Crypto is changing the investment landscape for even the most disciplined VCs – MovieUpdates

The long-awaited re-correction of private tech startup valuations and fundraising expectations has a web-sized asterisk.

While many funds are reverting to more conservative checks, with a focus on profitability and business fundamentals, crypto remains an industry in the spotlight that attracts committed multi-billion dollar funds and investment terms that remind us more of 2021 than 2022.

So, is it hype, the promise of innovation in crypto, or a bit of both? Venture capitalists and founders at all fundraising stages spoke to current investment strategies when it comes to investing in this cohort of startups. The contrasting strategies boil down to technical differences in cap tables, the culture of communities on which many businesses in this space are built, and of course the non-crypto world’s fear of missing out.

Tokens and the Future of Future Stocks

Web3 caps typically range in four different categories, Chris Matta, president of 3iQ Digital Assets, told MovieUpdates. The first is the traditional cap table, which is similar to traditional tech companies and follows a classic business model that is “more accessible and understandable to investors,” but would not include a token model.

The second is a hybrid cap table with a core list of traditional stockholders along with some investors who have a token conversion agreement that will grant them token allocations once the token associated with the company is launched. “These business models focus on the token, but use equity as a transitional structure,” Matta said.

Third, there is a token-first structure, which has a “lean cap table” made up of the startup founders, which is a pure placeholder towards a fully tokenized structure, that is, the primary capital-raising vehicle, Matta said. “These structures were popular in the 2017-2018 [Initial Coin Offering] days and have become less common today.”

Finally, decentralized autonomous organizations (DAOs) that have emerged in the last 12 months generally do not have a centralized entity, but have typical rights and governance structures that a traditional non-web3 company would have.

There is also a simple agreement for future tokens (SAFT), where investors do not own shares in the company, but see value in the token and will eventually get the company’s own coin, said Yida Gao, general partner at Shima Capital. Alternatively, there are simple future equity agreements (SAFE), where a company gives an investor rights to future equity without specifying the price per share during the initial investment.

Influx of money-rich attention

“The days are long, but the years are short in crypto,” Stan Miroshnik, partner and co-founder of 10T Holdings, told MovieUpdates. “When we started the fund (more than three years ago), the premise was that there was no one at all to write a $50 million check in the blockchain space.”

Over the past 12 months, there has been a combination of traditional growth investors and crypto-focused investors moving deeper into the space. Then there are strong existing venture capital managers with more dedicated crypto strategies such as Andreessen Horowitz (a16z), Lightspeed Venture Partners, Bain Capital and Sequoia Capital, to name a few.

Still, things are accelerating across the board in crypto. About $32 billion in capital was pooled in the crypto world last year, and $11.35 billion has been invested so far this year, according to data collected by PitchBook.

There is a clear difference between traditionally investing in stocks and putting capital to work in web3 and crypto companies in terms of ownership, Gao told MovieUpdates. “In traditional stock investing, you want a Series A or seed stage investor to have 20 to 30% ownership of the company,” he said. “But 20 to 30% ownership of a token or of a network is very bad and is frowned upon by the community. And web3 is all about community.”

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