Author: Regan Bozman, Co-Founder of Lattice Capital

Translator: Hu Tao, ChainCatcher

This week's "hot topic" on crypto Twitter seems to be a common concern: does the reduction in available funds mean that cryptocurrencies are no longer as attractive? The scale of crypto venture capital is clearly shrinking—there is no dispute about that.

As for why this is the case and what it means, there is more debate. Rob Hadick believes that crypto venture capital is concentrating on the best founders and the best funds, which is precisely a sign of industry maturation. Meanwhile, Meltem argues that the contraction is due to (a) a lack of high-quality early-stage founders, and (b) the area for scalability in cryptocurrencies is too small compared to other high-growth industries.

For this specific debate, I don’t have much to add. It is clear that there are still outstanding founders in the crypto space building projects. However, compared to 2021, there are significantly fewer founders starting ventures in the crypto field, while there are clearly many more in other areas like AI. Is this due to a shortage of capital, or has this gap caused a shortage of capital? It could be both.

There is no doubt that this job is significantly harder than before. With funds flooding in, returns have been compressed. Tokens are also structurally facing more challenges than in 2017–2021. Since the AI boom, there are many fewer allocators willing to invest in crypto venture funds. If you are not truly passionate about crypto venture capital, now is a good time to do something else.

Last week I went to El Segundo to attend Disciplus's Demo Day, which focused on industrial technology. I was surprised to find many crypto investors there. It felt like meeting another married friend in a bar—we both shouldn’t be here. Industrial technology isn't Lattice's focus (I personally am an investor in Disciplus), but I wanted to better understand the dynamics of the non-crypto venture capital market.

Understanding how crypto investors are responding to the current market environment is the most interesting question, as it directly affects the future landscape of the crypto capital market. Clearly, some people are heading to "Gundo" (a nickname for El Segundo). But not everyone is doing that.

Currently, I see three main ways crypto investors are responding: the first is to completely leave and do something entirely different. This could mean taking operational roles in the crypto sector or completely unrelated jobs. As many zero-interest rate era funds continue to die out, the phenomenon of leaving established funds is becoming more common across the venture capital industry. Yes, the assets of super-large funds are growing, but their speed of team expansion is unlikely to offset the number of funds that are dying.

Some crypto fund managers have done well enough that they can now invest in whatever they want, no longer constrained by their fund's mandates. Kyle Samani is the most public example. Samani reminds us that while underperformance may push people towards this path, there are clearly some exceptionally performing investors who simply feel there are more interesting problems to solve outside.

The second approach is to continue doing venture capital in their own funds but expand the investment scope. This is easier for some than for others. Not all funds active in the crypto space focus solely on crypto. My sense is that Meltem’s investment scope has always been broader than just crypto, allowing teams like Crucible to directly shift their attention to other areas.

Paradigm distinctly positioned itself as a crypto fund upon its establishment—now they are focused on "frontier technology." Many funds (including ours) have explicit mandates to invest in digital assets and related businesses. Fund documents often define this quite broadly, but I believe for most crypto fund managers, there is a clear consensus with LPs (limited partners): they represent "crypto exposure."

Therefore, these fellow managers must either modify their LPA (Limited Partnership Agreement) to conduct non-crypto businesses, obtain verbal consent from LPs, or do it discreetly. Clearly, this falls on a spectrum—you could argue that all AI businesses will ultimately use stablecoins, therefore also considered "crypto businesses." I’m not saying this perspective is correct, just that the boundaries can be quite blurry.

The third option is to stick to the core business. If you believe that this industry will grow 100 times in the future, with less competition and lower valuations, then now is a great time to invest. This is the path we have chosen.

Which Door Holds Wealth?

I understand the appeal of the second option, but I remain skeptical. Venture capital is both an exceptionally competitive industry and follows a power law of growth. There is a reason that Y Combinator captures about 90% of the revenue from global accelerators. Top venture capital funds often get access to the highest quality projects, thus generating most of the returns. This means that unless you are among the best, being involved is pointless; and becoming the best is truly, truly hard.

The most common derived field in the cryptocurrency sector is artificial intelligence. AI is vast, rapidly evolving, and will change the world. It is almost certainly the most fiercely competitive venture capital market of the past two decades. More and more funds are pouring into higher-valued companies (which oftentimes have many questions about their business models). You will be competing with AI-focused funds, all-inclusive venture capital funds, and almost all sources of venture capital on the planet. Therefore, I am very skeptical about whether most crypto funds truly have any competitive advantage. Certainly, there will be exceptions, and some crypto fund managers have indeed seriously considered AI investment strategies. But I believe that most crypto funds will ultimately fade away.

In depth/industrial technology fields like El Segundo, competition may not be as fierce, but there are still challenges. You are about to leave the historically most capital-efficient industry (open-source protocol) and enter a capital-intensive industry. Moreover, these industries also require specific technical skills for analysis.

Remaining Opportunities in the Cryptocurrency Sector

This brings us back to the cryptocurrency field, which to some extent reflects…the current broader venture capital market trend, where a few companies are raising a larger proportion of available funds. The market is becoming fragmented. In the past, there were many crypto funds in the range of $100 to $200 million. Now they are mainly divided into early-stage specialized funds under $70 million and large platform funds. The main difference between crypto venture capital and traditional venture capital is that crypto venture capital is shrinking, while traditional venture capital is growing at an astonishing rate.

Our focus remains on sowing seeds. Opportunities in industries or categories that large institutional enterprises have yet to recognize. “The current cryptocurrency market clearly faces many challenges, but I believe that with a little attention, one can find an equal number of opportunities. In many global markets, cryptocurrency-based financial applications are thriving. The circulation of non-USD stablecoins is still minuscule. We may have only completed 5% of upgrading the financial system—thus, many opportunities remain to be discovered in the future.”

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。