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What winter? Crypto VCs continue their spending spree

July 27, 2022, 12:07 PM UTC
A young Asian woman using her smartphone in the city at night to invest in Bitcoin
Crypto VCs aren't feeling the chill of the crypto winter plaguing the industry as they continue their spending spree for this year and come close to breaking a record.
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You’ve got to give the crypto enthusiasts this much: The true believers in the still young but beaten-down asset are a die hard breed. Even after Bitcoin has fallen nearly 70% from its late 2021 high and as VCs pull back on investments in other sectors, venture activity in crypto and blockchain startups is as busy as ever.

As of last Friday, VC investments in the space have reached $18.3 billion so far in 2022. That’s nearly triple the amount invested in 2020 and also on pace to exceed 2021’s record haul of $32.4 billion, according to Steven Alexopoulos, an analyst at J.P. Morgan.

Some of the crypto fundraising rounds this year have been substantial in size. In January, Fireblocks, a digital-asset infrastructure startup that has since partnered with the likes of BNP Paribas, raised $550 million at a valuation of $8 billion. In March, Yuga Labs, the company responsible for Bored Ape Yacht Club NFTs, raised $450 million at a $4 billion valuation.

On Monday, blockchain startup Aptos Labs raised $150 million in a round led by FTX. FTX, meanwhile, is reportedly in talks to raise $400 million only six months after raising another $400 million at $32 billion valuation.

“One of the most interesting trends we have observed in recent quarters has been the record pace of VC investment into startups in the crypto and blockchain industries,” Alexopoulos said in a research note. Alexopoulos noted that the flow of capital into these startups “should persist—and it’s no surprise, given how easily VC funds are also raising money.

Last week, Toronto-based Round 13 Capital raised $70 million to invest in blockchain startups. Earlier this year, Haun Ventures, founded by a former prosecutor and Andreessen Horowitz partner, raised $1.5 billion for crypto investments; while investment firm Bain Capital launched a $560 billion crypto-only fund. And in the midst of May’s crypto selloff, Andreessen Horowitz unveiled a $4.5 billion crypto fund, the industry’s largest to date.

But hold on. Isn’t crypto going through a hard time? It’s not just Bitcoin and other cryptocurrencies plummeting in value, look at all the layoffs at crypto companies like Coinbase, Gemini, Crypto.com, Blockchain.com, BlockFi, and OpenSea, the last of which slashed a fifth of its workforce this month.

Others have fared worse. Three Arrows Capital, Celsius Network, and Voyager Digital have filed for bankruptcy court protection, while cryptocurrencies from Terraform Labs lost $60 million in investor money. So if we’re in the midst of a crypto winter, why are VC investments in the space so hot?

“Not all crypto companies are the same,” says Eliézer Ndinga, director of research at 21Shares, a Zurich- and New York-based company that issues crypto exchange-traded products through existing bank and brokerage accounts. Two key factors separate crypto winners from losers: The type of work the startups are doing, and how efficiently and responsibly they’re doing it.

VC money is flowing into areas likely to see growth once the dust settles in crypto markets: Building the infrastructure that can speed up and scale up blockchain transactions as well as nascent areas like Web3, NFTs, and blockchain-based gaming. Ndinga tells me that VCs are still showing interest in such cutting-edge innovations that hold some promise for broader adoption.

For example, blockchains today can process only about 15 transactions per second, a tiny fraction of the thousands of transactions Visa can handle. “Some of the most important technologies today, which I think we’ll be taking for granted tomorrow, would make blockchains able to process hundreds of thousands of transactions per second,” Ndinga says.

Ndinga, who joined 21Shares after working in the VC industry, said another distinction between crypto winners and losers, are those that follow the standard advice VCs give to startups during downturns: a strong product-market fit that can easily scale, cash-burn discipline, and leadership who can navigate turbulent bear markets.

Such next-generation blockchain technologies have echoes of the dot-com boom and bust 20 years ago, when broadband access lifted the Internet from a fringe technology to an indispensable part of our daily lives. Leaders that emerged from the dot-com wreckage—the Amazons, Googles, and eBays—dominate the tech landscape today.

While it’s too early to say for sure who those leaders will be, Ndinga says, “I personally believe that we’re going to see the next eBay and Amazon out of this bear market, for sure.”

Kevin Kelleher
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VENTURE DEALS

- Everside Health, a Denver-based direct primary care provider, raised $164 million in funding. New Enterprise Associates, Oak HC/FT, Alta Partners, Endeavor Catalyst, and others invested in the round.  

- Kitchen United, a Pasadena, Calif.-based ghost kitchen and restaurant hub technology company, raised $100 million in Series C funding. Circle K, Kroger, Restaurant Brands International, B. Riley Venture Capital, Simon, Phillips Edison & Co, The HAVI Group, GV, and others invested in the round.

- Spotnana, a New York-based corporate travel management software company, raised $75 million in Series D funding. Durable Capital led the round and was joined by investors including Madrona, ICONIQ Growth, Mubadala Capital, and Blank Ventures.

- PunchListUSA, a Charleston, S.C.-based home inspection data platform for estimates and online ordering of home repair services, raised $39 million in funding. Sweetwater Private Equity and Morpheus Ventures led the round and were joined by investors including Home Depot Ventures, Second Century Ventures, Palm Drive Capital, the Bielsky Family Office, IDEA Fund Partners, Meeting Street Capital, Solo Capital Management, VentureSouth, and others.

