In the cryptocurrency space, Coinbase Global Inc. is among the most significant investors. Based on the number of deals it has backed, data shows that it is the largest backer of industry startups ever. Its investment activity has, however, decreased recently.
The decrease fits into a broader trend of investors abandoning cryptocurrency businesses, many of which have sizable venture capital divisions. In the third quarter of this year, venture capital funding for cryptocurrency fell 63% to $2 billion overall, but many corporate VC firms made even more rapid cuts.
Le cited an industry-wide desire to conserve cash as evidence for the decline and the larger shift towards smaller bets, which he said indicates “a more cautious approach” from corporate investors. He stated that they would prefer to concentrate on their main business in this setting.
Coinbase is still investing capital, but its strategy has changed. As regulatory scrutiny of the cryptocurrency industry intensifies, Coinbase Ventures, the company’s venture arm, is supporting more startups based outside of the US, according to Hoolie Tejwani, director of corporate development and ventures.
It is unfortunate that some brilliantly ideated companies and their founders are stating that they need to remove the US from their business plan and not serve US customers.
Tejwani claimed that despite the slowdown, his team is actively allocating capital and has, in the previous year, made more than 50 investments in 15 different countries. The company sees growth potential in India, Singapore, Australia, and the UK, even though American startups are facing more challenges.
Keeping Pace
Reassessing their approaches are other significant cryptocurrency companies as well. Although the number of deals made by Kraken Ventures, the venture capital division of cryptocurrency exchange Kraken, has decreased over the past year, managing partner Brandon Gath stated that his team is still actively making investments.
According to Gath, during the past two years, they have averaged three to four new deals per quarter and have deployed roughly $3 million in capital. Kraken Ventures was also keeping up with that pace in the third quarter of this year.
According to Gath, Kraken Ventures is still working to raise a fresh $100 million fund and is making investments outside of the cryptocurrency space. The US accounts for about 40% of Kraken Ventures’ startups, followed by Europe at 40% and the rest of the world at 20%. Last year, the group invested in Pinwheel, a non-crypto startup. Though the company’s primary business is payroll services, Gath pointed out that by making it simpler for workers to get paid in digital currencies like stablecoins, the business may benefit the cryptocurrency sector as well.
Kraken has a mixed opinion about the startup industry. Gath noted that very early-stage startups’ valuations haven’t dropped as much and that he frequently sees pre-money valuations for these businesses between $10 million and $30 million. However, at a later stage, the valuations of tech companies in general and cryptocurrency in particular have dropped by 30% to 50%.
According to him, these companies raised valuations that were perhaps a little bit too high.
Lessons Learned
Crypto investments are also made by Binance Labs, the venture division of Binance Holdings Ltd., the largest cryptocurrency exchange in the world based on trading volume. According to the company, its strategy has not changed thus far.
Dana Hou, the division’s business strategy and operations manager, stated that they are more actively searching for founders. Finding builders that are more dedicated to the field is simpler.
Significant legal action severely crippled Binance.US, the company’s American affiliate, and forced many employees to quickly leave the country, among other regulatory setbacks Binance has experienced in the US. However, the venture arm has continued to fund more cryptocurrency projects, including US-based ones, according to Hou. The arm is said to have $9 billion in assets under management.
She claimed that the recent layoffs at Binance had not had an impact on Binance Labs, pointing out that the group is “stable” and that every member is listed on the business website. Binance Labs has shrunk from 18 to eight members after losing ten team members since January, according to an examination of the members listed on the Binance website.
When questioned about the departures, Binance Labs said in a statement that it is still hiring and that it has welcomed new members to the team.
According to Hou, Binance is dedicated to thoroughly screening the projects it invests in. Binance was the investor in the now-defunct cryptocurrency exchange FTX. After the collapse of FTX, venture capitalists faced criticism, with some claiming that their firms had not done enough due diligence on the company.
Hou stated that she was not working at Binance at the time the company invested in FTX, but that the company has learned from the startup’s spectacular failure and has increased its monitoring of portfolio companies and their founding teams.
She stated that it is crucial to ascertain the true identity of the founder.
As opposed to just encouraging talk, Hou stated that Binance Labs and other venture capitalists are now more interested in supporting companies that have actual products and revenue. According to the speaker, projects that receive investment from venture capitalists tend to generate a lot of hype. Recently, hype has become less of a concern in the cryptocurrency space.
