As the crypto market continues to deal with depressed prices, many traditional investors are shying away from the sector as they seek safer abodes for their capital. Mega VC firm Sequoia Capital is the latest to do so, with the firm paring down two major venture funds, including its crypto fund, in an effort to downsize.
Sequoia has slashed its crypto fund by 65.8% to $200 million, down from $585 million, the Wall Street Journal reported, citing anonymous sources. The firm has also halved its ecosystem fund, which provides capital to other venture funds, to $450 million, the report said.
“We made these changes to sharpen our focus on seed-stage opportunities and to provide liquidity to our limited partners. The crypto fund will primarily focus on new company formation, with the opportunity to supplement these investments from our seed, venture, growth, and expansion funds as the companies mature,” a Sequoia spokesperson said to TechCrunch+ in an emailed statement.
Sequoia launched the two funds in February 2022, months before the crypto market suffered a cascade of industry-crumbling events, starting with the Terra/LUNA collapse. Since then, confidence in crypto has generally gone downhill and there’s been a drought of VC investment in the space.
Now Sequoia is looking to invest in younger startups, after later-stage crypto companies like Three Arrows Capital, Voyager and FTX filed for bankruptcy.
Sequoia had invested about $150 million into FTX, once one of the largest crypto exchanges globally. It marked that investment down to zero in November 2022, shortly after the exchange collapsed. While that investment accounted for a minor portion of the firm’s capital, it still burned a hole in its pocket and left a mark on its reputation.
Earlier this year, an SEC filing revealed that the Sequoia Capital Fund housed a whopping $13.6 billion, signaling the firm’s commitment toward new investments amid a generally uneasy market.
Given the size of Sequoia’s larger investment vehicle, its crypto investments now seem less than modest.
In general, funding for crypto startups has grown scarce. Since Q2 2022, venture capital investments in the industry fell for the fifth consecutive quarter by Q2 2023 to $2.34 billion, according to PitchBook data. Although the funding has dropped 80.7% in that time frame, some crypto-focused venture capital firms like CoinFund are still holding on.
Other venture capitalists, like Electric Capital’s Maria Shen, believe that the crypto winter is showing signs of maturity as projects ship products that were once relegated to the realm of theory. She also noted that a lot of firms that launched massive funds during the previous bull market are almost at the end of their fund lifetimes.
The crypto industry has attributed the decrease in funding to various trends, including the fact that firms are allocating less capital to preserve their funds’ deployment, regulatory tension in the U.S., lower valuations, and smaller rounds. All of that is resulting in lower capital outflow, and it doesn’t help that firms like Sequoia are dialing back from the industry.