- Neon, a San Francisco-based database service company for developers, raised $30 million in Series A-1 funding. GGV Capital led the round and was joined by investors including Khosla Ventures, General Catalyst, Founders Fund, Elad Gil, and other angels. 

- Bryte, a Los Altos, Calif.-based restorative sleep platform, raised $20 million in funding. Tempur Sealy led the round and was joined by ARCHina Capital and others. 

- Butlr, a Burlingame, Calif.-based anonymous people sensing platform, raised $20 million in Series A funding. Tiger Global and Analog Devices co-founder Ray Stata co-led the round and were joined by investors including E14, Union Labs, Hyperplane Venture Capital, and Tectonic Ventures.

- Nash, a San Francisco-based delivery orchestration platform, raised $20 million in Series A funding. Andreessen Horowitz led the round and was joined by investors including Y Combinator and Rackhouse Venture Capital

- TestFit, a Dallas-based A.I.-powered real estate feasibility software developer, raised $20 million in Series A funding led by Parkway Venture Capital.

- CAF, a Centro, Brazil-based digital identity verification company, raised $15 million in funding. Ethoca co-founders Darryl Green, Andre Edelbrock, and Trevor Clarke and former LexisNexis CEO Andrew Prozes co-led the round. 

- Topl, an Austin-based blockchain developer, raised $15 million in Series A funding co-led by Mercury, Republic Asia, and Cryptology Asset Group.

- Pogo, a New York-based earning and saving financial app, raised $14.8 million in seed funding. Buckley Ventures led the round and was joined by investors including Slow Ventures, Village Global, 20VC, Night Ventures, Hyper, Shrug, and other angels.

- Rush ReCommerce, an Omaha, Neb.-based e-commerce software and service provider for returned home goods, raised $12.9 million Series A funding. Beringea led the round and was joined by investors including Advantage Capital and others.

- Datch, a New York-based voice-first A.I. solutions provider for industrial operations, raised $10 million in Series A funding. Blackhorn Ventures led the round and was joined by investors including Blue Bear Capital, Boeing Horizon X, Stage Venture Partners, and Plug and Play

- DSCVR, a Los Angeles-based Web3 social network built on a blockchain, raised $9 million in seed funding led by Polychain Capital.

- Reserv, a New York-based third-party administrator that develops and sells software to claims adjusters, raised $8 million in seed funding co-led by Altai Ventures and Bain Capital Ventures

- Resourcely, a San Jose, Calif.-based cloud resource management platform, raised $8 million in seed funding led by Andreessen Horowitz and Felicis

- bunch, a Berlin-based operating system for private market investors, raised €7.3 million ($7.39 million) in seed funding. Cherry Ventures led the round and was joined by embedded/capital. 

- ChiselStrike, a remote-based open source backend development platform, raised $7 million in seed funding. Norwest Venture Partners led the round and was joined by investors including Blumberg Capital, Jamstack Innovation Fund, Essence VC, First Star Ventures, and Mango Capital

- Impart Security, a remote-based API security solution, raised $6 million in seed funding. CRV led the round and was joined by investors including Haystack, 8-bit Capital, and O'Reilly AlphaTech Ventures.

- PixieBrix, a New York-based web interface customization and automation platform, raised $5.4 million in Series A funding from New Enterprise Associates

- Electrified Thermal Solutions, a Medford, Mass.-based renewable heat provider, raised $4.5 million in seed funding. Clean Energy Ventures and Starlight Ventures led the round and were joined by investors including the Grantham Foundation and Clean Energy Venture Group.

- Mable, a San Francisco-based telehealth clinic focused on migraine care, raised $3.2 million in seed funding. Y Combinator and Illumina led the round and were joined by investors including First In Ventures, Arkitekt Ventures, and Inaki Berenguer.  

- Alchemon, a Portland, Ore.-based NFT staking, crafting, and trading card game, raised $1 million in funding. Borderless Capital led the round and was joined by investors including Pillar VC and Yieldly

PRIVATE EQUITY

- Invictus Growth Partners acquired a majority stake in Allbound, a Chamblee, Ga.-based partner relationship management platform, for $43 million.

- Advent International acquired a majority stake in Neoris, a Miami-based tech consulting and digital transformation services provider. CEMEX will retain a minority stake in the company. Financial terms were not disclosed.

- Novvia, backed by Kelso, acquired Duval Containers, a Jacksonville, Fla.-based container supplier. Financial terms were not disclosed.

EXITS

- One Equity Partners agreed to acquire Clayens NP, a Genas, France-based polymers,  composites, and precision metals contract manufacturer, from a group of investors led by Siparex.

- Mohawk Industries acquired Foss Floors, a Rome, Ga.-based floor covering company, from Wynnchurch. Financial terms were not disclosed. 

PEOPLE

- Anzu Partners, a Boston, San Diego, Tampa, and Washington D.C.-based investment firm, promoted Jimmy Kan to partner.

- Battery Ventures, a Boston and San Francisco-based investment firm, hired Kristen Manning as human resources partner. The company also promoted Brandon Gleklen, Dillon Joyce, and Justin Rosner to principal, Dawit Workie to vice president, and George Christopher, Olivia Henkoff, Peter Winans, and Juliette Silvain to associate. Formerly, Manning was with Fiduciary Trust Co.  

- Bernhard Capital Partners, a Baton Rouge, La.-based private equity management firm, hired Phillip Preis as a managing director. Formerly, he was with Dundon Advisors.

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