2021 has been a momentous year in the cryptocurrency history, with new Bitcoin ETFs launched and Bitcoin itself being priced over $66K just a week ago, surpassing its all-time high mark. Cryptocurrency has become one of the largest and most significant movements in history as well via influencers and celebrities talking about it or launching their custom NFTs for their fans. This is due to more people and institutions being aware of the concept and either accepting it as a means of trading or investment or educating themselves in order to build similar projects. 

This entire buzz has garnered the attention of VC firms now more than ever. There is of course an ICO that a cryptocurrency company may go through in order to raise capital, but other companies like exchanges, wallet apps or marketplaces that act as an auxiliary, the best method for them to raise funds is through venture capital. In this first quarter of 2021, VC investments in cryptocurrency reached a record high of $3 billion across 239 deals. The most popular business model that has been invested in is crypto exchanges. It is quite intuitive as well, since without the exchanges, trading would not be possible. At least half of the VC firms that invest in cryptocurrency companies, would have invested in an exchange. One such investor who is extra optimistic about exchanges than its peers, is Lightspeed Venture Partners, that have invested in six different crypto exchanges.

A detailed report by Blockdata suggests that Andreessen Horowitz, a VC firm in California, has made the largest number of deals in cryptocurrency companies, some of the notable ones being Dapper Labs, Solana, Coinbase and Ripple. Next in line comes IDG Capital from China, Sequoia Capital again in California and a close fourth is Lightspeed Venture Partners. As can be seen from the report as well, Coinbase and Ripple are the most popular choice of investment across the VC firms, one a cryptocurrency exchange platform and another that aims to be a substitute for RTGS payments and act as a currency exchange and remittance network.

Out of the companies funded, the top five that received the largest funding were FTX, a crypto exchange, Bitmain, a manufacturer of Bitcoin mining hardware, Circle, a peer-to-peer payment tech, Dianrong, an online marketplace for lending and Coinbase. Trying to maintain that lead, FTX raised another $420 million in a Series B-1 funding also being referred to as a meme funding round, that involved 69 investors. The platform was valued at $25 billion making that a 39 percent appraisal in value since July. Back then they had raised the biggest sum ever seen in crypto VC investment, amounting to $900 million. 

But one cannot stop to wonder, why are VC firms committing such huge sums of money in an industry which is unregulated and highly uncertain? We would attribute it to FOMO (feeling of missing out). A lot of VC firms and crypto specialists compare the life cycle of cryptocurrency and blockchain to the start of the internet and smartphones. In Andreessen Horowitz investment thesis, they mention that they are optimistic believers in the power of software and it has an unbounded design space. They say they are consistently surprised and excited by the wide array of innovative crypto concepts that they encounter. Considering the meteoric rise of the internet and smartphones, investors do not want to lose an opportunity to have a stake in something that could be revolutionary. 

The next big trend that investors have noticed in crypto investing is the rise of DAOs (Decentralized autonomous organization). DAOs may be made for different functions, but to put it in simple terms they are a digital community with a common bank account. The very first DAO was established in 2016 by a group of developers. It was initially designed as a VC fund without the formal management structure. Using the Ethereum network, the DAO welcomes funds from all over the world, anonymously. This in turn awards the sender with voting rights. The idea behind such a structure was to be able to eliminate human error and mishandling of investor funds by granting the decision-making power to an automated system. Regardless of all their challenges and unknown risks, the DAO concept signifies that the industry has not been fully explored and experimented with yet. Thus, it becomes imperative that investors are willing to support and finance such projects and ideas in any way, shape or form. We see it as a significant shift from trusting third parties to a community driven environment, building the next generation of technology.

  • Growth through innovation/creativity:
    Rather than be constrained by ideas for new products, services and new markets coming from just a few people, a Thinking Corporation can tap into the employees.
  • Increased profits:
    The corporation will experience an increase in profits due to savings in operating costs as well as sales from new products, services and ventures.
  • Higher business values:
    The link between profits and business value means that the moment a corporation creates a new sustainable level of profit, the business value is adjusted accordingly.
  • Lower staff turnover:
    This, combined with the culture that must exist for innovation and creativity to flourish, means that new employees will be attracted to the organization.

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Renuka Sivsankar

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