(All) the VCs are coming

Jun 13, 2021

It was only a matter of time.

As the early success of the relatively few VCs who have been actively working in the digital asset space becomes clear, everyone is waking up to the idea that crypto should be an area of massive interest.

Of course, some notable firms such as a16z have been investing in the space for a long time, having been early investors in Coinbase and one of the first VCs that established a dedicated crypto platform. US-based funds such as Paradigm and Pantera have also emerged as category leaders.

That said, even in areas where lots of high-quality development work is already happening, the venture asset class has not necessarily piled in… yet. Evidence is showing that this is changing quickly - for example, an article from April 2021 that lists the 10 biggest venture rounds in crypto is already out of date.

“Nothing is more compelling than peer pressure from the likes of Michael Saylor, Elon Musk and the stampede of institutional money charging into the market. VCs must have a position or a view on crypto, or risk missing the biggest market opportunity in a generation.”~Jehan Chu, founder of Kenetic

VC funding for crypto and blockchain startups in the United States has now eclipsed other regions, according to the recently published Blockchain Venture Capital Report by Cointelegraph Research, despite the lack of regularity clarity for the market in the country.

Here is some other notable commentary from the report:

  • Blockchain private equity has outperformed traditional private equity across one-, three- and five-year horizons
  • The crypto landscape has been likened to the early days of the internet market in the 1990s and early 2000s - where the internet boom led to the initiation and subsequent rise of sectors like e-commerce and social media, the blockchain space has been touted to drive innovations such as decentralized finance and the decentralized web
  • With blockchain touted as having similar global business process disruption capabilities as the internet, notable participants in the mainstream arena now appear keen to interact with the emerging technology
“It’s an opportunity of a generation that VCs can hardly miss.” ~Xinshu Dong, partner at IOSG Ventures

The token economy also offers new types of exposure for investors - the opportunity to acquire cryptocurrencies that could appreciate in value within a short period, along with activities such as staking, protocol governance, and node operations, to name a few. Essentially, there is the rare opportunity to be both an investor and a participant in these emerging ecosystems.

What does this all mean for retail investors looking to invest in the space? Quite a bit, in our opinion - here are a few things to consider:

  • Asset values may rise given competition for deals
  • The quality of teams working in the space will continue to improve beyond the shift from traditional finance that we are already seeing
  • Visibility and data availability for projects will increase, but projects might be exposed to the public later than they have been historically
  • The sophistication of valuation approaches will continue to improve
  • Additional legitimacy will build in the space as notable investors put skin in the game

These are just a few of the changes that we anticipate - for more insight from one of the top minds in crypto, we'd suggest you have a listen to this interview with Chris Dixon of a16z, who is one of the most prolific investors in the space.

Avicenna capital

crypto / fintech / macro research

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