- Venture capital funds for a new direction of investment
- VC enters WEB3
- Venture capital entry challenges
- Major largest venture capital funds investing in cryptocurrency
The decentralized finance market is showing a great rise, and its capitalization is continuously growing. Unwilling to stay behind the trends, private equity investors are turning to cryptoprojects – blockchain-based applications and platforms that are developing in the virtual economy of the meta-universe and Web3. Venture capital investments in cryptocurrency are becoming increasingly popular.
According to Pitchbook, VC investments in such projects totaled $10 billion in the first quarter of 2022, setting a new quarterly record, and almost doubling the investments compared to the same period a year ago.
A trickle became a stream, with full-year totals for 2019, 2020 and 2021 of $3.7 billion, $5.5 billion and $28 billion, respectively.
“You see a lot of venture capital funds investing in a lot of protocols because they all believe that some of these protocols are the infrastructure of the future,” said Steve Ehrlich, CEO of cryptocurrency brokerage firm Voyager Digital.
The situation for investing in crypto technology has changed. Previously, the size of venture capital investments tended to depend on the bitcoin price, and investors were risk-averse. Now, even during a downturn in the bitcoin price, the amount invested continued to grow. Notably, crypto’s infatuation with venture capital in 2022 coincided with the decline in the Nasdaq high-tech benchmark, which fell 21%.
Crypto-targeted deals are on the rise globally. Cryptocurrency venture capital investments, according to Dealogic, totaled 73 deals worth $8.8 billion in 2022, compared to 51 deals worth $6.8 billion for all of last year.
This rise in funding means cryptocurrencies can afford to be picky, stated Mildred Idada, founding partner of Blockchain Venture Fund and Open Web Collective accelerator.
“Founders [of projects] choose: if there are five funds that want to invest in us, which one will bring the most value?” she said.
In many cases, tech firms in blockchain are interested in support from established players and growing integration with the financial system, Idada added.
Some companies have adopted a creative approach to fundraising. A good example of this is Polygon which develops and scales applications on the Ethereum blockchain. In February, this company raised $450 million through a private sale of its cryptocurrency to investors including SoftBank Vision Fund 2.
Traditionally, venture capital funds give investments in return for a block of shares that gives them the right to run the company. In the crypto space, the entrance of traditional venture capitalists accustomed to the red carpet into online development communities seeking decentralization is not without cultural clashes.
According to Alexandra Bertomeu-Gilles, risk manager at DeFi firm Aave, many venture capitalists have to court developer communities in order to fund a project. While this sounds surprising, it is true. Venture capital investments in cryptocurrency can bring in billions of dollars.
“Some founders now … when they take money from investors, they create agreements so that investors do not have an excessive say in running the company, or they cannot undo what most of the rest of the community wants,” Bertomeu-Gilles said.
The point of decentralization is that there is no single governing body, which goes against the ideology of venture capital. But there are already VC firms that are eager to abandon tradition.
A major firm helping crypto projects with funding since 2013.
This Silicon Valley firm known for its VC technology investments has also refocused on blockchain projects. The list of investments includes OpenSea, Maker, Compound and others.
One of the oldest venture capital firms: at first they favored Internet technologies, now they are actively involved in the crypto market. For example, they led the Series A round for Coinbase.p>