Crypto private investment sentiment hits rock bottom, where should it go from here?

2024.09.06

Crypto private investment sentiment hits rock bottom, where should it go from here?

It's easy to focus on the negative, but there are still many reasons to remain optimistic.

2024.09.06 - 08:01:43

Navigating Web3 tides with focused insights

It's easy to focus on the negative, but there are still many reasons to remain optimistic.

Author: Hootie Rashidifard

Translation: TechFlow

Private crypto venture sentiment is the worst it has been since Q4 2022. As we enter the final fundraising sprint of the year, here are some thoughts on the current landscape and what to watch going forward. Over the past quarter, average protocol valuations have dropped significantly. Pre-seed valuations now sit between $10M and $20M, while seed-stage valuations range from $20M to $30M. These valuation levels stand in stark contrast to Q1 2024, when valuations were nearly double today’s figures.

So, what caused this shift?

Venture capital dry powder shortage
Funds holding capital are being cautious
Poor public market performance of VC coins
Investors perceive a lack of innovation
Elections introduce significant risk factors

1. Many VCs are nearing the end of their fund lifecycles, either having failed to raise new funds or facing difficulties in doing so. Many limited partners (LPs) are waiting for distributions before reinvesting. With no clear expectation of returns, VCs have become extremely selective about deploying remaining capital. 2. Funds that stayed cautious during 2022–2023 felt FOMO when markets rebounded in Q4 2023. They over-invested during the hot market of Q1 2024 and are now dealing with the consequences. Even if they still have capital, they’re adopting a wait-and-see approach, holding out for better investment opportunities. 3. VC-backed tokens have underperformed significantly compared to major cryptocurrencies—and even memecoins—leaving investors confused about where to allocate.

Private markets have absorbed most of the upside
Low circulating supply combined with high FDV creates substantial inflationary risk
VC token prices remain depressed in public markets

4. Investors feel there's a lack of innovation. Discussions on CT timelines revolve around network scaling vs. L2s, modular vs. monolithic architectures, and L1 vs. L2 fees—signs of zero-sum thinking. If ecosystems were truly expanding, we’d be focused on acquiring new users and securing funding to drive real innovation. 5. LPs and VCs are waiting for election outcomes. Gensler shows no sign of slowing down. When the incoming administration could potentially continue pressuring your industry for another four years, that’s not a positive signal.

What should you do if you have a good idea and want to raise funds? Don’t hesitate—but raise cautiously. Ultimately, fundraising is about building demand-side order flow. As a founder, you need to balance valuation, dilution, and partner quality, but you won’t know the true market price for your project until you test it. Many founders set their valuation before speaking to any investors. In the current environment, this is extremely dangerous. If your valuation expectations are too high, you’ll waste valuable time discovering that the market values your project lower than expected—missing numerous VC opportunities along the way—and may eventually have to accept a lower price with suboptimal partners. Coming back to ideal investors at a lower valuation is a losing strategy. 95% of VCs will automatically reject you after a down round because: 1) it signals other investors have already seen and passed, and 2) they’ve already moved on to the next opportunity. Instead, consider setting an initial valuation lower than your target—or let the market decide. When momentum builds, prices can always go up. Interestingly, investors who’ve already committed often feel it’s worth paying a higher price later, as they believe they “won” the deal. Some founders might say, “I’ll just wait for better fundraising conditions.” Fine—but that could take six, twelve, or even eighteen months. When you could instead raise some capital, test your idea, and move on if it doesn’t work, waiting and wasting time isn’t worth it.

It’s easy to focus on the negative, but there are still many reasons to stay optimistic

1. Areas like stablecoins, decentralized infrastructure (DePIN), and decentralized finance (DeFi) have emerged from the trough of disillusionment. Each of these sectors took over five years to mature. 2. We’re on the verge of declining interest rates, which will significantly increase market liquidity. Bitcoin and Ethereum ETFs—and possibly Solana’s soon—are positioned to receive fresh institutional inflows. 3. Founders are beginning to rethink whether raising large sums at high valuations benefits long-term communities. I know of several well-known projects actively turning down new capital and launching at reasonable valuations. 3a. This responds to point 6 and represents a healthy rebalancing of supply and demand in private markets. I hope this becomes an ongoing trend—founders thoughtfully considering long-term sustainability. 4. Negative sentiment has driven out crypto speculators, removed leverage, and left behind only long-term builders (most of whom you can actually reach via email!). Now is the perfect time to collaborate with like-minded individuals and motivate yourself among a pool of exceptional talent.

Join TechFlow official community to stay tuned

Telegram:https://t.me/TechFlowDaily

X (Twitter):https://x.com/TechFlowPost

X (Twitter) EN:https://x.com/BlockFlow_News

Source

Add to Favorites

Share to Social Media

Author

Hootie Rashidifard

@Hootie_R

Crypto private investment sentiment hits rock bottom, where should it go from here?

TechFlow Selected TechFlow Selected