Venture Capital Shifts Focus to Mid-Stage Crypto Companies
Venture capital firms are redirecting their investments towards mid-stage crypto-centric companies, especially those involved in artificial intelligence (AI). This shift comes at a time when investors are showing increased interest in AI following the recent downturn in the crypto market. According to Paul Veradittakit, the managing partner at Pantera, this change in strategy is significant for their firm. Data from PitchBook reveals that VCs, who previously invested heavily in crypto firms, are now racing to secure AI-based companies. Another report from Crunchbase indicates a 49% decline in global venture funding during Q2 2023 compared to the same period in 2022.
The primary reason for this shift is the significant rise in interest rates, which have gone from near zero to 5.5%. Such high rates make investors more cautious about taking risks. Veradittakit also mentions that valuations for series B and C rounds have dropped more sharply than those for early-stage investments. He adds that a significant portion of their investable universe is currently located outside of the United States. Consequently, funds flowing into seed-phase crypto projects are expected to remain low for the next year or so.
Asia’s Regulatory Environment Attracts Crypto Businesses
Veradittakit highlights Asia as an attractive destination for crypto businesses due to its regulatory push and positive attitude towards cryptocurrencies. He predicts that as market conditions improve and scalability and interoperability increase, there will be a surge of entrepreneurs and applications coming from Asia. Pantera aims to strengthen its relationships with well-established companies in Asia to position itself at the forefront of funding opportunities. In contrast, the United States has created uncertain and unfriendly conditions for cryptos, with the Securities and Exchange Commission (SEC) actively pursuing charges against numerous crypto businesses.
Entrepreneurs in the US are seeking clarity and guidance from regulators to ensure compliance. The lack of regulatory clarity has prompted many businesses to explore opportunities in Asia, where the environment is more favorable for crypto ventures.
Hot Take: VC Focus Shifts to AI-Based Crypto Companies
Venture capital firms are now targeting mid-stage crypto companies involved in artificial intelligence (AI) due to increased interest in AI following the crypto market downturn. This shift is driven by rising interest rates, which have made investors more cautious about taking risks. Series B and C rounds have experienced steeper declines in valuations compared to early-stage investments. Additionally, Asia has become a preferred destination for crypto businesses due to its favorable regulatory environment, prompting many entrepreneurs and applications to emerge from the region. In contrast, the United States faces unclear and unfriendly conditions for cryptos, leading to a brain drain towards Asia.
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