What’s next for crypto-VCs

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Not so long ago, venture capitalists could pose as bandits by backing new crypto projects. Instead of waiting seven years or more for a payout, as typically happens with traditional venture capital investments, they could gobble up easy returns when these projects issue tokens shortly thereafter. The gig was so lucrative that former Twitter CEO Jack Dorsey and others shared a meme in late 2021 depicting a VC fat cat gobbling up a river of wealth from blockchain deals while investors from retail were arguing for a decline.

How times change. Today, many venture capitalists who rushed into crypto are in shock as token offerings have completely dried up following the FTX crash. Portfolio companies are now holding back launches of all kinds, according to The Block, due to fears over pricing, exchange fees and increasingly aggressive regulation.

All of this in turn drove venture capital funding for crypto projects last quarter to its lowest level in two years, according to new data from PitchBook, with analysts predicting that a number of venture capital firms risk will completely disappear. Meanwhile, other companies that have recently dabbled in crypto are expected to shut it down after being burned by FTX or bankrupt hedge fund Three Arrow Capitals.

The fate of crypto-destroyed venture capitalists is unlikely to garner much sympathy from the public or even the industry, where many blockchain builders see them as greedy, centralized intruders. At the same time, exiting the VC industry isn’t necessarily a good thing, as veteran VCs can provide mentorship and connections to the mainstream business world that many founders typically lack. .

Meanwhile, venture capitalists aren’t disappearing completely, especially since many of them still have plenty of what the VC crowd calls dry powder for investing in the crypto sector. If you want an optimistic view, it’s possible to envision a future where VCs remain an integral part of the industry, but in a way that forces them to focus on quality projects over long-term horizons. This would be a welcome change from the recent era, which saw too many startups rush to issue tokens that offered little use other than helping insiders, including VCs, empty their bags.

And while some in the crypto industry would like VCs to disappear completely, that’s not going to happen. As one PitchBook analyst explained, investments should start flowing in again by summer as crypto funds are required to deploy the huge capital they raised during the digital asset boom.

Jeff John [email protected]@jeffjohnroberts

DECENTRALIZED NEWS

Concerns about DCG’s financial health eased as its Grayscale subsidiary’s stock value rose and the deadline for an ultimatum set by the Winklevii passed without incident. (Bloomberg)

A survey of Binance wallets suggests that investors are leaving the platform at a significantly higher rate than other exchanges. (Forbes)

A new Shiba Inu-themed token called Bonk has exploded in DeFi markets, boosting the struggling Solana chain on which it is hosted. (Coindesk)

Coinbase cut another 950 jobs in a second round of layoffs that represent 25% of its workforce. (WSJ)

Mastercard announced an accelerator program to help emerging music artists create NFT-based fan passes and other Web3 offerings to promote their work. (Fortune)

EVEN OF THE MOMENT

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