Axios Pro Rata: 🤝 VC not over crypto

Plus: Money still flows | Saturday, November 12, 2022

Open in app View in browser   Presented By Cooley   Axios Pro Rata By Kia Kokalitcheva · Nov 12, 2022 Happy holiday weekend, readers! More and more details about the FTX drama keep coming out, so I decided to step back to take the industry's pulse at a particularly wild time. 👋 Reminder: Feel free to send me tips or comments by replying to this email or on Twitter @imkialikethecar. Today's Smart Brevity™ count is 744 words, a 3-minute read.     1 big thing: FTX and the future of crypto VC Illustration: Aïda Amer/Axios   Despite the epic meltdown of crypto exchange FTX during this past week, venture capitalists and their investors are not yet souring on the broader industry. Why it matters: Blue chip names such as Sequoia and Paradigm have been caught in FTX's collapse, quickly prompting concerns about the future of VC investment in crypto. State of play: So far, while crypto VCs are getting some questions from their limited partners about what it all means and what could happen, there isn't general panic — at least among investors who didn't back FTX. "We've spoken to [all our crypto portfolio funds] directly, and I think people have been really responsive and increasingly transparent, partially as a result of lessons probably from the previous issues in the space," one limited partner tells me. Zooming in: LPs invested in venture funds that focus on areas such as crypto infrastructure, for example, are still feeling good, based on my conversations over the last couple of days. Others point to their investments only in smaller, early-stage funds that aren't at risk of writing $200 million checks for a single company. Yes, but: This is likely to be a black eye for the funds that were on FTX's cap table, and could make it harder for them to convince their LPs they should continue to invest in crypto, or even raise new funds. Be smart: The woes emerging from the FTX story don't have much to do with cryptocurrencies. They are more related to the basics of investing: good due diligence, governance and oversight, and risk management. Yes, crypto understanding was important in making this investment, but this wasn't a highly complex blockchain technology — it was a big financial services company. What they're saying: "We have to be the adults in the room making sure progress is being made in responsible, compliant, safe, and practical ways," CoinFund CEO Jake Brukhman tweeted this week about FTX's collapse. "We have to demand transparency and a high level of excellence and be long-term oriented, not short-term greedy." For more historically conservative LPs, such as university endowments, the FTX debacle may dull their appetite for crypto and cause them to retreat. The bottom line: This won't be the end of VCs investing in crypto, but some hard questions about the basics of investing are being reckoned with.     2. Tweet du jour Screenshot: @SethGRosenberg/Twitter   A tweet from Greylock partner Seth Rosenberg encapsulates the message crypto investors and entrepreneurs wanted to communicate this week in the face of headlines about FTX's meltdown. Why it matters: Cryptocurrencies, even from bitcoin's earliest days, have often been viewed with suspicion — and FTX's collapse has a lot of potential to tarnish the whole industry.     📚 Due Diligence FTX's U.S. business is in trouble (Axios) FTX's Bankman-Fried quietly invested more than $500 million in Sequoia and other VCs (The Information) 3 ways crypto venture capital may change in the wake of the FTX meltdown (Fortune)     A message from Cooley Looking up in a down market series     Whether this is your first downturn or one of many, join Cooley's partners for four recorded sessions with downturn navigation strategies for: Private company financings. Labor and employment issues. Liquidity events for tech and life sciences companies. Register to access the sessions.     🧩 Trivia In lieu of a trivia question this week, a throwback to an amazing Bloomberg podcast interview from April with FTX CEO Sam Bankman-Fried, in which he effectively describes some aspects of crypto investing as a ponzi scheme. Have a listen! (Or read the transcript if you're a subscriber.)     🧮 Final Numbers Data: Pitchbook; Chart: Axios Visuals Flashback from last month: Venture investing in crypto startups globally has certainly fallen over the last couple of quarters compared to its peak in Q1 of this year. Still, it remains much higher than pre-pandemic levels, per Pitchbook data. Since the broader market downturn, startups have been trying to adjust to the new venture investment environment, and predict what lies ahead. The big picture: Venture dollars poured into crypto startups between 2020 and 2022, in large part due to the boom in non-fungible tokens. Startups were cropping up left and right, as were venture funds willing to write them a big check. By the numbers: In the first three quarters of 2022, VCs have invested $23.4 billion globally in crypto startups across 2,021 deals. Last year, they invested a total of $25.3 billion across 2,366 deals. In 2020, investors poured just $3.7 billion into 881 deals. Between the lines: "If this is a crypto winter, then 2018 was an Ice Age," Animoca Brands co-founder and executive chairman Yat Siu told Axios on Thursday. He's been using the metaphor to compare today's market with 2018's slowdown. The bottom line: Everything is relative — including VC dollars going into crypto. This story originally appeared in the Axios Crypto newsletter — sign up for daily news on the industry!     A message from Cooley The tools you need to grow your business     Entrepreneurs can access easy-to-navigate tools, document generators and quarterly venture financing reports with Cooley GO. An example: Popular document generators include NVCA financing documents. Delaware incorporation package. Shareholders agreement. See more.   🙏 Thanks for reading! And to Javier E. David and Amy Stern for editing. See you on Monday for Pro Rata's weekday programming, and please ask your friends, colleagues and crypto believers to sign up. Why stop here? Let's go Pro. Learn more about Axios Pro corporate subscriptions, and why hundreds of companies read Pro newsletters every day.   Axios thanks our partners for supporting our newsletters. If you're interested in advertising, learn more here. Sponsorship has no influence on editorial content. Axios, 3100 Clarendon B‌lvd, Arlington VA 22201   You received this email because you signed up for newsletters from Axios. Change your preferences or unsubscribe here.   Was this email forwarded to you? Sign up now to get Axios in your inbox.   Follow Axios on social media: