Behind The Coin: Crypto VC History

State of the Venture Capital scene 2023

Venture Capital companies. Commonly seen as the big bad wolves of the money market industry. Painted in so many different lights, you’d never know what their true figure looks like. Rarely do you hear any good things about these guys and what they do. Are these companies/individuals misunderstood or do they really live up to their reputations?

What is a venture capital company

Venture capital companies are primarily private equity investment management firms that use their funds and liquidity to support businesses, primarily startups, that possess the potential for exceptional growth and success within their industry.

Venture Capital "is a high-risk, high-reward asset class that supports entrepreneurs in their quest to turn ideas and basic research into high-growth companies. Venture capitalists help companies grow from individuals with ideas into organizations ready to change the world" (A).

Private equity is a sector of the financial institution scene in which firms invest their money/capital in already established companies. Typically, with the transaction of money from firm to company, a portion of the company's equity is given in exchange for the funds provided by the financial institution.

Venture Capital firms specifically spend/invest their capital in newly established startup companies in the hopes of fostering/boosting the growth of a company they potentially see as highly profitable/successful.

These companies operate on the edge of innovation, usually chasing the newest technological breakthroughs. These firms never take breaks and are always looking to invest in the newest, biggest, and best product out.

As one may be able to piece together, the cryptocurrency scene is the epitome of every venture capital company's dream. It is a new, vastly unexplored frontier full of forbidden fruits ripe for picking. It's no surprise that over the years, we've seen an influx of existing companies forming crypto-specific venture research branches and the emergence of completely new venture capital firms as well

Over the past decade, there have been drastic changes in the world of crypto. An ecosystem that was once viewed with much negativity has finally broken out of its dark cage and been embraced by many. The cryptocurrency scene has seen significant improvements in the number of network participants, digital asset holders, and believers, a growth akin only to that of the dot-com boom.

Similar to the dot-com boom, cryptocurrency has caught the eye of institutional investors. Entire organizations, small teams, and single investors alike have flocked to delegate small sums of money to flourishing new cryptocurrency/blockchain specific applications, services, protocols, etc.

As someone relatively young, it's crazy to see how much money is moving into this market sector. Back in 2013, when Bitcoin hit its first $1,000 all-time high, a total of 24 Venture Capital Funding Rounds were publicly announced. The sum of all these investments totaled $520 million. In February 2023 alone, our ecosystem completed a total of 86 Venture Capital Funding Rounds, which totaled up to 7.57 billion dollars, breaking the record for the highest amount of investment capital raised in a month!

To put this in perspective for people who aren't too familiar with the Venture Capital scene, the National Venture Capital Association states that "the median venture firm closes about four deals a year." Taking into account that the average Web 3 Venture Capital firm likely has a higher close rate than the median venture firm, due specifically to the fast-paced nature and exponential growth of the current crypto environment, 86 completed Venture Capital Funding Rounds is still an incredibly high number for a single month. This should elucidate the sheer amount of active venture firms currently participating in the cryptocurrency adoption race.

An ecosystem with the potential to revolutionize every existing sector, it's no surprise to see unfathomable amounts of money flowing through. February with 7 billion, January with 900 million, and December with 1 billion. The question that most people have is: where is this money going? Who are these teams/companies investing all this money, and what specifically is catching their eye?

First and foremost, this is quite a tricky question to answer. Like a stir-fry recipe, there are a lot of important ingredients in the pot. While there may be times when you favor one flavor over another, they're all equally important and contribute their fair share of taste in the long run. I'll try to cover this question using a top-down approach to analyze the market over the past couple of years.

Analyzing the market and venture capital investments from a broad perspective, it's quite easy to pinpoint certain trends, shifts in institutional sentiments, and obvious favoritism.

The CeFi Blockchain Sovereignty 2010 - 2016

Going back a decade, we arrive at a time period when the crypto space was still in its early stages, and Bitcoin was trading at less than five figures. Crypto was still in its infancy, just born out of thin air, and there wasn't much innovation happening yet. As seen from the CryptoRank timeline, Centralized Finance (CeFi) and blockchain services dominated this period of venture capital investments.

