Venture Capitalists Flock to Crypto

"Venture investors are rushing into crypto startups, while deal-making in other sectors slows.

Blockchain and crypto startups raised $9.2 billion through 461 equity deals globally in the first quarter of this year, according to CB Insights. The amount is 4.5% above the $8.8 billion raised in the prior quarter, and 155% above the year-ago quarter, according to the data provider.

Crypto deal-making is on the rise, whereas total venture funding in the first three months of this year experienced a quarterly drop of 19%, according to CB Insights, the largest percentage decline in about a decade.

A growing number of venture investors believe that the crypto opportunity is so large -- perhaps as large as the internet -- that they are creating new funds and dedicating investment team members to focus on the opportunity.

Their desire to get into deals as fast as possible is superseding concerns about the uncertain macroeconomic and geopolitical environment that is slowing down deals in other tech sectors, investors say.

Companies in the cryptocurrency sector develop open-source software where users and developers are rewarded with digital tokens. Some companies also enable people to interact with such software and tokens through trading, custody and other services.

"You have traditional venture funds that have seen the incredible returns generated and are looking to get exposure. There's a finite number of deals so there's a lot of competitive action to get into those investments," said Stefan Cohen, who co-runs Bain Capital Crypto, a crypto-focused venture strategy Bain Capital established last fall. Bain Capital Crypto, which closed a $560 million debut fund in March, has a 10-person team that has already earmarked $160 million for about a dozen crypto deals, Mr. Cohen said. Previously, crypto was a small part of Bain Capital Ventures' funds, with only Mr. Cohen fully focused on the sector, he said.

Venture funds focused on crypto raised $11.92 billion in the first quarter of this year, a similar amount to the fourth quarter, and about 24 times the amount raised in the first quarter of 2021, according to crypto-focused data provider Dove Metrics.

That includes new funds from crypto-only firms, such as Haun Ventures, which hauled in $1.5 billion for its debut fund, as well as corporate funds, such as those launched by specific crypto token projects to support other businesses using their technology.

It also includes funds from generalist investment firms such as Bain Capital and Sequoia Capital. Crypto-focused funds accounted for 7.7% of all venture fundraising last year in the U.S., the highest proportion on record, according to PitchBook Data Inc.

"Our conviction has deepened that this is a 10- to 20-year trend in which all of the services we interact with on the internet will be architected on public blockchain technology," Mr. Cohen said.

This investor perspective is enabling early-stage crypto infrastructure startups to raise large amounts of capital at high valuations. Venture enthusiasm in crypto isn't slowing despite the fact that some of the crypto-focused companies on the public market haven't escaped the downward market trend. Shares of crypto exchange Coinbase Global Inc., which went public a year ago, are now trading about 60% below their first-day price." [1]

1. Venture Capitalists Flock to Crypto
Chernova, Yuliya.
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 27 Apr 2022: B.13.