In a marked departure from traditional fundraising models, crypto startups are witnessing a surge in valuations propelled by a dynamic approach to investment, reflecting both the resurgence of the digital asset industry and a fervent drive among venture funds to deploy capital effectively.
This novel approach involves an ongoing, unfixed fundraising mechanism that continuously injects capital and swiftly elevates valuations, a departure from the conventional venture capital paradigm characterized by discrete funding rounds spread over several years. Termed as an open-ended funding round, this strategy rewards early investors as they reap the rewards of a rapid appreciation in a startup’s value, courtesy of commitments from subsequent backers.
Michael Heinrich, co-founder of 0G Labs, a blockchain startup specializing in decentralized artificial intelligence, remarked on the increasing prevalence of this structure in oversubscribed deals, noting investors’ willingness to pay higher prices as a testament to market success, despite the rapid succession of investments.
After enduring a challenging period last year, crypto firms have witnessed a resurgence in access to capital amid a rebound in digital asset prices, exemplified by Bitcoin’s doubling in value over the past year. While a token selloff in April underscored the sector’s inherent volatility, the overall landscape appears more robust compared to recent times.
0G Labs, for instance, secured a significant $35 million in March through a rolling fundraise, a substantial sum for a pre-seed stage startup. Mr. Heinrich revealed that investment offers exceeded the planned raise by a staggering 20 times.
Investment documents seen by Bloomberg News indicate that 0G’s valuation ranged from under $40 million to several hundred million dollars, with Hack VC, OKX Ventures, GSR, and Animoca Brands participating in the round.
Data from The Block Research reveals that the average Series A round in crypto reached $26 million in the first quarter, the highest since the tail end of the last crypto bull market in early 2022, with total venture investment in the sector surging to $2.5 billion in January through March.
Mezo, a Bitcoin network-based platform, recently adopted the rolling structure to raise capital, reportedly attracting backers at valuations ranging from under $50 million to nine figures.
Matt Luongo, CEO of Thesis, which assisted in developing Mezo, highlighted the evolving nature of capital formation in crypto, emphasizing differences in governance and liquidity compared to traditional startups.
Although not without its critics, this unconventional approach to fundraising reflects the unique dynamics of the digital asset industry, with crypto funds boasting sizable pools of unspent capital from previous fundraising rounds.
While some traditional venture capitalists may find the fluidity of valuations perplexing, proponents argue that conventional investment models may not be ideally suited to the idiosyncrasies of digital asset companies. Ed Roman, managing partner at Hack VC, pointed out that crypto startups often prefer decentralized cap tables for governance, a departure from the typical single lead investor model prevalent in traditional venture capital.
