Why Aren't Crypto VCs Making Money in This Cycle?
TechFlow Selected TechFlow Selected
Why Aren't Crypto VCs Making Money in This Cycle?
The main reasons include unlocking mechanisms, lack of narrative sustainability in the market, and partial marginalization of some VCs.
Navigating Web3 tides with focused insightsBy 1912212.eth, Foresight News
The previous cycle was truly the golden age of crypto venture capital. At the top of the pyramid, a16z and Paradigm pulled the strings; Multicoin Capital rose to fame on the back of bets like Solana. From 2021 to the peak in 2022, it wasn't an exaggeration to say that every two or three days, another project in DeFi, NFTs, or gaming secured VC funding. The rallying cry of a Web3 revolution echoed across social networks. According to The Block Pro’s fundraising data, VCs invested $29 billion into startups and projects in 2021, rising to $33.3 billion in 2022. Many VCs reaped massive profits across public blockchains, DeFi, and NFTs—earning jaw-dropping returns of tens or even hundreds of times from seed rounds through exchange listings.
Yet times have changed. In 2024, VCs invested approximately $13.7 billion into cryptocurrency and blockchain startups, up 28% from $10.7 billion in 2023. However, this figure remains far below the peak of the previous cycle.
This cycle, crypto VC returns have been disappointing. Numerous projects were overvalued, their token prices collapsing in secondary markets. VCs found themselves under fire from communities and retail investors alike, with exit routes blocked. Bitcoin rose from its cycle low of $15,000 to nearly $110,000—a gain of about 734%. From 2022 to 2025, its annualized return was roughly 94.28%. How many funds actually outperformed BTC? Recently, Du Jun revealed that ABCDE has halted new project investments and second-fund fundraising, rethinking how to participate in industry development.
So what are the reasons behind VCs’ current struggles—or even losses?
Unlock Mechanisms Remain Flawed
Token unlocks, in some ways, deeply align VCs and project teams—sharing both gains and pain. However, timing is crucial in crypto markets. While VCs may enter at low costs during seed or Series A rounds, many projects' tokens unlock precisely when the market has already entered a bear phase. VCs rely heavily on secondary market trading post-listing for exits, but high volatility and insufficient liquidity plague these markets. After airdrops or unlocks, many projects face heavy selling pressure, causing token prices to plummet and erasing VCs’ paper profits.
Jack Yi, founder of LD CAPITAL, noted: "Investors generally face strict '1+3' lock-up periods, while exchanges, project teams, market makers, and KOLs face no such restrictions. In a space where narratives can shift ten times within four years, this asymmetry puts investors at a clear disadvantage."
Few Projects Achieve Lasting Success
The probability of a crypto project becoming a breakout success and listing on a top-tier exchange at the right time (TGE) is inherently low. In the last cycle, dominant narratives gained broad recognition both inside and outside the industry, and sector sustainability was relatively long. But in this cycle, most hyped sectors and projects lack staying power.
From last year until now, sectors like inscriptions, restaking, decentralized scientific research, Ton-based mini-games, social protocols, Layer 2s, and the Bitcoin ecosystem have each seen brief surges in popularity before quickly fading. Even if such projects managed to list on major exchanges during their peak hype, they would need to deliver multiples of returns just to cover overall investment and time costs—yet current market caps make achieving this goal at unlock nearly impossible.
Moreover, many obscure projects fail to list even on tier-two exchanges, let alone top ones. Numerous teams have encountered significant issues during airdrops or community outreach, resulting in zero momentum or buying interest even after TGE. These projects are quickly marginalized, and their token prices reflect that reality.
Meanwhile, market capital and attention have rotated primarily among Bitcoin, meme coins, and AI-themed tokens for extended periods—further undermining VC returns.
Some VCs Are Being Marginalized
Besides a handful of elite firms, many VCs hold little influence. They either can’t access the hottest projects, or when they do, valuations are already so high that potential returns are minimal—and allocated allocations are pitifully small.
Conversely, less popular projects rarely generate market buzz or strong returns. Even with large allocations, outsized profits remain elusive. The dream combination of “hot project, low valuation, large allocation” has become a so-called “impossible triangle.”
A deeper issue is that the role of VCs is being eroded. Traditional VCs add value through strategic guidance, resource integration, and brand endorsement. But in crypto, these advantages are diminishing. Project teams have realized they can attract retail capital faster via KOL-driven social media campaigns or direct exchange partnerships. VC endorsements not only carry less weight—they’re sometimes seen by communities as red flags signaling a pump-and-dump. Many VCs offer little beyond capital, failing to meaningfully empower projects, leading to persistently high failure rates across portfolios.
Additionally, some project teams are bypassing VCs entirely by raising funds directly from retail investors through public/private sale platforms (e.g., Echo, CoinList), weakening VCs’ bargaining power and exit opportunities.
Where Do We Go From Here?
VCs must return to fundamentals. The winners of the future will be projects with real-world use cases, product-market fit, and sustainable revenue models. Stablecoins, RWA tokenization, and data infrastructure are promising areas worth deep investment. VCs must strengthen due diligence on fundamentals and abandon blind chasing of trends.
Second, VCs must evolve from mere capital providers into strategic partners. Offering technical support, market resources, and compliance guidance will be key to improving project success rates.
Crypto VCs’ losses this cycle stem from a mix of macroeconomic headwinds, industry chaos, and flawed internal strategies. Valuation bubbles, exit bottlenecks, and role marginalization—these issues act like a mirror, reflecting how lost VCs became during the market frenzy. Yet, in 2025, new opportunities are emerging. Consolidation trends, clearer regulations, and traditional finance entering the space provide a stage for VCs to reinvent themselves. From speculators to value creators, crypto VCs must redefine their roles with greater professionalism and long-term vision.
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
Foresight News
