In today’s newsletter, we will present the dynamic evolution of venture capital investments in blockchain-related entities over the last 15 years. We will highlight the transition of some firms to liquid investments, where funds did not acquire equity but rather tokens with vesting schedules. Additionally, we will describe how notable investment institutions like a16z did not make their first investment in the cryptocurrency space until April 2013, when they invested in OpenCoin (later Ripple Labs).

In the early years of Bitcoin, from 2009 to 2012, VCs’ interest was minimal; therefore, 2012 will be the first year analyzed. It is also worth noting the long-standing correlation between Bitcoin prices and fundraising amounts, which only dissipated in 2023.

VC investments vs BTC Price

2009 - 2018: The First 10 Years of Bitcoin and the Beginnings of VC Fund Investments in the Blockchain Space

Yearly Unique Bitcoin & Blockchain Investors (cc: CBINSIGHTS)

The venture capital landscape for Bitcoin and cryptocurrency projects began to take shape in the early 2010s. Union Square Ventures (USV), led by Fred Wilson, and Andreessen Horowitz (a16z) were among the earliest firms to invest in blockchain projects, both backing Coinbase in 2013. Ribbit Capital, founded by Meyer “Micky” Malka in 2012, focused on disruptive financial technologies and was also an early investor in Bitcoin-related companies like Coinbase. Boost VC, founded by Adam Draper in 2012, started as an accelerator and venture fund for emerging technologies, including Bitcoin and blockchain startups. Lightspeed Venture Partners invested in Blockchain.info (now Blockchain.com) in 2013. Other notable early funds include Bitcoin Opportunity Corp, founded by Barry Silbert in 2013, and Pantera Capital, which shifted its focus to Bitcoin and blockchain in 2013. Blockchain Capital, founded in 2013 by Bart Stephens, Brad Stephens, and Brock Pierce, was one of the first firms to focus exclusively on blockchain and cryptocurrency investments.

Annual Blockchain & Bitcoin Deal Share By Stage (2011 – 2015)

2012: Bitcoin start-ups raised only $2.1 million in investments.

2013: Significant investment milestones included:

• Coinbase: Received the largest funding, backed by Andreessen Horowitz (a16z), Union Square Ventures, and Ribbit Capital. Coinbase, now a publicly listed company, was a key player in the Bitcoin space.
• Bitcoin China: The largest and earliest Bitcoin exchange in China, raised $5 million from Lightspeed China. Although this investment ultimately failed, it remains a notable part of China’s early crypto history.
• Circle Internet Financial: Initially a Bitcoin application company, Circle raised $9 million from Breyer Capital and Accel Capital. Jeremy Allaire aimed to promote BTC usage similar to Skype or email. Circle later became known for issuing USDC in 2018.

Investments and Milestones:

Total VC Investment in 2013: $88 million, a substantial increase from the previous year.

Significant Firsts in 2013:

• Bitcoin price surpassed $1,000 for the first time in November.
• The first Bitcoin ATM was launched at Waves coffee shop in Vancouver.
• Bitcoin’s mining power surged from 20 Th/s to 9000 Th/s.

Notable VC Firms and Projects:

• Union Square Ventures: Invested in major projects like Protocol Labs, Dapper Labs, Arweave, Polygon, zkSync, Polychain, and Multicoin Capital.
• Ribbit Capital: Active in early industry investments, backing projects such as Ethereum, AAVE, and Arbitrum.

5 of the Biggest Blockchain Startup Investments of 2013

2014

In June 2014, investment in the blockchain industry exceeded the total for 2013, reaching $314 million, a 3.3-fold increase from $93.8 million in 2013.

500 Startups emerged as the most active investment institution, supporting Bitcoin application companies alongside Boost VC, Plug and Play Technology Center, and CrossCoin Ventures. Initially focused on the crypto sector, 500 Startups later shifted to broader early-stage investments, with limited focus on crypto transactions and payments.

Significant investments in Bitcoin applications included:

• Blockchain: $30.5 million
• BitPay: $30 million
• Blockstream: $21 million
• Bitfury: $20 million

BitPay, a Bitcoin payment platform, raised $30 million led by Index Ventures, with participation from AME Cloud Ventures, Horizons Ventures, and Felicis Ventures.

