Some VCs are turning away from crypto, but CoinFund is diving deeper with latest $158M fund

The seed fund is focusing on four emerging verticals, including integrating AI and crypto

As other venture capitalists veer away from the crypto world in hopes of finding other promising startups, CoinFund is doubling down on its investment into the world of web3 with a new $158 million fund.

The oversubscribed pool of capital, or CoinFund Seed IV Fund, initially had a target fundraising goal of $125 million and is backed by institutional investors, family offices and high-net-worth individuals, the firm shared on Tuesday. By comparison, this fund is 90.4% larger than its third seed fund of $83 million.

It will support pre-seed and seed-stage web3 investments, which are still popping up and raising capital in the crypto ecosystem, even amid an ongoing bear market.

The firm was founded in 2015 and has around 105 investments across six investment vehicles. In the last 18 months, it raised over $550 million across venture and liquid investment strategies. In 2022, it launched a $320 million venture fund for early-stage web3 rounds. “This is a subset of preparing for the next leg of growth,” Alex Felix, co-founder and CIO at CoinFund, told TechCrunch+.

Capital trickled into the crypto sector in the second quarter of 2023, falling for a fifth consecutive quarter to $2.34 billion, according to PitchBook data. The decrease could be attributed to VC firms allocating less capital to preserve their funds, regulatory headwinds in the U.S., lower valuations and smaller rounds resulting in smaller checks, and some firms abandoning the crypto ecosystem in hopes of finding other promising investments.

“[It’s] certainly true that later-stage folks have pulled way back and crossover funds have pulled way back,” Felix said. “We’ve certainly seen other peers distracted with other things. Whether it’s cleaning up from portfolio companies caught up in X, Y or Z in the past year or two or those focused on fundraising to get next vintages set up.”

He said there are qualified venture firms in the space, but staying in crypto right now is a “harder sell” when the fund isn’t all in on crypto. “The influx of new funds isn’t there, and most new funds are quite small so they’re also looking for partners to catalyze rounds. There’s more follow-on capital than lead capital.”

Timing the market

So why launch such a big fund while other investors are scurrying away and deploying less capital?

“We’ve always been conscious of structuring our funds to meet the market where it is,” Felix said. “We could still put 40 companies in a portfolio and target ownership of 7.5% to 10%. What we’ve strategically done during this new market environment is increase our reserves; since valuations aren’t crazy, we can carry companies further until later stage financing markets come back.”

This means CoinFund’s portfolio companies could do extensions or flat rounds and the fund could potentially increase its ownership without having to pay 10 times for initial entry prices, for example. The firm is also not doing as many participatory rounds, but instead is focusing on co-leading or leading raises, with about 70% of deals they’ve done recently with CoinFund at the top.

A fund like this could potentially help revive growth in the ecosystem, but it’s just one of many that needs to be announced in order to create another wave of capital inflows like we saw in 2021, when the crypto market was extremely hot and had massive funding rounds and valuations.

There are some signs that things are going in the right direction, Felix said. Developer conferences are still packed with builders and excitement, something that didn’t transpire during the last 2018 bear market cycle.

And it can be good for investors, giving them more time to do due diligence, for instance. “We like that even if not purely for valuation reasons, processes are taking longer, and you don’t feel the heat of everyone else around,” he said.

There have been a few bigger funding rounds announced for Series A rounds this week, including RISC Zero’s $40 million, Futureverse’s $54 million and Manta Network’s $25 million. However, seed and pre-seed rounds this week were in the $1 million to $10 million range, which is consistent with what the industry has seen in recent months.

Building a focus on emerging sectors

VCs are still placing bets on infrastructure, gaming and security, to name a few, within the broader crypto ecosystem. In general, there’s also been an increased focus on betting on founders with companies based outside of the U.S., likely due to the uncertainty around how policymaking will unfold.

CoinFund’s latest fund focuses on four emerging verticals when considering pre-seed and seed-level startups: scalability, intersection of AI and crypto, data management and coordination, and consumers. LPs are now really focused on relatable use cases, Felix said.

Felix hopes the broader industry will heat back up, too. “I want competition. If we’re right about where we’re headed in 5 to 10 years and there’s $30 trillion to $50 trillion in value from the crypto ecosystem, I hope a plethora of companies don’t define crypto as a vertical but as a technology that affects all verticals.”