Crypto projects are too far-fetched in business sense and venture capital is “ice cold” about investing in the sector, said an unnamed VC, sparking a Twitter discussion.
VC Cooled Off on Crypto Funding?
Crypto and blockchain projects will require a new business model, and are not the same as tech projects, the comment ran. The prevailing opinion, however, is that crypto projects are here to stay and may be the next big thing in tech. The comment flies in the face of previous observations on growing VC interest in crypto, at least back in 2018.
From a VC friend: "We are pretty ice cold on crypto. Crypto is more like Cleantech than a normal not-hot sector within tech. Both are essentially brand new tech stacks that are predicated on broad adoption of new business behaviors."
— Semil (@semil) October 21, 2019
But this skepticism about crypto projects may be all wrong, experts commented. And in fact, a handful of projects have managed to get series A or series B financing. Projects like Ripple and ConsenSys have managed to secure funding, and even Bitmain has achieved private rounds of financing.
But run-of-the-mill blockchain projects may have raised skepticism. It turned out that more than 90% of all token-based startups have failed due to a small team, or outright exit scams or fraud.
The crypto space, however, is not a single technology, and there are multiple types of startups. Some offer crypto-related services, including analytics and tracking. There are projects such as ConsenSys that bring together development in the Ethereum space. Then, there are large VC funds specifically focused on crypto projects: Blockchain Capital, Pantera Capital, Andreessen Horowitz, which explicitly seek out venture capital products.
But the criticism compared blockchain to various cleantech startups, mostly because there is a chance those projects will have to overhaul the usual way of doing business.
Venture Capital Reevaluates Tech Startups in General
The skeptical opinion about crypto projects arrives at a time when venture capital is watching some of its pet investments go up in flames. In the past year, several “unicorn” companies managed to secure significant financing rounds, funding their growth by burning cash. But now, this model is unraveling.
The latest failed IPO, that of WeWork, turned into a fiasco, as one of the chief venture capital backers had to buy up the company at a fraction of its valuation. WeWork, a company for shared office space, tanked from a valuation of as high as $47 billion, down to $8 billion. SoftBank, in the end, had to salvage the company by taking complete control.
Crypto projects, on the other hand, may have immediate use cases, with the potential to grow. Bitcoin itself hardly needs VC funding, but smaller projects may grow and eventually prove skeptics wrong.
What do you think about this VC’s stance on crypto? Share your thoughts in the comments section below!
Images via Shutterstock, Twitter @Semil