Golden Venture Capital Investments of the CeFi Sovereignty

E toro:

eToro is a leading online brokerage platform that provides a range of financial services to traders and investors. It was established in 2007 and has since grown to become one of the most popular platforms for trading in a variety of assets, including stocks, cryptocurrencies, commodities, and forex.

A household name known by many in the crypto space, eToro has been around for a while. Originally built as an online brokerage platform for experienced traders, it wasn’t until their adoption of Bitcoin trading in 2013 and consumer switch to an ease of use, trading platform intended to adopt mainstream users, that this company really saw its rise in popularity.

While many investors share a strong disdain for CeFi companies like eToro, the seasoned investors know and respect the company for its contributions to the cryptocurrency ecosystem. Not many brokerage companies supported crypto the way eToro did. Allowing for the trading of Bitcoin back in 2013, eToro, along with many others, took a chance on what was once such a small ecosystem, and helped carved a clear path for other brokerage companies to follow. The path has led to a technology that many believe will revolutionize and fundamentally transform the financial industry as we know it. Funny enough, eToro recently had another funding round in which it raised over $250 million and secured a valuation of around $3.5 billion dollars

Coinbase

A cryptocurrency exchange and digital wallet provider that was founded in 2012. It is one of the largest and most well-known cryptocurrency exchanges in the world, with millions of users in over 100 countries.

The platform allows users to buy, sell, and store various cryptocurrencies, including Bitcoin, Ethereum, Litecoin, and others. It offers a user-friendly interface that makes it easy for both novice and experienced traders to navigate and execute trades.

Coinbase received its first public investment from the infamous Y-Combinator, an American tech accelerator program known for producing outstanding startups. As of today, Coinbase has a market cap of 15.12 billion and is one of the leading centralized exchanges in the fight for the mass adoption of cryptocurrency and digital assets.

Ripple XRP

Ripple XRP is a digital currency used on the Ripple payment network, a blockchain-based platform that facilitates instant, secure, and low-cost global payments. XRP serves as the native currency of the network and is used to process transactions.

XRP is designed to be a fast and efficient digital asset, with transaction speeds that surpass those of traditional payment methods. The Ripple network aims to provide financial institutions with a faster and more cost-effective way to settle cross-border payments.

Over the years, Ripple XRP has attracted investments from prestigious venture firms such as Accenture, Digital Currency Group, Google Ventures, and many others, who have poured millions of dollars into this cryptocurrency. However, Ripple XRP's first publicly announced funding round back in April 2013 was led by Andreessen Horowitz (a16z), Lightspeed Venture Partners, and Vast Ventures, who were the fastest to invest.

The CeFi Blockchain time period was marked by failures and hiccups, but it was also an interesting one. At that time, the full potential of cryptocurrency had not been realized, and the disruptive impact of the technology on the global economy was not yet apparent. Many of the companies that survived this period are now regarded as the dinosaurs of the space, the initial explorers of a still relatively new and unknown land.

The  ICO Fest 2016 - 2019

What a time to be alive! The 2016-2018 ICO craze was definitely one of the most volatile time periods in blockchain history. It was an era full of golden opportunities, big profits, scams, and deception. For many who were around, the mere mention of the word ICO evokes a sensation of warm euphoria or a feeling of deep anxiety and terror. While this time period favored huge retail raises in the form of ICOs and IPOs, there were still some major investments made by venture capital firms during this time.

Just like the price of Bitcoin, overall venture capital funding rounds and money flow saw a steady rise to levels never before seen. From the early months of 2016, in which we only saw single-digit raises, to the end of 2019, when the venture capital ecosystem began to average around 30 investments a month, a lot of important growth occurred at such a pivotal time. During this period, the venture capital ecosystem also saw its first billion-dollar investment month in July 2018, a record that would quickly be doubled in the coming September of that same year.

