Web3 Fundraising Guide: Among the 339 Active Crypto Funds, Which Ones Are Worth Long-term Cooperation?

PANews · 2022-12-02T11:25:01.000Z
Original text: "Crypto's Venture Capital Landscape" by ELI NUSS Compiled by: 7upDAO Returnees Association Venture fund landscape Since 2018, more than 3,300 funds have made venture investments in cryptocurrencies. Of these funds, only 339 have made 10 or more investments since the start of 2021 — meaning the majority of these funds are casual investors rather than dedicated and active crypto funds. To further refine this, we can break down the 339 active cryptocurrency funds into two relevant sub-sections for analysis:
Original Article: Crypto's Venture Capital Landscape by ELI NUSS
Compiled by: 7upDAO Overseas Returnees Association
Venture Fund Landscape
Over 3,300 funds have made venture investments in cryptocurrencies since 2018. Of these funds, only 339 have made 10 or more investments since the beginning of 2021 — meaning that most of these funds are casual investors, not dedicated and active crypto funds.
To break it down further, we can break down the 339 active cryptocurrency funds into two relevant sub-segments for analysis:
190 funds are active in the early stage, defined as having made at least 10 seed or pre-seed investments since the beginning of 2021. 40 of these early active funds are emerging managers that launched in 2020 or later. Our firm, Stratos, falls into this category. Early Stage Deal Landscape
Since the beginning of 2021, there have been over 1500 early-stage (seed and pre-seed) crypto fundraising rounds — raising nearly $7.5b with a median round size of $3m. Given the sheer volume of investments, we use a data-driven approach to measure the quality of these 1500 rounds by looking at which companies ultimately raise subsequent follow-on rounds. Path dependency is a big factor in early-stage investing, and companies that go on to raise subsequent follow-on rounds are much more likely to ultimately be successful. There has been a ton of research done to support this.
The chart below shows the number of early-stage funding rounds by month from January 2021 to March 2022, as well as the number of companies in that cohort that have raised follow-on rounds. We chose this time frame because it best represents the current seed landscape in crypto venture capital — it includes both emerging managers and incumbents. We excluded new cohorts after March 2022 because the companies in those cohorts are not mature enough to generally warrant follow-on rounds.
From the beginning of 2021 to March 2022, there were just under 1,000 rounds in the early stage. DeFi was the most popular category, accounting for 31% of the rounds, followed by NFT, Web3, Infrastructure, and then CeFi. The number of rounds per month increased significantly over time. There were 19 early stage rounds in January 2021, while there were 92 rounds in January 2022. Interestingly, the number of DeFi and Infrastructure deals remained relatively flat throughout the timeframe. Most of the growth came from the NFT and Web3 categories. Starting in September 2021, the majority of rounds fell into these categories.
As one might expect, a small percentage of companies that raised early-stage rounds during this period have since raised follow-on rounds—roughly 20%. We can expect this percentage to increase over time, as we expect that outperforming companies will tend to raise follow-on capital sometime between 12 and 18 months after their initial seed round.
To get a sense of the types of companies included in this data, the following table shows the top 20 companies that initially received funding between January 2021 and March 2022, calculated based on the amount of money raised in subsequent follow-on rounds:
The sub-sector details are telling: 4 of the top 5 companies and 12 of the 20 companies are infrastructure-related. Given that only 16% of early-stage funding is in the infrastructure space, this sub-sector appears to be outperforming other sectors. This includes scaling solutions like Fuel and Subspace (both Stratos portfolio companies), as well as centralized infrastructure providers like Moralis and QuickNode. Recur is the best-funded NFT company, raising a $5 million seed round and a subsequent $50 million follow-on round. Element Finance and Goldfinch Finance (Stratos portfolio companies) are leading the way in the DeFi space, raising $32 million and $25 million, respectively.
There are a number of funds that appear in the data several different times. Hypersphere, Maven 11, Stratos, A_capital, and Andreesen Horowitz each appear in at least 3 of the top 20 early-stage rounds. The list below shows funds that invested in at least 5 early-stage companies in 2021 that have since raised subsequent rounds (and therefore been marked up).
The above chart highlights the investors that have invested in the top early-stage companies with the highest frequency. The list includes most of the well-known investors in the space. Coinbase Ventures leads with 22 marked seed investments.
In order to get a more accurate picture of a fund's investment judgment or "hit rate," it is necessary to consider the total number of investments over the same period. Some investors simply invest in more companies and therefore naturally receive higher markups. The chart below takes this into account and instead displays the follow-up/markup rate.
In this dataset, Maven 11 leads the way in subsequent follow-on investments with 8 of its 17 early-stage investments. Stratos is the first of the emerging managers (we define emerging managers as those founded since early 2020). Interestingly, 3 of the top 4 crypto-focused VCs are emerging managers. Given that only 21% of active early-stage crypto funds are emerging managers, this could mean that new funds have a higher hit rate than established funds.
Another interesting insight is that the companies with the highest follow-up rates also happen to have recently raised funds between $50 million and $150 million on the smaller end of the 2021-2022 crypto venture fund vintage. If we assume that follow-up rates are predictive of future success for these portfolio companies, and that this sample set of companies represents a large portion of these funds’ invested capital, then it is likely that smaller funds will outperform larger funds over time.
The chart above shows the follow-up rates for funds that made 10 or more early-stage investments in 2021. It’s worth noting that with a lower cutoff, Variatn, Volt, Nascent, and A_capital would all be near the top of the chart.
 in conclusion
There are 339 funds actively investing in cryptocurrencies. However, data shows that only a few emerging and established funds are consistently investing in high-quality companies on a large scale.
When founders are considering which investors to work with, it’s important to focus on funds that have a track record of successfully investing in early-stage companies. The purpose of the above data is to help founders identify the funds with the best track record in early-stage crypto, especially in cases where an early investment from one of these funds can increase the likelihood of a successful follow-on round. Statistically, companies that don’t raise follow-on rounds after their seed rounds are less likely to continue to be successful — the best early-stage funds can help increase the likelihood of a follow-on round through targeted support and relationships with later-stage investors.
Founders should also consider the pros and cons of working with an early-stage focused fund (e.g. Nascent, Maven 11, Stratos) versus a full-lifecycle fund (e.g. Pantera, Polychain, a16z). Smaller early-stage focused funds can often participate more and have more bandwidth; larger full-lifecycle funds have more resources and will be better able to accumulate capital over time.
Another consideration is the company’s area of ​​expertise. One investor might focus on infrastructure, while others focus on DeFi, gaming, etc. We plan to dig deeper into industry-specific data in a follow-up to this blog post.