Venture Capitalists Catch Crypto Fever as Moving to Web 3.0

Venture Capital Is Taking a Big Step on Crypto in 2022

Fearing being left in the digital dust, private equity investors are turning to crypto projects – blockchain-based apps and platforms inspired by cryptocurrencies that are native to the virtual economies of the Metaverse and Web3.

According to data from Pitchbook, VC investments in such projects totaled $10 billion globally in the first quarter of this year, the largest quarterly amount ever and double the level seen in the same period a year ago. More than.

A trickle has turned into a torrent: full-year totals for 2019, 2020 and 2021 were $3.7 billion, $5.5 billion and $28 billion.

“You’re seeing VC investments in a lot of protocols because they all believe, as do we, some of these protocols are the infrastructure of the future,” said Steve Ehrlich, CEO of crypto brokerage firm Voyager Digital.

Such projects, which can range from crypto and NFT exchanges to decentralized finance applications and token issuers, are often referred to as protocols in reference to the rules embedded in their computer code.

According to Alex Thorne, head of Firmwide Research at blockchain-focused bank Galaxy Digital in New York, the recent action differs from the past when enterprise investment levels to track the price of bitcoin, albeit with a slight delay.

Investment levels in crypto have continued to rise during this year’s drop in the price of bitcoin — it’s down about 16% — as well as during another drop last summer, Thorne notes.

“This decoupling is a demonstration of investor distrust that a prolonged bear market in digital assets is about to come, as well as a large amount of dry powder to allocate to the sector,” he wrote last week.

The VC crypto craze in 2022 also coincided with a fall in the tech-heavy Nasdaq benchmark, which is down 21%.

Average Crypto Fund Size (2016-YTD)

VC meeting web3

The number of M&A deals involving crypto target companies is also increasing globally as discussion grows around the metaverse of the virtual world and the Web3 decentralized online utopia.

According to DealLogic, 73 deals have been sealed so far with a combined deal value of $8.8 billion in 2022, as against 51 deals worth $6.8 billion for the full year last year.

The funding rush means crypto firms can be picky, said Mildred Idada, founder of the blockchain venture fund and accelerator Open Web Collective.

“The founders are saying, ‘There are five funds we want to invest in, which one is going to bring in the most value? he said.

In many cases, blockchain tech firms are interested in backing from established players and the brand value of increasing integration with the financial system, Idada said.

Some firms have been creative in how they raise money. For example, Polygon, a platform for developing and scaling applications on the Ethereum blockchain, raised $450 million in February through a private sale of its cryptocurrency to investors, including SoftBank’s Vision Fund 2.

“The big reason for that growth was to bring institutions on our side and increase Polygon’s visibility,” said co-founder Sandeep Nelwal.

Yet the entry of traditional venture investors accustomed to the red-carpet treatment into online developer communities with an emphasis on decentralization is not without a culture struggle.

According to Alexandra Bertomeu-Gilles, risk manager at decentralized finance (DeFi) firm Ave, many deep-pocketed venture capitalists find themselves forced to lure those developer communities behind potential targets.

“Some founders now … when they take money from investors, are creating agreements so that investors don’t have a large share in the governance of the company, or they can’t do something that most of the rest of the community wants,” he said.


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