Original article from decentralised
Compiled by Odaily Planet Daily Golem ( @web3_golem )
This article examines the state of venture capital in the crypto industry and expectations for the future. All data is from Funding Tracker .
The Current State of Crypto Venture Capital
Rational market participants might assume that capital markets have ups and downs, just like everything else in nature that has cycles. However, venture capital in cryptocurrencies seems more like a one-way waterfall—an experiment in gravity that keeps falling. We may be witnessing the final stages of a frenzy of smart contract and ICO funding that began in 2017, accelerated in the low-interest-rate era of the COVID-19 pandemic, and is now returning to more stable levels.
Total funding and total funding rounds
At its peak in 2022, venture capital investment in cryptocurrencies reached $23 billion, and in 2024, that number fell to $6 billion. There are three reasons for this:
The 2022 boom caused VCs to allocate too much capital to cyclical projects with extremely high valuations. For example, many DeFi and NFT projects failed to bring returns. OpenSeas peak valuation was $13 billion .
It will be difficult for funds to raise new capital in 2023-2024, and it will be difficult for projects listed on exchanges to obtain the valuation premiums seen from 2017 to 2022. The lack of a premium makes it difficult for funds to raise new capital, especially when many investors are not outperforming Bitcoin.
As AI becomes the next big tech frontier, large capital shifts its focus, and cryptocurrencies lose the speculative momentum and premium they once had as the most promising frontier technology.
Another deeper crisis becomes apparent when examining which startups grow enough to warrant a Series C or D round. Many of the largest exits in the crypto industry have come from token listings, but when the majority of token listings are trending negatively, exits become difficult for investors. This contrast becomes apparent when considering the number of seed-stage companies that go on to raise Series A, B, or C rounds.
Since 2017, of the 7,650 companies that received seed rounds, only 1,317 have advanced to Series A (a graduation rate of 17%), only 344 have reached Series B, and only 1% have entered Series C. The probability of Series D financing is 1/200, which is comparable to the financing graduation rate of other industries. However, it should be noted that many growth-stage companies in the crypto industry bypass traditional subsequent rounds through tokenization, but these data point to two different problems:
Without a healthy, liquid market for tokens, venture capital investment in cryptocurrencies will stagnate.
In the absence of healthy companies growing to later stages and going public, venture capital appetite will decline.
The data below for each stage of funding seems to reflect the same fact. Although capital entering seed and Series A rounds has basically stabilized, funding for Series B and C rounds remains conservative. Does this mean that now is a good time to invest in the seed round? Not exactly.
Total financing amount at different stages
The data below tracks the median amount of funding raised in pre-seed and seed rounds each quarter, and it has been steadily increasing over time. Two observations are worth making here:
Since the beginning of 2024, the median funding amount at the Pre-Seed stage has increased significantly.
Over the years, the median seed round financing size has changed with the macro environment.
As demand for early-stage capital declines, we’re seeing companies raise larger pre-seed and seed rounds, with what were once “friends and family” rounds now being filled by early-stage funds deploying earlier. This pressure also extends to seed-stage companies, which have grown since 2022 to compensate for rising labor costs and longer crypto industry times to PMF.
The increase in the amount of funds raised means that the valuation of companies in the early stages will be higher (or diluted), which in turn means that companies will need higher valuations in the future to provide returns. In the months after Trumps election, seed round financing data also saw a sharp increase. My understanding is that Trumps inauguration changed the environment for fund GPs (general partners) to raise funds, and the interest of LPs and more traditional allocators in the funds increased, translating into a preference for venture capital in early-stage companies.
Financing is difficult, and funds are concentrated in a few large companies
What does this mean for founders? There is more capital in early-stage Web3 rounds than ever before, but it is courting fewer founders, at greater scale, and requiring companies to grow faster than in previous cycles.
Since traditional sources of liquidity (like token issuance) are now drying up, founders are spending more time to signal their credibility and the viability of their business. The days of “50% off, new round in 2 weeks at a high valuation” are gone. Funds can’t profit on additional investments, founders can’t easily get raises, and employees can’t get appreciation in their vested tokens.
One way to examine this argument is through the lens of capital momentum. The chart below measures the average number of days it takes a startup to raise a Series A round since announcing its seed round. The lower the number, the higher the capital turnover rate. That is, investors are investing more money in new seed companies at higher valuations without waiting for the companies to mature.
At the same time, according to the above figure, we can also observe how public market liquidity affects the private market. One way to observe is through the perspective of safety. Whenever there is a pullback in the public market, Series A financing will occur on a large scale, such as the sharp decline in the first quarter of 2018. In the first quarter of 2020, the decline was repeated again, which was when the COVID-19 outbreak occurred. When liquidity deployment sounds less optimistic, investors with capital to deploy will be incentivized to establish positions in the private market.
But why is it that the opposite is true in Q4 2022 when the FTX debacle occurred? Perhaps it symbolizes the exact point in time when interest in crypto investing as an asset class was completely wiped out. Multiple large funds lost huge amounts of money in FTX’s $32 billion round, which caused interest in the industry to decline. In the following quarters, capital was concentrated around only a few large companies , and since then, most of the capital from LPs has flowed into those few large companies because this is where the most money can be deployed.
In venture capital, capital grows faster than the workforce. You can invest $1 billion, but you cant hire 100 people proportionally. So if you start with a team of 10, assuming you dont hire more, youre incentivized to get more investment. This is why we see a lot of late-stage financings for large projects, which are often focused on issuing tokens.
What will the future of crypto venture capital look like?
I’ve been tracking this data for six years, and I always come to the same conclusion: raising venture financing is going to get harder. Market frenzy initially attracts talent and available capital, but market efficiency dictates that things get harder over time. In 2018, being “blockchain” was enough to get funding, but in 2025, we start to focus on project profitability and product-market fit.
The lack of an easy liquidity exit window means venture investors will have to reevaluate how they think about liquidity and investing. Gone are the days when investors could expect a liquidity exit within 18-24 months. Now, employees have to work harder to get the same amount of tokens, and those tokens are valued at a lower price. This doesn’t mean there are no more profitable companies in crypto, it just means that just like in traditional economies, there will be a handful of companies that attract the vast majority of the industry’s economic output.
If VCs can make venture great again by looking at the nature of founders rather than the tokens they can issue, then the crypto VC industry can still move forward. The strategy of sending a signal in the token market, then rushing to issue a token and hoping people buy it on an exchange is no longer viable.
With such constraints, capital allocators are incentivized to spend more time working with founders who can capture a larger share of the evolving market. The shift from VCs asking only “when will the token be issued” in 2018 to wanting to know how far the market can grow is the education that most capital allocators in web3 have to go through.
The question remains, though, how many founders and investors will persist in finding the answer to this question?
