Crypto VC’s to Crash: “YOLO”

Despite cratering crypto markets and a slowdown in venture funding, crypto VC’s are upping the ante. From a report out yesterday in Reuters:

Even as the crypto sector shivers in the bleak winter, venture capitalists are pouring money into digital currency and blockchain startups at a pace that’s set to outstrip last year’s record.

In the first half of the year, VCs bet $17.5 billion on such firms, according to data from PitchBook. That puts investment on course to top the record $26.9 billion raised last year, a warmer and happier time for bitcoin and co.

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Overall US venture funding fell in the first half of the year. But US crypto investments are on pace to increase almost 50% over 2021.

Why are crypto VC’s behaving so differently? Because they don’t have much choice.

Numerous venture firms recently raised huge crypto funds. Predictably, Andreessen Horowitz is at the front of the conga line, raking in $4.5 billion in May.

Electric Capital pulled in $1 billion, and Bain Capital launched a $560 million fund.

All that money has to go somewhere. But deploying giant crypto funds today could be a big mistake.

Giant funds have to focus on late stage deals. After all, there’s no way a16z is going to hand out 1,000 seed-stage checks of $4.5 million.

It’s simply more meetings, diligence, and oversight than any firm could handle.

So they’ll put a lot of that in late stage megarounds. Since the startups are close to going public, their valuations depend on public markets.

But markets in public tech stocks and crypto tokens are extremely unpredictable right now.

These firms may pay prices that public markets soon find laughable.

If that weren’t bad enough, the SEC could soon be breathing down the necks of VC firms.

Yesterday, the SEC announced that it’s investigating Coinbase for offering unregistered securities. Crypto VC’s have likely sold similar securities.

The crypto venture market looks seriously overheated. I see companies with no product or customers getting valuations of $100 million or more regularly.

You don’t often see that in non-crypto deals. And there’s no reason why the rules should be any different for crypto.

I think crypto could have some awesome applications. Cheap international money transfer may be the best use case.

But thus far, speculation has been rife and useful projects few.

Meanwhile, I’m going to keep investing in great early stage companies with awesome products and happy customers. And if a crypto company can deliver that, a salute!

More on tech:

Inside the Seed Funding Slowdown

Why Technical Founders Win

The Top 5 Things I’ve Learned from Angel Investing

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