While most of you are frustrated by the mauling of the current bear market, the first quarter of 2022 has also seen venture capitalists investing more than $10 billion in crypto startups. That’s the largest ever quarterly investment in the crypto industry, and it shows that at least some of the major players are looking at the macro, and are not lost in the current market downturn.
Ok. Fair enough if you think, let's look the next quarter. But still :)
If we took a look at least a few recent crypto startups, the names of those players probably ring a bell. The logos of major VCs in the space like A16Z, Pantera, Paradigm, or DCG are at the bottom of the website of every major startup with a viable concept. But since at the moment most investments are coming from only a handful of VCs on their way to become the BlackRock of the crypto world, is it going to be a problem for the decentralisation that Web 3.0. strives for?
First of all, we need to understand that startups that don’t have much choice when it comes to funding. If they want to be in compliance with US law, and not be bogged down by regulations, they have to sell shares to accredited investors; a.k.a. angel investors or VCs. So the SEC sort of created this yellow brick road for crypto startups and there are not a lot of viable alternatives to deviate from it. I mean crypto businesses can always take the ICO route, but since the 2017 ICO flood of absolutely horrendous projects, the reputation of that path has been damaged beyond repair. And even though the market matured since then, with STOs, IEOs, and IDOs popping up, for larger investments at higher valuations, VCs are the only way.
Yet, the entrance of traditional venture investors into the crypto space has not been as welcoming as they are accustomed to. The highly engaged and active online communities and the founders with a vision of decentralisation are not what VCs used to with Web 2.0. initiatives. Fortunately, while the majority of crypto businesses are high-risk investments, they can also give some of the highest returns in any industry. And VCs understanding that crypto and Web 3.0 is the future, won’t want to miss out on what may be the biggest investment opportunity of their time. That gives founders the power to negotiate a better position by creating agreements so that their investors won't have an outsized say in the governance of the company, and they can't overrule something that the community wants and votes for.
With more and more institutional money pouring into the crypto space, this is important to remember. Founders who build the future can leverage the value of their vision to protect it.