Traders’ increasing risk exposures, fueled by lax monetary policy and the wake of COVID-19 pandemic lockdowns, indicated that more investment than it had as ever flowed into cryptocurrencies. Undoubtedly, the year 2021 set a new high for crypto venture capital financing.
According to a report on venture capital investment, cryptocurrency startups received an increase of $25.2 billion in 2021, as compared to $3.1 billion in the previous year leading to a staggering 713 percent gain. Venture Capital (VC) financing for NFT startups increased to $4.8 billion from $37 million in 2020, symbolizing that the crypto market as a whole is booming. The overall share of digital venture capital financing in the worldwide venture capital industry increased from 1% to 4%.
For cryptocurrency trading investment firms, 2022 seems to be more challenging. In the next few years, however, the risk-aversion investment will keep pouring into the burgeoning cryptocurrency business. Addressing the major players in the cryptocurrency VC industry as retail investors can provide a distinction between a successful and unsuccessful venture.
How Crypto VC Funding Works
According to Cryptocurrency expert advisors, there are certain similarities but also some distinctions between cryptocurrency VC funding and traditional VC funding. In a broad sense, VC funding refers to a group of investors that want to increase their returns by investing early in a firm. Before funding them, they evaluate different initiatives, estimating their market prospects and possible good investment return. VC firms distribute their holdings out to reduce their potential risks and uncertainties.
Standard Venture Capital Funding processes through the following five stages:
- Pre-seed: the initiative is still in its early stages, often a budding idea, and funds are raised from relatives and friends.
- Seed Round: The project is being tested for viability in the seed phase, which involves appropriate target analysis, competition analysis, and the development of a minimum viable concept. Pitch decks, money flow, frameworks, and other essentials are utilized effectively to look out for funders enthusiastically.
- Series A: the product has been verified, is expanding and has a solid support community behind it. At this level, making investments is comparatively less risky for investors, but they are more costly and focus on advertising and sales marketing.
- Series B: the product has a large customer base and is growing; the focus of financing is on branding, sales, human resources, business growth, and customer support.
- Series C: The emphasis is on expanding product categories and gaining access to foreign markets; the product is commercially feasible.
Cryptocurrency VC investment, on the other hand, is extremely different since several projects never make it past the first two phases. Although there have been several Series A (Praxis, Rarify) and Series B (Dune Analytics, Palm NFT Studio) fundings, only a few firms have matured to the level of FTX, which acquired $32 billion in a Series C investment.
The cryptocurrency market is still in its developing stage, and most ventures lack proven strategic planning. However, a few other variables distinguish cryptocurrency VC investment, and even large firms with large market capitalizations do not always launch new significant contributions to the development.
Most crypto ventures, for example, raise funds using tokens rather than shares. While tokens functionally represent equity in the business, obtaining funds via an ICO or an IDO rather than trading shares entails a distinct element of risk for investors. Purchasing tokens through an ICO enables shareholders to cash out their investment sooner and quicker, but the products are generally less reliable and credible than their stock-market counterparts.
Additionally, because networks like Google and Facebook limit the scope of “conventional” digital advertising for cryptocurrencies, crypto initiatives need a distinct marketing style. As a result, cryptocurrencies rely significantly on celebrity endorsements and guerrilla marketing strategies, restricting the amount of time consumption of a product validation prior to release.
To sum up, cryptocurrency VC investment is faster, but it is more trial-and-error based, and it is less regulated. VC investments may and do help influencer marketing initiatives by leveraging their industry connections. This can help a venture get credibility (if established, VCs back it). But it might backfire if cryptocurrency VC firms introduce methods from conventional finance that would go against the cryptocurrency sector’s decentralized protocols.
The Biggest Crypto VC firms
Over the past several years, numerous investment companies have emerged as the top Cryptocurrency Venture capital firms.
3AC-Three Arrows Capital
Su Zhu and Kyle Davies founded Three Arrows Capital in 2012, and it is now one of the industry’s leading fund and market managers. Ethereum, Avalanche, Bitcoin, Polkadot, Terra, Solana, and numerous more prominent blockchain systems are among 3AC’s holdings. It also owns stakes in a number of DeFi and GameFi initiatives, including Axie Infinity, Aave, and plenty of others. 3AC also makes capital-based blockchain projects. BlockFi, Deribit, and Starkware, for example, are all fund investments.
