How can traditional VCs survive in the crypto world?
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How can traditional VCs survive in the crypto world?
If the traditional VC model is to survive in the crypto world—where community VCs and investment DAOs hold clear advantages—it must differentiate itself and find a path better suited to its own model.
Navigating Web3 tides with focused insightsWritten by: Uzair Hannure
Translated by: TechFlow Intern
As a world centered on decentralization, deregulation, and agile rapid development, crypto is pushing back against traditional VC models—the passive LP structure, the 10-year fund lifecycle, and the heavy legal frameworks built around investments. Crypto founders are now seeking financing models tailored for early-stage Web3 startups: community-based funding through investment DAOs and micro VCs.
While this shift may not yet be obvious—given that large traditional funds like a16z and Paradigm have recently made many successful Web3 investments—I believe this will soon change.
So far, the main reason many founders have gravitated toward Sand Hill Road VCs rather than micro VCs or investment DAOs is their long track record of successful investments—something micro VCs and investment DAOs haven’t yet established. But in the coming years, the exponential growth in investment DAOs and community-driven VC funding will undoubtedly shift this dynamic, enabling them to make even more successful investments.
Another reason large VCs have held an advantage in crypto is that they offer more than just capital—they bring brand equity that generates high-quality connections, something DAOs and micro VCs currently lack. However, this too is changing as major DAOs evolve into increasingly recognized brands.
As this time-based advantage fades, we’ll see community VCs and DAOs making significantly more investments. Their advantages are clear: democratized and decentralized funding. The success of a crypto project heavily depends on its level of decentralization; having a few LPs holding the majority of tokens puts a project at a disadvantage. Furthermore, since investment decisions in these communities are made democratically through voting rather than by a single partner, this model aligns better with the ethos of crypto.
Second, these investment DAOs and micro VCs provide each project with a large, highly engaged, crypto-native community. This community not only supplies users and feedback but can also serve as a vast network offering legal, media, and technical support to the project.
Finally, these investment DAOs and micro VCs are typically remote and non-legal entities. This allows for extremely flexible and fast investment decisions. The absence of bureaucratic paperwork, multiple approval layers, and legal contracts makes these remote, non-legal structures highly attractive to crypto projects operating in the wild west environment.
Assuming the crypto industry manages to disrupt regulation, these community funding models will continue to grow. If traditional VCs want to keep up, they must carve out different segments of the market where their strengths shine—rather than trying to compete directly with the frontier-style DAOs and micro VCs. These segments may require stricter regulation, larger amounts of capital, and longer-term development horizons. Moreover, traditional VCs should focus on equity-based projects rather than token-based ones, as this helps mitigate the centralization problem—such as when a single VC holding a large number of tokens could harm a project.
Crypto exchange (CEX) markets represent the ideal path for traditional VCs. Due to listing and operational requirements, CEXs must operate as legal entities and undergo stricter regulatory approvals. They also require substantial capital to launch tokens and compete in a fiercely contested market. Finally, investments in CEXs are typically made via company equity rather than tokens (for example, investing in Coinbase Global, Inc., the corporation operating the centralized Coinbase exchange). Other tokens that might benefit from traditional VC involvement and stricter regulatory oversight include centralized cryptocurrencies like Ripple (XRP) and Hedera (HBAR), or the rapidly growing stablecoin market.
Therefore, I believe if the traditional VC model is to survive in the crypto world—where community VCs and investment DAOs hold clear advantages—it must differentiate itself and find paths better suited to its own structure.
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