Blockstream focused on the Lightning Network, a major innovation for Bitcoin payments, and developed the c-lightning client and the Bitcoin sidechain Liquid.

OKcoin (now OKX) raised $10 million, with backers like Ceyuan, Mandra Capital, and VenturesLab. Notably, Ceyuan’s co-founder Feng Bo founded Dragonfly Capital in 2018, which launched significant crypto funds in subsequent years.

Overall, 2014 saw steady growth in crypto VC investments.

2015

In 2015, blockchain technology attracted increasing capital and entrepreneurial interest, despite Bitcoin’s price decline from its 2013 peak. Total investment in Bitcoin startups reached $380 million.

Major financings included:

• Coinbase: $75 million Series C
• Circle: $50 million Series C
• BitFury: $20 million Series B
• Chain: $30 million Series B, involving strategic investors like Visa and Nasdaq

Ripple Labs (formerly OpenCoin) raised $28 million in Series A funding, while 21 Inc. secured $116 million from a16z, Qualcomm, Cisco, and PayPal.

OMERS Ventures from Canada announced plans to invest in blockchain, signaling growing institutional interest. Notable active VCs included a16z, Union Square Ventures, Ribbit Capital, Boost VC, and Digital Currency Group (DCG), which became a major conglomerate in the crypto industry.

Investment activity in 2015 highlighted continued capital market engagement despite a bear market.

2016

In 2016, VC investment in the crypto market declined amid reduced fintech investment. According to CB Insights, investments in Bitcoin and blockchain startups dropped 27% from 2015 levels, returning to 2014 figures.

Despite fewer investments, total funding reached $550 million, focusing on more mature companies. Significant investments included:

• Circle: $60 million Series D
• Digital Asset Holdings: $60 million Series A
• Ripple: $55 million Series B
• Blockstream: $55 million Series A

Circle pivoted from Bitcoin transaction services to remittance and payment services, paving the way for its stablecoin. Polychain Capital, founded by former Coinbase employee Carlson-Wee, raised $750 million for its third venture fund, with support from a16z, Union Square Ventures, and Sequoia Capital.

In 2016, ICO-based project financing began to grow, with The DAO raising $150 million, marking the start of the ICO boom.

2017

Liquid Investments

The venture capital landscape for liquid investments in crypto began to take shape around 2017-2018, driven by the ICO boom and interest in tokenized assets. Pioneering funds like Polychain Capital, founded in 2016 by Olaf Carlson-Wee, and MetaStable Capital, co-founded by Naval Ravikant, focused on tokens rather than equity. Pantera Capital launched its ICO Fund in 2017, targeting ICOs and token projects, while Blockchain Capital introduced the BCAP token, a security token representing a share in their fund. Multicoin Capital, founded by Kyle Samani and Tushar Jain in 2017, and 1confirmation, led by former Coinbase employee Nick Tomaino, also emphasized token investments. Amentum Investment Management joined in 2017, focusing on long-term capital appreciation through blockchain and token-based economy investments. These funds recognized the potential of tokenized assets, shifting from traditional equity models to liquid, token-based strategies.

In 2017, the blockchain industry experienced a mix of frenzy and regulation, with Ethereum’s ERC-20 protocol fueling an ICO boom. However, the implementation of regulatory measures led to a prolonged bear market.

ICO vs. VC Performance:

• Q1 2017: 19 ICOs raised $21 million.
• Q4 2017: Over 500 ICOs raised nearly $3 billion.
• Total 2017: ICOs raised $5 billion across nearly 800 projects, five times the $1 billion VC investment in 215 transactions.

Notable ICO Projects:

Filecoin: $257 million, Tezos: $232 million, Bancor: $152.3 million, Polkadot: $140 million, Quoine: $105 million

Institutional investors like Union Square Ventures and Blockchain Capital participated in ICOs, attracted by quick returns.

Geographic Distribution:

• EU: 40% of ICOs, raising $1.76 billion.
• North America: $1.076 billion raised.

Post-regulation, Chinese VCs moved to regions like Hong Kong and Singapore. The ICO bubble burst due to regulatory pressures and unsustainable business models.

2018

ICO activity persisted into 2018, with over 400 projects raising $3.3 billion in Q1. CoinSchedule reported 1,253 ICOs globally in 2018, raising $7.8 billion.

Largest ICO Projects:

• EOS: Raised over $4 billion.
• Telegram: Raised $1.7 billion in two rounds but the project was later abandoned.
• Petro: Raised $740 million by the Venezuelan government, ultimately unsuccessful.
• Basis: Raised $130 million, though the project later faltered.

VC Equity Financing:

• Bitmain: $400 million Series B from Red Shirt Capital; $1 billion Pre-IPO from Tencent, Softbank, and CICC.
• Total VC funding: $4.26 billion.

Major Developments:

• Coinbase launched Coinbase Ventures.
• Paradigm was founded by Coinbase co-founder Fred Ehrsam and Matt Huang.
• A16z raised $300 million for its Crypto fund, investing in projects like CryptoKitties and Dfinity.
• Fidelity launched a cryptocurrency institutional platform.

2018 saw the emergence of various “blockchain+” applications, many still in conceptual stages, laying the groundwork for future innovations.

Stages of ICO evolution in 2013-2018 (Boreiko, D., & Sahdev, N. “To ICO or not to ICO – Empirical analysis of Initial Coin Offerings and Token Sales.”)

Boreiko, D., & Sahdev, N. “To ICO or not to ICO – Empirical analysis of Initial Coin Offerings and Token Sales.”

• Total Sample (N=316): 14.9% - Of the 316 ICOs analyzed, 14.9% had venture capital backing before launching, meaning about 1 in 7 ICOs had VC support prior to their token sale.
• Underfunded (MC not reached) (N=43): 0.0% - None of the underfunded ICOs had prior VC backing, suggesting a possible link between lack of VC support and failure to meet minimum funding targets.
• Fully Funded (HC reached) (N=89): 9.7% - Among fully funded ICOs, 9.7% had prior VC backing, indicating that nearly 1 in 10 successful ICOs were VC-endorsed.
• Difference in Means (HC-MC): 9.7%- There is a statistically significant higher percentage of fully funded ICOs with prior VC backing compared to underfunded ones, highlighting the positive impact of VC support on fundraising success.

Summary of equity investments from two leading investment funds during the period 2013-2018: Union Square Ventures and Andreessen Horowitz

List of the most active investors (2014 - 2019 YTD)

2019: Post-ICO Boom Era

In 2019, the blockchain deal environment stabilized following the 2018 surge, with 622 deals totaling $2.75 billion, up from 322 deals worth $1.28 billion in 2017. Blockchain’s share of venture capital (VC) deals increased to 2.8% from 1.5% in 2017, while seed and early-stage blockchain deals rose to 3.6% from 1.8%. Median early-stage valuations for blockchain deals were $12.5 million, 22% lower than the $16.0 million median for all deals.

The focus of blockchain deals shifted, with 68% categorized as FinTech in 2019, down from 76% in 2017, indicating broader applications beyond “crypto.” North America accounted for 45.3% of blockchain deals, and Asia captured 26.8%, reflecting a more global distribution.

Blockchain represented 2.8% of global startup investments and 1.1% of total capital in 2019, compared to 3.6% and 2.7% in 2018. Median deal valuations dropped from $16.6 million in 2018 to $13.0 million in 2019. Notable non-crypto blockchain companies included Securitize, Figure, PeerNova, and Spring Labs.

CB Insights reported 806 global blockchain investment transactions in 2019, compared to 822 in 2018, with a 27.9% decline in investment scale to $4.26 billion. Zeroone Finance identified Digital Currency Group as the most active blockchain investor in 2019, with 14 investment events, followed by Collins Capital, Coinbase Ventures, and Fenbushi Capital.

Investment institutions in 2019 focused on digital currency exchanges, games, digital wallets, digital asset management, smart contracts, and DeFi. This year, Animoca Brands, a Hong Kong mobile game developer listed on the Australian Stock Exchange, established a significant presence in blockchain games. FTX was founded with strong support from Alameda Research.

Global blockchain investment enthusiasm declined significantly in 2019, with traditional institutions becoming more cautious. The performance of investment institutions in this bear market indicates a disciplined approach, with no signs of contraction in the current market.

2020 - 2021: Renewed Growth and Surge in Fundraising

In 2020, blockchain venture capital emerged as a vital part of the global private equity market, driven by its potential for high returns. Since 2012, 942 venture capitalists had invested in over 2,700 deals involving blockchain startups. Top blockchain VC funds consistently outperformed traditional VC funds and the broader technology sector.

Blockchain Private Equity Has Outperformed Traditional Private Equity (Since Inception of the Fund IRR 2013 – 2020)

Despite its importance, blockchain private equity represented less than 1% of the global VC market, though it nearly reached 2% during the 2017 crypto bull run. Similar growth was anticipated in 2021 due to events like the Bitcoin halving and governmental stimulus.

Overall, blockchain VC showed resilience, performing well during market downturns, as seen in the 2018 crypto decline. Its potential for high returns and diversification benefits made blockchain venture capital an attractive option for investors.

In 2020, decentralized finance (DeFi) began to gain significant attention. According to PADate, total investment and financing in the encryption industry amounted to approximately $3.566 billion, comparable to the 2019 figures. DeFi projects received $280 million, accounting for 7.8% of the total. Despite the relatively small amount, DeFi had the highest number of financings, with over a quarter of the 407 disclosed projects being DeFi-related. This indicates growing interest in this new type of crypto-native project.

Prominent DeFi applications attracted substantial investment in 2020. Uniswap completed an $11 million Series A round, 1inch secured $2.8 million in seed funding, and the lending platform AAVE raised $25 million in a Series A round. Throughout the year, the scale of DeFi lockups increased by nearly 2100%, and independent addresses grew tenfold. While these figures may seem modest compared to future data, the “DeFi Summer” marked a significant turning point.

Notably, native blockchain venture capitalists showed a preference for industry application projects, particularly DeFi, adopting a more aggressive and higher-risk approach. Investment strategies varied among institutions, reflecting their cultural attributes. PADate reported that over 700 institutions and individuals invested in blockchain projects in 2020, with NGC Ventures being the most active investor, followed by Coinbase Ventures and Alameda Research.

2021

With the advancement of blockchain technology, venture capital institutions worldwide increasingly recognized its importance, especially with the emergence of concepts like the Metaverse and Web3. In 2021, blockchain startups received approximately $33 billion in funding, the highest ever, compared to just $2.1 million in 2012. According to PwC, the average project financing amount in the encryption industry in 2021 reached an impressive $26.3 million.

The number of blockchain venture capital transactions also hit a record high in 2021, with over 2,000 deals, double that of 2020. The frequency of late-stage financings increased, leading to 65 startups valued at $1 billion or more, reflecting the shift of the crypto market from niche to mainstream.

VC Money Invested in Crypto/Blockchain vs Total

Galaxy statistics indicated nearly 500 global blockchain venture capital institutions in 2021, with both the number and scale of funds reaching historical highs. Major institutions like Morgan Stanley, Tiger Global, Sequoia Capital, Samsung, and Goldman Sachs entered the blockchain market through late-stage equity investments, contributing to a market flush with capital.

In 2021, the cryptocurrency space experienced a significant influx of new users and substantial investments:

According to Gemini, nearly half of the users in major cryptocurrency regions started investing in 2021.

New users accounted for:

• 46% in Latin America
• 45% in the Asia-Pacific region
• 40% in Europe
• 44% in the US

This influx provided a solid user base for the growth and development of crypto applications.

Major Investments:

In July 2021, FTX announced a $900 million Series B round at an $18 billion valuation, the largest private equity financing in the encryption industry’s history. This round involved 60 investment institutions, including SoftBank Group, Sequoia Capital, and Lightspeed Venture Capital.

