Crypto VCs Crowd Into Late-Stage Deals, Hurting Returns
Summary
- The crypto VC industry is concentrating funding on late-stage projects, a trend that is increasing market risk and leading to lower investment returns.
- In the first quarter, 57% of crypto VC funding went to late-stage investments in projects with proven revenue and performance, while very early-stage projects accounted for just 19%.
- Multiple VC funds are crowding into the same late-stage companies, driving up valuations and investment prices and lowering future investment returns.
Forecast Trend Report by Period
Crypto venture capital firms are channeling more money into late-stage projects to limit investment risk, but the strategy is increasing market risk and eroding returns.
CoinDesk columnist Varun Datta wrote on September 2 that 57% of crypto VC funding deployed in the first quarter went to late-stage investments in projects with proven revenue and operating track records.
By contrast, very early-stage projects, including those at the idea stage, accounted for just 19% of funding. The imbalance is reducing the flow of capital to new projects.
Multiple VC funds are also crowding into the same late-stage companies, inflating valuations unnecessarily, Datta wrote. That is pushing up entry prices and reducing potential future returns.
