The industry is evolving, VC is reshuffling, how to stay relevant?

Original Title: Crypto is Growing Up, VCs are Getting Left Behind

Original Author: Sam Lehman, Investor at Symbolic Capital

Original Translation: Azuma, Odaily Planet Daily

In the past few months, I have witnessed four well-known cryptocurrency funds either transition to pure liquidity management models or quietly shut down. Several leading funds have also fallen into fundraising difficulties. Many investors I know have completely exited the market—some have shifted to AI, while others have simply retired (and not just because they made enough money to retire early).

This is no coincidence; it reflects a fundamental shift occurring in the industry.

If we compare the cryptocurrency industry to a coming-of-age story, I believe it is bidding farewell to its wild and unruly childhood and entering a more stable late adolescence. The chaotic environment filled with short-termism, speculative frenzy, and VC gamesmanship is giving way to a more mature and orderly new phase. This transition is full of opportunities and will trigger many profound impacts—but I must say, I believe most Web3 venture capital firms are simply not prepared for the upcoming changes.

VCs love to tell founders to improve their adaptability; now it’s their turn to adapt.

The Old Web3 VC Playbook

The old cryptocurrency venture capital model generally operated like this:

• Identify projects that are about a year away from token launch and have close relationships with leading exchanges—there were even funds that could raise capital solely based on "partners being former employees of exchanges/having deep connections." Their "value-added services" were merely sniffing out which projects could get listed on exchanges. If any fund is still promoting this pitch today, it's best to steer clear.

• Invest through SAFT agreements—and conveniently snag a consulting title;

• Wait for the project’s token issuance (TGE) and immediately dump it on retail investors—after all, the lock-up rules back then were much looser than today’s mainstream "1-year lock-up + 3-year linear release." During bull market cycles, retail investors often had higher expectations for token valuations, so they would eagerly "cooperate" with VCs in this play.

This model has enabled many detrimental behaviors among investors:

• Short-sighted fund cycles: Most VCs raise 5-year funds—only half the duration of traditional Web2 fund cycles. This structure is doomed to fail in supporting long-term builders; if a fund must distribute assets to LPs after 5 years, how could it possibly invest in projects that require 10 years to mature liquidity?

• Distorted pressure on founders: Founders accepting this type of investment are forced to accelerate monetization, often rushing to issue tokens before their product has validated market fit (PMF).

Fortunately, this model is rapidly dying out.

Entering 2025, as regulatory frameworks become clearer and traditional financial institutions re-enter the market, the crypto market is shifting towards a more rational phase that emphasizes fundamentals, real utility, and sustainable business models.

The Industry is Undergoing Dramatic Changes

I believe the future cryptocurrency industry will require investors and founders to have greater patience. Some tangible changes as the market matures include:

• Stricter lock-up mechanisms: Most CEXs are adopting "1-year lock-up, 2-3 years release" as standard rules for token listings;

• Fundamentals are king: The proliferation of altcoins combined with an upgrade in retail investor awareness forces projects to rely on hard strengths—actual revenue, moats, and profit pathways are replacing speculative narratives. This does not signify the end of token economies, but rather the demise of mediocre tokens;

• Diverse exit paths: For crypto companies, IPOs are becoming increasingly viable, and industry mergers and acquisitions can create substantial exit opportunities; token issuance is no longer the only liquidity outlet.

I doubt most Web3 VCs can adapt to these new norms. From what I see, institutions that have realized this have either completely exited the industry, shifted to liquidity funds, or are raising new funds with different structures to adapt to the new rules of the game. In contrast, those companies that have consistently supported this new model will thrive in this new paradigm.

Who Will Succeed in This Changing Market?

Undoubtedly, this new landscape presents enormous opportunities for many funds. Those full-cycle investment institutions that can support founders from "pre-seed to IPO" can now shine in a market with almost no competition.

Currently, only about 10 cryptocurrency funds have the capability to lead Series A and subsequent rounds; aside from financial strength, funds that can provide comprehensive support and resources for crypto companies throughout the IPO process are even rarer. How many funds truly value (and can implement) sound corporate governance? How many are well-versed in the processes of roadshows, investor relations management, and so on? I believe not many… But for those funds that have consistently upheld high standards and systematic operations in a casino-like market, this is the golden age for investment—when the market allows less professional fund managers to play the role of genius investors, you have quietly built your moat.

In the early stages of the venture capital market, the role of pre-seed investors is also changing. In the past, many pre-seed and seed investors only needed to get involved early, providing advice for community building and mindshare growth, to exit before the product was fully formed. Now, I believe early investors must be better at helping companies find product-market fit (PMF), iterate on products, and engage with users, rather than rushing to push projects to launch and monetize.

There’s one final thought on this. I remember during a talk at CSX in 2023, someone suggested that projects should find PMF before launching tokens—unbelievably, this viewpoint was controversial in our industry at the time. Fortunately, with the increasing emphasis on fundamentals, this perspective is changing, which will encourage the industry to build more resilient real businesses. Notably, discussions and experiments around "micro" token issuance are currently emerging, aimed at allowing teams to secure only the necessary funding for infrastructure; I believe the feasibility of this path remains to be validated, but it’s important to maintain an open exploratory attitude.

Embracing Industry Maturation

The maturation of cryptocurrency is by no means a negative trend. On the contrary, this pursuit of mainstream adoption and long-term development is undergoing a necessary evolution. The projects being built today are of more substantial value than early enterprises—they are more focused on solving real problems and are more likely to create lasting value.

For venture capital institutions, this transformation is both a challenge and an opportunity. Those that can adjust their investment models to accommodate longer cycles, focus on fundamentals rather than hype, and provide real value beyond capital will thrive in the new landscape. Meanwhile, investors clinging to outdated strategies will increasingly be eliminated by the market—savvy entrepreneurs are choosing to collaborate with funds that best fit the new environment.

The crypto industry is maturing. The question left for venture capital institutions is: can you grow alongside it?