Active Investors:

Coinbase Ventures was the most active blockchain investment institution in 2021. After its US listing in April, it invested in 68 blockchain startups. Prior to its listing, Coinbase had raised nearly $547 million in over 13 financing rounds. Other notable investors included: AU21 Capital (China-based), which invested in 51 companies, a16z, which invested in 48 companies

Venture Capital Investments:

In the fourth quarter of 2021, more than $10.5 billion was invested, bringing the total venture capital investment in the crypto and blockchain sectors to an all-time high of $33.8 billion, representing 4.7% of all venture capital invested that year. The year also saw the highest number of deals, totaling 2,018, nearly double the number in 2020 and surpassing the previous record of 1,698 in 2019.

2021 VC Money Invested in Crypto/Blockchain by Category

Of the $33.8 billion invested by venture capitalists in the crypto and blockchain startup ecosystem, the largest portion went to companies offering trading, investing, exchange, and lending services, which received more than $13.8 billion (41.83%). A growing portion of venture capital was invested in Web3 companies, including those developing NFT, DAO, and Metaverse tooling, infrastructure, and games, accounting for 17% of the total investment.

2022 & 2023: Significant Decline in VC Investments

2022

Investment Overview:

• Venture capitalists invested over $30 billion in crypto and blockchain startups, nearly matching 2021’s $31 billion.
• Investments peaked in the first half of the year, with significant drawdowns in Q3 and Q4.
• Q4 2022 experienced the lowest deal count and capital investment in two years.
• Prominent VCs who invested in FTX faced significant losses. Sequoia Capital wrote down its $200 million investment to zero, and Temasek’s $320 million worth of FTX shares became worthless.

Trends:

• Later-stage companies received a larger share of capital, while pre-seed deals continued to decline.
• Web3 led in deal count, but trading and investment platforms raised the most money.
• Median deal sizes and valuations were at their lowest since Q1 2021.

VC Fundraising:

• 2022 marked the largest amount ever raised by crypto VCs, exceeding $33 billion, despite the smallest quarterly amount raised since Q1 2021 in Q4.
• The average fund size increased, with over 200 funds raised, averaging over $160 million each.

2023

Investment Overview:

• Crypto VC investment significantly declined, amounting to only a third of the investment compared to the previous two years.
• Deal count and capital invested consistently hit new lows each quarter.

Trends:

• Earlier-stage companies accounted for the majority of deals, with a decline in pre-seed deal share in the latter half of the year.
• Valuations and deal sizes hit their lowest levels since Q4 2020.
• Trading companies raised the most capital, followed by Layer 2 & Interoperability and Web3 sectors.

VC Fundraising:

• Fundraising faced challenges due to macroeconomic conditions and turmoil in the crypto market.

Crypto VC Fundraising Fund Size

• 2023 saw the fewest new crypto VC fund launches since 2020, with average fund size declining by 30% and median fund size by 45%.

Key takeaways from the recent trends in crypto VC investment include a noticeable decline in interest and investment in 2022 and 2023, with a particularly sharp drop in 2023. Despite this, Web3 continues to lead in deal count, while trading platforms dominate in capital raised. The US remains the dominant player in the crypto startup ecosystem, despite facing regulatory challenges. Additionally, macroeconomic headwinds and market turmoil have created a difficult environment for both founders and investors, leading to significant fundraising challenges.

2024: Current State of Venture Capital Investments

The landscape of venture capital investments in the first and second quarters of 2024 has been detailed in our previous newsletters. We will only highlight what is visible in the following chart, a continuing trend since the end of Q1 2021, where early-stage investments significantly dominate over later-stage investments.

Below is the link illustrating the state of VC investments in Q1 & Q2 2024:

Consistent Rise in Crypto VC Investments in Q2 2024

Should you have any additional information or elements that you believe should be included in this newsletter, please do not hesitate to contact us.

Sources

1. https://www.galaxy.com/insights/research/2021-crypto-vcs-biggest-year-ever/
2. https://www.galaxy.com/insights/research/2023-crypto-vc-seeks-a-bottom/
3. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3209180
4. https://www.coindesk.com/markets/2014/06/05/bitcoin-vc-investment-this-year-already-30-higher-than-2013s-total/
5. https://cognizium.io/uploads/resources/Cointelegraph - Blockchain Venture Capital Report - 2021.pdf
6. http://cbinsights.com
7. https://assets.kpmg.com/content/dam/kpmg/pdf/2016/03/the-pulse-of-fintech.pdf

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