The last couple The past years have proven to be a turbulent time for the cryptocurrency industry. As if a string of large cryptocurrency institutions that failed or collapsed wasn’t enough, the industry has seen many tourist investors running for the gates as the broader macroeconomic climate deteriorates.
But the recent surge in interest in cryptocurrencies, driven by rising Bitcoin and Ethereum prices, is rebuilding momentum, and many believe next year could be promising for startup cryptocurrency company valuations.
Fundraising will be tough for both startups and venture capitalists in 2023, according to Lydia Chiu, vice president of business development at Ava Labs. “On the startup side, we have seen a correction in valuations, with fewer token offerings,” she said. “Venture capital firms also had more leverage to negotiate better terms at the lead, much more so than in 2021 or 2022. We saw more follow-on and divestment opportunities from teams that rose during the bull market than from new ventures that raised [today]”.
The effects of 2021’s hype are still being felt in the cryptocurrency project landscape. “[In] 2021, [there were] “It’s weird valuations with a number of terrible ideas being funded by traditional Silicon Valley venture capital firms that joined the space at the top and had absolutely no idea what they were doing,” says Michael Anderson, co-founder of Framework Ventures. He added that in 2022, crypto venture capital saw a “complete adjustment,” with “many tourism VC funds declining and their weaker portfolio investments bleeding.”
A drier funding climate in 2023 has only taken the edge off weaker companies that have managed to secure capital in 2021. According to Mark Bhargava, managing director at General Catalyst, a lot of the dry powder from the good days is still arriving this year. .
Ratings are “back to earth,” Anderson added.
When FTX exploded in November 2022, many funds, even those focused on web3, “paused new trades,” said Alex Marinier, founder and general partner of New Form Capital.
“Nobody should have expected venture funding to dry up in 2023, and it did,” said Will Noel, general partner at Galaxy Ventures. “Funding has returned to levels not seen since 2020 in the cryptocurrency and blockchain markets.”
“In 2023, it seems that most people have finally gotten the message that we are in a new market and that the investor class is thinking and acting more rationally than before,” Anderson said.
Early stage deals are down but not over yet
Flat or reduced valuations were not uncommon in 2023 for the broader tech industry, so it was not surprising that the most beleaguered cryptocurrency startups also suffered significant devaluations. According to Noel, there has been a dispersion in valuation – competitive rounds still receive multipliers that can “make the stomach churn”, but a successful raise is no longer inevitable, as it was 18 months ago.