Andreessen Horowitz -a16z
Andreessen Horowitz (commonly known as “a16z”) is a Californian crypto Venture capital company that invests in non-blockchain-based technological firms. It was established in 2009 by Marc Andreessen and Ben Horowitz. a16z, similar to 3AC, has investments in a number of leading cryptocurrency firms, including Coinbase, Celo, MakerDAO, and others.
Sam Trabucco now leads Alameda Research, a cryptocurrency investment company formed by FTX founder Sam Bankman-Fried. It owns shares in the majority of major blockchain platforms and blockchain-based businesses. Alameda Research owns stakes in Bitcoin, Ethereum, Binance, Solana, Uniswap, and a slew of other cryptocurrencies, according to Messari.
Coinbase Ventures, founded by Brian Armstrong, is the investing department of Coinbase, a well-known centralized cryptocurrency exchange. While numerous other cryptocurrency venture capital firms have invested in Coinbase, Coinbase Ventures itself has been an investor in initiatives such as BlockFi, Compound, Starkware, and others to aid in the evolution, expansion, and maturation of the space.
Binance Labs is a subsidiary of Binance, another well-known centralized exchange. Binance Labs invests in emerging cryptocurrency initiatives using the Binance DEX, and its holdings portfolio includes Terra, Moonbeam, and Coin98, among others.
Jump Crypto is the investing department of Jump Trading, a cryptocurrency trading firm with centers in Europe, Asia, and the United States. Its vision and mission are humorously titled “Modern Slavery Statement,” likely pointing to the uniformity of similar goal objectives. Jump Crypto has invested in projects like Solana, Terra, Wormhole, Fantom, and many others.
Digital Currency Group
Digital Currency Group is a New York-based investment firm that believes itself to be the epicenter of the bitcoin and blockchain sector. Its objective is to use its ideas and funds to establish and assist bitcoin and blockchain enterprises. Coinbase, Coindesk, Kraken, Ripple, and ShapeShift are among many other blockchain technologies that are among Digital Currency Group’s holdings portfolio.
The Best Crypto Venture Capital Funds
But since funds in this category are frequently controlled by the venture capitalists and financial firms listed above, cryptocurrency Venture capital businesses and cryptocurrency VC funds are almost similar.
Paradigm is a crypto Venture capital fund based in San Francisco that invests in crypto ventures with stakes between $1 million and $100. It invests in cryptocurrencies with an adaptable, long-term, multi-stage, and globalized strategy, assisting companies with technical and functional issues. Argent, Optimism, and Opensea are among the companies in Paradigm’s portfolio.
Multicoin is considered a thesis-driven finance business based in the US that invests in cryptocurrencies, tokens, and blockchain enterprises. It’s a crypto-only fund that takes part in staking, liquidations, and other crypto-related activities. Audius, Arweave, and Near Protocol are among the companies in its portfolio.
Pantera bills itself as the initial professional asset management company focusing only on blockchain in the United States. Pantera has been actively investing in blockchain technology since 2013, including exchanges, regulators, institutional trading tools, decentralized financing, and much more. It has investments in Coinbase, FTX, Polkadot, and other companies leading to a value-addition to these companies.
Framework Ventures aims for global decentralized technological evolution. It works with entrepreneurs and groups to establish cryptocurrency marketplaces and sustainable networks as a thesis-driven investment business. The Venture capital company has made multiple investments in the DeFi realm in protocols such as Fei, Rari, and Zapper.
Tim Draper launched Draper Associates in 1985, based in Silicon Valley, and it has since evolved into a venture capital business focused on “industry-transforming enterprises.” Draper also has stakes in technology businesses, but its blockchain holdings include Bancor, Coinbase, Ledger, MakerDAO, and Tezos.
Polychain is a venture capital firm based in San Francisco, California, that focuses on blockchain-based digital capital. Acala, Celo, and dYdX are among its prominent investments portfolio.
This is the list of some of the top and best VC firms, as determined by an impartial panel of investors, analysts, and cryptocurrency developers.
It is clearly visible that all the VC firms as mentioned earlier have invested in initiating the growth of blockchain and blockchain-based technology. This reflects their keen interest in the expansion of revolutionizing technology.
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