News
Funding for crypto startups overcomes blowouts to reach $100 billion
(Bloomberg) — Crypto startups have attracted about $100 billion in venture capital funding since the industry’s inception, following a recent uptick in investment that coincided with a rally in Bitcoin and other major tokens.
Most read on Bloomberg
Data collected by DeFiLlama suggests that the crypto sector’s fundraising stands at $101 billion since 2014, while The Block Research has tallied over $95 billion in cumulative investment from 2017.
Fundraising in the form of venture capital deals and token sales has been a major driver of the crypto industry’s growth, but the billions of dollars invested in startups have produced decidedly mixed results for Investors.
Traditional exits in the form of landmark acquisitions and public listings have “certainly taken longer than you would normally expect from traditional venture capital,” said Paul Veradittakit, managing partner of Pantera Capital, the $4.7 billion crypto investment firm.
Coinbase Global Inc.’s direct listing on Nasdaq for $86 billion in 2021 during the last crypto bull market is a notable exception, he added, but outflows in general have been rare, largely limited to one commercial sales handle.
Giant explosions
Investors have also been scarred by extravagant blowouts in once-vaunted crypto startups like Sam Bankman-Fried’s FTX and crypto lender BlockFi.
Since then, companies like Tiger Global Management LLC and Temasek Holdings Pte have largely exited the sector. Tiger Global has only signed four crypto deals since the start of 2023, following a previous wave that saw the company back dozens of startups, according to data from The Block Research.
Temasek said last year it had no plans to invest in crypto exchanges after writing down a $275 million stake in FTX to zero. Temasek declined to comment further while Tiger Global did not immediately respond to a request for comment.
Fundraising by crypto startups declined sharply after the excesses of 2021 and 2022, in line with a broader decline in venture capital investments in fintech, which peaked at more than $110 billion in the world in 2021 alone.
Token Returns
Tokens issued by startups, which venture capitalists often purchase as part of seed funding deals, help address these challenges. Commonly listed on crypto exchanges, tokens are another indicator of projects’ value.
The story continues
Institutional backers who lost money on crypto bets did so because they arrived too late or were “lured” into stock investments, according to Ray Hindi, CEO of L1 Digital. “It was a bad investment,” he said.
Tokens are another story. Although subject to certain blockages, sales of these volatile digital assets are often possible relatively quickly and can generate short-term returns. Many large crypto-enterprise companies, such as Polychain Capital, have internal funds to help manage the tokens amassed through investments.
Kinjal Shah, general partner at Blockchain Capital, is among those taking a more old-school approach. “The way we actually position the investment is still oriented around a venture-type return,” she said. “So we have to continue to fund life cycles of five to ten years and really move towards what can be accomplished in a decade.”
For some, liquid tokens can reduce the return cycle for venture capitalists from 5 to 10 years to just two years, according to Richard Galvin, co-founder of Digital Asset Capital Management.
Negotiation
Block Research data shows that Coinbase Ventures leads the way with 443 investments, or about 4% of all deals since 2017. Animoca Brands Corp. and Outlier Ventures Ltd. occupy second and third place respectively.
Venture capital investment in cryptocurrencies reached $2.5 billion in the first quarter of this year, up from a recent low of $1.9 billion in the fourth quarter of 2023, according to PitchBook data. This rise has been accompanied by the return of eye-catching billion-dollar valuations for startups like Farcaster, Berachain and Hidden Road Partners.
These investments have been accompanied by a broader crypto rally, including a record high of $73,798 for Bitcoin in March. The rise has stalled, but some analysts expect renewed momentum and a wave of crypto-related IPOs.
As many as 15 crypto companies could go public, Matthew Kennedy, senior market strategist at Renaissance Capital, said in a recent interview. In the Bitcoin mining sector, merger and acquisition activity has accelerated, with Core Scientific Inc. and Bitfarms Ltd. having launched buyout offers.
M&A and IPO activity will accelerate in the digital assets sector as the sector matures, said Hoolie Tejwani, director of corporate and enterprise development at Coinbase. “This activity has been hampered by the lack of regulatory clarity, which we are fighting for in the courts and in Congress,” Tejwani said.
L1 Digital’s Hindi remains circumspect, unconvinced that a trickle of deals could turn into a deluge. “We’re talking about a few data points,” he said. “We are not talking about a wave of mergers and acquisitions and there is no reason to think so.”
Most read from Bloomberg Businessweek
©2024 Bloomberg LP