The sentiment for crypto private equity investments has plummeted to a freezing point. What should we do in the future?
It's easy to focus on the negative aspects, but there are still many reasons to remain optimistic.Author: Hootie Rashidifard
Compiled by: Deep Tide TechFlow
Currently, the sentiment in private crypto venture capital is the worst it has been since the fourth quarter of 2022.
As we enter the final fundraising sprint of the year, here are some thoughts on the current situation and future points of focus.
In the past quarter, average deal valuations have dropped significantly. Pre-seed stage valuations are now stabilizing between $10 million and $20 million, while seed stage valuations are between $20 million and $30 million.
These valuation levels are vastly different from those in the first quarter of 2024, when valuations were nearly double what they are now.
So, what are the reasons for this situation?
Shortage of venture capital funds
Venture capitalists holding funds have become cautious
Venture tokens have performed poorly in the public market
Investors feel a lack of innovation
Elections bring significant risk factors
Many venture capitalists are nearing the end of their fund's lifecycle, either having not raised new funds or encountering difficulties in the fundraising process. Many limited partners (LPs) are waiting for profit distributions before reinvesting.
Due to the lack of clear expectations for profit distributions, venture capitalists have become very selective about how to use their remaining funds.
- Venture capitalists who remained cautious in 2022/23 felt they missed opportunities when the market warmed up in the fourth quarter of 2023. They over-invested in the hot market of the first quarter of 2024 and are now facing the consequences.
Even with funds available, they remain watchful of the market, waiting for better investment opportunities.
- The performance of venture tokens has significantly lagged behind mainstream coins (even memecoins), leaving venture capitalists confused about investment directions.
The private market has consumed most of the profits
Low liquidity and high FDV pose significant inflation risks
The token prices of venture tokens have remained sluggish in the public market
- Investors feel a lack of innovation
Discussions on the CT timeline revolve around network scaling vs. L2, modular vs. monolithic, L1 vs. L2 fees, etc., which are all signals of zero-sum games.
If the ecosystem is continuously evolving, we should strive to attract new users and seek financing opportunities to drive innovation.
- LPs and venture capitalists are watching the election results
Gensler shows no signs of slowing down. When an incoming government is likely to continue pressuring your industry for four more years, it's not a good sign.
What should I do if I have a good idea and want to raise funds?
Don't hesitate, but be cautious in fundraising.
Ultimately, fundraising is a process of building demand on the order book side. As a founder, you need to balance valuation, dilution, and the quality of partners, but you don't know what the final pricing of your project will be in the market.
Many founders set their valuations before communicating with investors.
In the current market environment, this is very risky.
If your expectations for valuation are too high, you will waste a lot of time discovering that the market's actual pricing is below your expectations, missing many venture capital opportunities in the process, and ultimately may have to accept a lower price and less ideal partners.
Returning to ideal investors with a lower valuation is a failed strategy.
95% of venture capitalists will automatically decline after you lower your valuation because 1) it sends a signal that other investors have seen it and declined, and 2) they are already looking for the next opportunity.
Instead, you can set a valuation lower than expected or let the market decide.
When you start gaining attention, the price can always go up. Interestingly, those investors who have already committed will feel that paying a higher price is worth it because they "won" the deal.
Some founders might say, "I will wait until the fundraising environment is better."
Well, but that could take 6 months, 12 months, or even 18 months. Waiting and wasting time is not worth it when you can raise some funds, test your ideas, and move on if they don't succeed.
It's easy to focus on the negatives, but there are still many reasons to remain optimistic
Areas like stablecoins, decentralized infrastructure (depin), and decentralized finance (defi) have emerged from the valley of disillusionment. These areas took over 5 years to mature.
We are on the brink of declining interest rates, which will significantly increase market liquidity. Bitcoin and Ethereum ETFs (and possibly Solana's ETF soon?) are ready to accept new institutional capital inflows.
Founders are starting to reconsider whether raising large amounts of capital at high valuations to launch protocols is beneficial for the long-term community.
I know some well-known projects are actively rejecting new funding and launching at reasonable valuations.
3a. This is a response to point 6 and a healthy adjustment to the supply-demand balance in the private market.
I hope this is a growing trend where founders can seriously consider ensuring the long-term sustainability of their projects.
- Negative sentiment has eliminated all crypto speculators, removed leverage, and what remains are long-term builders (most of whom can be contacted via email!).
Now is the best time to collaborate with like-minded individuals and inspire yourself among many talented people.
