Given the contagion and chaos that we have seen since the unexpected multibillion-dollar crowning of Sam Bankman -Freed FTX cryptocurrency , it can be concluded that the entire crypto industry is heading for massive Chapter 11 bankruptcy. In their right mind, they still believe in it.
But even in the cold of the crypto winter, venture capital continues to flow to a few successful developers.
Pitchbook analysts predict that venture capital investment in cryptocurrencies will outpace both fintech and biotech in 2022 (a tough year for all tech), generating $6.5 billion in revenue over the past 12 months, up from $879 million in the previous quarter.
Check out the crypto industry press releases from the last week. You will see a $4.75 million round called Air Alliance . Raised $70 million for something called the Ramp Network . $15 million for Roboto Games , $3.1 million for the NFT game Burn Ghost , and $72 million for marketplace creator Quiroc . While Animoka Brands has ambitious plans to raise $2 billion in Metaverse funding, Matrixport , a crypto derivatives exchange run by former bitcoin mining mogul Jihan Wu , is looking to raise $100 million at a $1.5 billion valuation.
It is easy to see why venture capital firms continue to take such risks. Venture capitalists are like sharks. they have to keep swimming, investing dirty money (sorry, "decentralized technologies") or they will die in a bear market. So why do they keep putting their resources into something that fails?
Everywhere you look, the industry seems to have changed. Last month, Kyle Samani's previously prominent and influential firm Multicoin Capital suspended its assets due to exposure to FTX. Some of the biggest financiers have made headlines, including Babel Finance, Three Arrows Capital, and FTX's own venture arm. Star companies like Blockstream are valued by orders of magnitude, and Matrixport's $1.5 billion asking price looks modest at best compared to $32 billion, which is boring for a competitor right now.
All this led to a different cooling effect. Every VC firm and project I've talked to says they've become more cautious than they used to be. A spokesperson for Coinbase cautiously noted that the funding was “reliable.”
“Some deals may not make as much sense as they did a few months ago due to changes in market conditions or valuations,” Animoka Brands CEO Yat Xu told me confidentially.
Paulina Yoskov, commercial director of Ramp Network, tells me she's heard that many projects don't meet scaling standards because many deals are made at the last minute. Many projects don't expect much from Series B until the venture capital pipeline closes, he said. Kevin de Patul, CEO of market maker Quiroc, said he saw a new focus on "due diligence" rare in other industries but a big change in crypto.
But there are also eight-figure raises and mark-ups, most of which come from the usual suspects. These are well-capitalized companies that know when to invest and how to manage risk. Their ranking includes seed industry players like Ripple, Coinbase Ventures, Paradigm, Polychain Capital, Pantera and the elephant in the room, Andreessen Horowitz. They are joining other companies in the Web3 space such as Animoca Brands, which is raising a $2 billion Metaverse fund. (There are also lesser-known specialists, such as venture capital firms Gumi Cryptos Capital, Argonautic Ventures, and Harrison Metal.)
It can be assumed that the main livelihood of these companies was simply not to appear on FTX. By investing in the exchange , Paradigma managed to get away from the FTT FTX shitcoin . (It is debatable whether this is the result of good investment wisdom or luck.)
But experience matters too. Animoca's Sioux told me that his company learned a lot from dealing with the "very cold and limited areas" of the 2017-2019 bear market. Does this mean that "cryptonative" venture capitalists have a better chance than companies that grew up in a relatively prosperous financial world? Remember, FTX's biggest supporters weren't Animoka or eGirl Capital , but the old titans Tiger Global, Sequoia, and Softbank. Do these non-cryptographic local names lend themselves easily to SBF song and dance?
It's also interesting to see where the money goes after the bubble without all the hype. After the crash, most of the VCs and portfolios I spoke to emphasized a significant and new emphasis on "decentralized" investment.
Chris Perkins of venture capital firm Coinfund reaffirmed his longstanding warnings about the multiple risks of overly concentrated crypto companies in 2022. According to him, the stability of the company depends on the abandonment of these projects.
“When we start to see the collapse of centralized institutions, and I'm not saying it shouldn't happen, it reinforces the thesis that we need to focus on decentralized technologies,” Perkins said. After the crash, he went so far as to actively reduce his portfolio of various concentrated investments. (Though he casually says, “We have taken a number of thoughtful steps to mitigate counterparty risk.”)
It is true that many of the projects being funded are critical "infrastructure" projects. Finterest, a Bitcoin peer-to-peer lending protocol, has raised $1.5 million, while Flake, a decentralized digital content hosting company, has raised $25 million. Since the FTX crisis , other decentralized money-raising projects have emerged , not all of them manual and controversial, but many of them supporting the infrastructure for things like decentralized, high-stakes derivatives trading .
The idea is that decentralized technologies are more transparent and less responsible for the financial scams that bring down FTX. (DeFi degenerates screamed “This is why you shouldn’t list your cryptocurrency on a centralized exchange” after the FTX crash.) But it wasn’t the stability of the algorithm that bought Terra, Coinbase, and Galaxy . decentralized type? And isn't technically a polycycle a decentralized type? right?
It's important to remember that "decentralized" is a very long and skewed spectrum; it is not perfect and never reliable. In some cases, this allows you to see in real time when a scam is happening and draining your savings "for no reason".
So it's worth asking. Is the newest peer-to-peer Marxism token venture fund “decentralized” or are the three developers making each new offering in Estonia with a strange and experimental management method? Almost all the "decentralized" companies I contacted had their own internal PR. Does the kit send the full cost of the PR?
The shift towards decentralization is not a big trend and there are still signs of the old crypto-esoteric trend. Dogami raised $7 million by featuring 200,000 active dog users from space . Captain Tsubasa, a blockchain game based on the popular 80s football manga, has raised $15 million .
These projects are not safe by any standard measure. This certainly sounds very similar to 2017 in the ICO era. But venture capitalists still believe in cryptocurrencies.
In an interview with The Block , the founder of Dogami emphasized that venture capitalists do a lot of "due diligence" before giving money away.
Animoka's Siu, who was previously involved in the rise of Dogami, told me that "no matter how smart, mysterious and perhaps magical a project is", "you need to have content to attract interest." “It is a complicated strategy when there is no mention of the arrival of the builders,” he added. You both have to feed each other."
Or maybe the old-fashioned 2000s tech silliness that these projects embody allows them to keep their toes in the secret, secure, and more lucrative world of Web2. Burn Ghost, which has raised $3.1 million and is developing casual games with alternative NFT rewards, “has a lot of flexibility in how and where we get our players, and it doesn’t just depend on the state of the cryptocurrency market,” Founder and CEO Steve Curran. . he told me
Of course, no one is saying that companies like Burn Ghost and Finterest are going to be unicorns anytime soon. The era of Crypto venture mania is definitely coming to an end and may never truly recover. But it's still amazing how much money is being spent in these dark times.