Golden Venture Capital Investments of ICO Fest

Binance

A titan of the entire cryptocurrency space, Binance truly is one of the most prominent companies in the entire cryptocurrency ecosystem. This giant is well-respected due to the massive success they’ve seen across almost all their products. As recorded by Investopedia, Binance operates the largest, and most successful, Centralized Exchange in the entire ecosystem; furthermore, their platform currently has the largest offering of altcoins of any centralized exchange, around 600 if i'm not mistaken. The majority of these listings offer spot trading, options trading, and futures trading alternatives for the user to choose from as well.

Moreover, they have Binanance Smart Chain. Ethereum, Arbitrum and Bitcoin are all you hear about nowadays, rarely Solana as well. Many people forget about Binance Smart Chain, and many people forget who’s behind it as well. Binance Smart Chain is an og chain that has been around for quite some time now. Primarily known for being host to uniswap’s main competitor, pancake swap, Binance Smart Chain has a lot more to offer than what meets the eye. Impressively BSC has a total TVL of 2.9 billion, and a whopping 1.46 trillion dollars of cumulative volume.

It was during this period that Binance received its first fiscal push, an initial movement that would generate enough kinetic energy to send this company to the heavens and back.

STX

A little guppy that recently received its fighting fins, STX is certainly an interesting project. For those who don’t know, STX is a Bitcoin layer 2 blockchain created to help combat Bitcoin’s scalability and transactional speed problem. Through a proof of transfer system, Stacks is able to leverage Bitcoin’s security and enables Stacks apps to use Bitcoin’s state. In layman's terms, Stacks is the concrete foundation that will soon lay support to a massive Bitcoin ecosystem. While on Stacks, Web 3, DeFi, NFTs, and more, are empowered by the security and decentralization of Bitcoin, with the transactional speed and smart contract efficiency of the Stacks Network.

Stacks has recently gained lots of traction from users all over the crypto web. With the release of prominent DeFi applications like ALEX and BADGER; the introduction of groundbreaking new technology such as Ordinals, and the implementation of a Bitcoin Name Service; it is no surprise that Stacks has garnered a massive amount of attention from users all around. In doing so, the blockchain has also cemented its position as Bitcoin's official layer 2.

Interestingly enough, Stacks had its first public raise on June 14th, 2014. It was a small seed round orchestrated by Digital Currency Group, Union Square Ventures, SV Angel, and some individual investors. Together, they helped Stacks raise around $1,400,000. Despite this early funding round, I decided to include them in this ICO time period as that's when they really received venture capital support. In 2017, they had two funding rounds, one unknown and one Private Token Sale. In those two funding rounds, they raised around $54,000,000, which really helped set them on track to become who they are today.

The Spread of DeFi (2020-mid 2021)

Clear blue skies, palm trees swaying back and forth, a warm-pleasant breeze, and a newly launched DeFi protocol 5xing in mere hours of its launch. An era that would not only pollute the Venture Capital scene, but the entire crypto industry for eternity. DeFi summer was really something incredible. Arguably, one of the most important time periods to date, the introduction of Decentralized Finance truly changed everything. Similar to that of a video game DLC, the implication and concept of DeFi expanded upon Bitcoin’s and a plethora of other cryptocurrencies' initial use cases and basic principles. We grew beyond simple payment networks and began experimenting with broader financial use cases for crypto: Lending and Borrowing, Automated Market Making, Yield farming; Decentralized Finance wasn’t just a fad that would slowly die out during the next bear market, it was an industry that was here to stay.

Encapsulated by the shine of crypto's newest innovation, Venture Capital companies, teams, and individual investors dove headfirst into this new emerging sector. A decision that would be extremely fortunate for some but quite detrimental for others. Due to the massive success of early DeFi applications and protocols, the crypto scene saw a plethora of copy-paste scams spring up in an attempt to garner as much success as their predecessors. Over the course of this period, we saw a whopping 900% increase in total monthly venture capital funding, hitting funding highs never seen before. It certainly was an exciting time as a venture capitalist. The record high of total funding rounds during this period was hit in March 2021 with 168 rounds. The record high funding month was hit in May 2021 with $3.93 billion dollars.

