverage at all.

Starting a startup is one of the riskiest things you can do. It almost never works, Pakman noted.

When you have some success, you don’t want to take a bunch of extra risk by using leverage or doing other dumb things because it’s hard enough to get to a success scenario, says Pakman. Remove risk as you go, don’t create more.

Read more: 10 predictions for the future of crypto in 2023

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