Venture capital financing for crypto companies is on the rise

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Venture capitalists have bet big on crypto startups in 2021, investing more than $27 billion globally at the end of November, more than the previous 10 years combined, according to PitchBook.

Much of the investment has been made by the venture capital poor of crypto companies, companies whose continued growth will depend on the expansion of the ecosystem.

Coinbase Ventures, the investment arm of the cryptocurrency exchange Coinbase, supports companies in building infrastructure such as Solana, a blockchain network; companies offering crypto-financial services, such as BlockFi, and decentralized finance projects, known as DeFi projects, in which automated transactions are handled by code; and entities working on the digital economy of the metaverse, where users buy and sell digital goods for their virtual lives, such as non-replaceable tokens or NFTs.

In the third quarter of 2021, Coinbase Ventures closed more deals than any venture capital firm, according to CB Insights, which tracks venture capital and start-ups.

Supporting the crypto ecosystem is the main focus of the investment arm, Shan Aggarwal, the head of Coinbase Ventures, told DealBook. “Yields are not the primary metric by which we measure Coinbase Ventures success,” he said.

Coinbase and other crypto firms envision that blockchain technology, the open-source database system underlying cryptocurrencies, will lead the evolution of the internet and ultimately help supplant today’s tech giants and gatekeepers.

“We see a world where tomorrow’s best start-ups are all built on web3 blockchain infrastructure,” said Mr Aggarwal, using the industry term for a decentralized internet. “That is the future we are building.”

Investor interest in crypto at the institutional and retail level has also benefited from Coinbase’s successful public debut in April, valuing the company at more than 10 times its last private valuation, and the creation of large funds dedicated to the space. . Silicon Valley venture capital firm Andreessen Horowitz, whose $20 million investment in Coinbase in 2013 was estimated to be about $11 billion, announced a $2.2 billion crypto fund in June. It was the largest in the world until last month, when venture capital firm Paradigm, which is run by a Coinbase co-founder, announced a $2.5 billion crypto fund.

Crypto venture funds and companies are interconnected and tend to place bets across multiple categories, thus investing in each other’s success.

For example, the biggest crypto deal early this year was a $1 billion funding round raised by crypto exchange FTX. Paradigm, which is run by Fred Ehrsam, the co-founder of Coinbase, was one of the investors. FTX founder Sam Bankman-Fried is also the founder of Alameda Research Ventures, which led a funding round in August for stablecoin firm Trust Token with Block Tower Capital and Andreessen Horowitz, an early Coinbase investor.

“It’s a mixed bag,” said Charles Hoskinson, founder of the Cardano blockchain network, which has not raised any venture capital. Venture capital firms provide start-ups with many vital services, but some question whether their deep involvement in crypto undermines the language of democratization that is so central to the industry ethos. “They will always get their pound of meat before everyone else,” Hoskinson said.

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