The crypto industry experienced significant turbulence in recent years, marked by the failure of major institutions and an exodus of investors amid a worsening macroeconomic climate. However, a resurgence in interest, driven by climbing Bitcoin and Ethereum prices, is rekindling momentum, with optimistic projections for crypto startups in the coming year.
2023 was a challenging year for fundraising for both startups and venture capitalists, according to Lydia Chiu, VP of Business Development at Ava Labs. There was a noticeable correction in startup valuations and a decrease in token offerings. VCs gained more negotiating power, a stark contrast to the situation in 2021 and 2022, leading to more follow-on and down-round opportunities.
Michael Anderson, co-founder of Framework Ventures, reflects on the aftermath of 2021’s hype in the crypto venture landscape. He criticizes the irrational exuberance of the period, noting that many traditional Silicon Valley VC firms, new to the crypto space, funded questionable ideas. In 2022, a significant reshuffling occurred with many of these “tourist VCs” retreating and their weaker investments struggling.
Marc Bhargava, Managing Director at General Catalyst, notes that despite the tougher funding environment in 2023, some investments from the boom years carried over. However, the FTX collapse in November 2022 led many funds, including those focused on web3, to halt new deals, as stated by Alex Marinier, Founder and General Partner of New Form Capital.
Will Nuele, General Partner at Galaxy Ventures, pointed out that the funding climate in 2023 returned to levels last seen in 2020, indicating a normalization in the crypto and blockchain venture markets. Anderson echoes this sentiment, highlighting a shift towards more rational investor behavior.
While early-stage deals faced challenges with flat or discounted valuations, Nuelle observed a divergence. Competitive rounds still attracted significant multiples, but successful fundraising became less guaranteed compared to 18 months prior, signaling a more cautious and discerning investment landscape.
