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Crypto startup funding surpasses blowouts and reaches $100 billion
(Bloomberg) — Crypto startups have raised about $100 billion in venture capital funding since the industry’s inception, after a recent investment pickup that coincided with a rally in Bitcoin and other major tokens.
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Data collected by DeFiLlama suggests that cryptocurrency industry fundraising has totaled $101 billion since 2014, while The Block Research has totaled over $95 billion in cumulative investments since 2017.
Fundraising in the form of venture capital deals and token sales has been a major driver of the cryptocurrency industry’s growth, but the billions of dollars poured into startups have produced decidedly mixed results for investors.
Traditional exits in the form of landmark acquisitions and public listings have “definitely taken longer than I think you would normally expect from traditional VC,” said Paul Veradittakit, managing partner at Pantera Capital, the 4.7 million dollar cryptocurrency investment firm. billions of dollars.
Coinbase Global Inc.’s $86 billion direct listing on Nasdaq in 2021 during the latest cryptocurrency bull market is a notable exception, he added, but exits overall have been sparse, largely limited to a smattering of commercial sales.
Gigantic explosions
Investors have also been scarred by the outlandish explosions of once-vaunted crypto startups like Sam Bankman-Fried’s FTX and BlockFi.
Since then, the likes of Tiger Global Management LLC and Temasek Holdings Pte have largely withdrawn from the sector. According to data from The Block Research, Tiger Global has struck just four cryptocurrency deals since the start of 2023, following an earlier wave that saw the company back dozens of startups.
Temasek said last year it had no plans to invest in cryptocurrency exchanges after writing off a $275 million stake in FTX. Temasek declined to comment further while Tiger Global did not immediately respond to a request for comment.
Fundraising by crypto startups has fallen sharply following the gluts of 2021 and 2022, in line with a broader decline in venture capital investment in fintech, which peaked at more than $110 billion globally alone in 2021.
Token returns
Helping to offset the challenges are tokens issued by startups, which venture capitalists often purchase as part of early-stage funding pacts. Usually listed on cryptocurrency exchanges, tokens are another indicator of the value of projects.
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According to Ray Hindi, CEO of L1 Digital, institutional backers who lost money on cryptocurrency bets did so because they arrived too late or were “lured” into investing in stocks. “That was the wrong investment,” he said.
Tokens are a different story. Although subject to certain constraints, sales of these volatile digital assets are often possible relatively quickly and can generate short-term returns. Many large cryptocurrency companies, such as Polychain Capital, have internal funds to help manage tokens accumulated through investments.
Kinjal Shah, general partner at Blockchain Capital, is among those taking a more old-fashioned approach. “The way we really position investments is still geared towards a venture capital-style return,” he said. “So still fund five- to 10-year life cycles and really focus on what can be accomplished in a decade.”
For some, liquid tokens can reduce the return cycle for venture capital investors from five to 10 years to as little as two, according to Richard Galvin, co-founder of Digital Asset Capital Management.
Negotiations
Data from Block Research shows that Coinbase Ventures tops the charts with 443 investments, or about 4% of all deals since 2017. Animoca Brands Corp. and Outlier Ventures Ltd. are in second and third place, respectively.
According to PitchBook data, cryptocurrency investments rose to $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. With this surge came the return of eye-catching billion-dollar valuations for startups like Farcaster, Berachain and Hidden Road Partners.
These investments have come alongside a broader rally in cryptocurrencies, 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 cryptocurrency-related initial public offerings.
As many as 15 cryptocurrency companies could go public, Matthew Kennedy, senior market strategist at Renaissance Capital, said in a recent interview. In the Bitcoin mining sector, mergers and acquisitions activity has increased, with Core Scientific Inc. and Bitfarms Ltd. making acquisition offers.
M&A and IPO activity will accelerate in the digital asset sector as the sector matures, said Hoolie Tejwani, director of business development and entrepreneurial ventures at Coinbase. “This activity has been held back by a lack of regulatory clarity, which we are fighting for in the courts and Congress,” Tejwani said.
L1 Digital’s Hindi remains cautious, not convinced that a trickle of deals will turn into a flood. “We’re talking about some data,” he said. “We are not talking about a wave of mergers and acquisitions and there is no reason to think so.”
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