Golden Venture Capital Investments of DeFi Summer

Lido Finance

A gem unearthed from a pile of fools gold, Lido Finance is an absolute titan within the Decentralized Finance scene. One of the handful of DeFi innovations still up and thriving from this time period, Lido Finance has had tremendous success in the liquid staking sector of DeFi and currently possesses the highest TVL of any DeFi Protocol in all of crypto!

Lido represents an innovative solution for liquid staking of ETH, which relies on the expertise of top-notch staking providers in the industry. By leveraging Lido, users are enabled to stake their ETH without the need to lock their tokens or manage any underlying infrastructure, while enjoying the benefits of participating in various on-chain activities, such as lending. One of the main objectives of Lido is to address the challenges that are commonly associated with initial ETH staking, such as lack of liquidity, limited mobility and restricted accessibility, by rendering staked ETH more liquid and facilitating participation with any amount of ETH to enhance the performance of the Ethereum network

GameFi x NFT Takeover (late 2021-present)

Lastly, we have arrived at the current era of Venture Capital interest. GameFi and Non-Fungible tokens have become a better duo than peanut butter and jelly, taking over the Web3 space by storm and bringing back a much-needed sense of fun and excitement. By introducing new and dynamic use cases and products, it is amazing to watch these two industries function both dependently and independently of each other.

The idea of tokenization through NFTs, with a focus on consumer ownership, has attracted all sorts of people. From Fortune 500 companies like Amazon and NatGEO to world-renowned celebrities like Neymar and Ronaldo, and even regular consumers like myself, NFTs as a whole have brought an exorbitant amount of attention to our small bubble.

Golden Venture Capital Investments of the GameFi x NFT era

Axie Infinity

Oh sweet Axie Infinity, nothing can quite compare to your success. You are a gaming sensation that took the space by storm. Gamers, traders, and TradFi investors, all sorts of individuals, were drawn to this innovation like a moth to a flame. Your eye-catching business model that focuses on user retention through various NFT and coin rewards, backed by the numerous fairytale stories of users passively earning hundreds to thousands of dollars monthly, coupled with simplistic and stylistically smooth game mechanics, resulted in the birth of a GameFi behemoth.

Axie Infinity has reached levels never before thought achievable within the GameFi ecosystem. Success like none other, Axie Infinity's billion-dollar revenue not only drew attention to itself but drew major attention to GameFi and opened many eyes to how truly successful and lucrative this industry could mature into if taken seriously.

Magic Eden

The exponential growth of the NFT industry was certainly remarkable. During this period, we witnessed the rise of many companies, protocols, and applications that aimed to address the industry's problems and capture a glimpse of financial success in the process. One of the companies that was able to successfully achieve this task was Magic Eden, and merely saying they "accomplished" their goal would be an understatement.

Magic Eden is an NFT marketplace on the Solana blockchain that aims to solve the liquidity issue of NFTs. This company simplifies the transaction process by creating a website that enables users to easily market their favorite tokens to other buyers or sellers and automates the transfer of token ownership from the seller to the buyer upon fiscal acquisition.

Despite facing heavy competition, the Magic Eden company was able to quickly make a name for itself. This is most likely due to their fantastic UI/UX, excellent PR/Social Media communication, and attunement to the needs of their ecosystem and community. They have now become a spearhead of innovation not only within the Solana ecosystem but also within the NFT ecosystem as a whole

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Conclusion

Similar to nature, the venture capital scene has gone through its fair share of trends and seasons. During these periods, one major sector of the cryptocurrency ecosystem receives heavy investments for a period of time, which leads to its development being exponentially accelerated. Over the past decade, we have seen our fair share of trends, including the Cefi Blockchain Sovereignty, the ICO Fest, the spread of DeFi, and the GameFi x NFT Takeover.

The true beauty of these seasons lies not only in the development and evolution they bring but also in the lasting impact they have on us as a whole. As each new season brings forth a fresh batch of precious saplings, venture capitalists eagerly seek out and nurture the strongest among them, much like farmers tending to their fields. While some saplings may thrive, and others may falter during their growth, the end of each season brings a sense of anticipation for the emergence of victorious greenery. This new growth is added to the already-established forest of success, creating a vibrant ecosystem that continues to flourish and thrive over time.