The venture landscape may be on the ‘cusp’ of explosive growth after years of macro strain

The crypto venture landscape has fallen for the past six quarters in a row. But CoinFund’s managing partner and head of venture investments, David Pakman, thinks there might be a breakthrough soon for investors waiting on the sidelines to deploy funds and startups looking for capital.

“It’s been a challenging couple of years” for all venture capitalists, Pakman said on TechCrunch’s Chain Reaction podcast. “Let’s call it profitless companies: When interest rates go up, risk comes off companies that don’t make money, valuations fall, and we’ve been through this now for a couple of years. We seem to be maybe on the cusp of coming out of it. At least we think so, and the market seems to think so, too.”

With the possibility of interest rates coming down next year, it can provide more clarity to investors that things are moving again in the crypto venture and startup world. “Valuations will be able to increase, and there’ll be more capital flooding into early-stage venture investing,” he said.

The crypto industry is facing the same macroeconomic headwinds as others, with the added bonus of regulatory uncertainty. “Maybe you’d even say regulatory hostility,” Pakman said.

As it stands, the “only way” to make a lot of money for LPs as a venture investor is to be a nonconsensus investor, betting on places that most people think are unlikely to produce big outcomes, Pakman said.

And as startup valuations improve and more use cases arise, more investors could reenter the space, as they did in 2021. “Usage drives fees, and we will need more use cases that drive fees so that we can prove these are real businesses, not just interesting software,” Pakman said.

“There’s no question that crypto venture capital is still a nonconsensus bet today; that doesn’t mean we’re the only venture fund in the world investing here. But we’re one of a few.”

CoinFund launched in 2015 and has had six investment vehicles that have deployed capital into its 105 portfolio companies. Those include Worldcoin, Polygon and Dapper, according to its website.

Looking toward 2024, Pakman is hopeful that the macroeconomic environment improves, but even if it doesn’t, he — and many other investors — are looking more long-term. Markets fluctuate with prices and interest rates changing, but that’s “noise,” Pakman said. “It scares good entrepreneurs away from taking a serious look. So my wish for next year is that we’re in a slightly improved environment that attracts more credible entrepreneurs for us to meet with who may not have crypto native backgrounds.”

This story was inspired by an episode of TechCrunch’s podcast Chain Reaction. Subscribe to Chain Reaction on Apple Podcasts, Spotify or your favorite pod platform to hear more stories and tips from the entrepreneurs building today’s most innovative companies.

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