Venture capital funding for crypto and blockchain startups is expected to break records in 2021. As Cointelegraph previously reported, cryptocurrency companies received more funding in the first quarter of 2021 than in all of 2020.
In fact, three companies in the market raised $1.1 billion from lenders in the first quarter of 202 – a third of the total funding for crypto and blockchain companies reported in 2018. With the current enthusiasm in the crypto space, VCs’ appetite for funding blockchain startups could continue for another year.
This initial funding craze seems to be spreading to the retail sector, with initial offers for decentralized exchanges consistently being oversubscribed. As a result, IDO pad tokens are now among the best in the crypto-currency space.
Direct investments Blockchain referred to in
In the first quarter of 2021, 129 crypto and blockchain startups received about $2.6 billion in funding, according to a Bloomberg report compiled by business intelligence firm CB Insights. This is already $300 million more than the total funding for these companies for the entire year 2020.
Cryptocurrency wallet provider Blockchain.com, lending company BlockFi and blockchain gaming studio Dapper Labs accounted for nearly half of the $2.6 billion invested by startups in the sector in Q1 2021. In late March, Dapper Labs announced a $305 million investment from sports stars and other celebrities amid growing sales of NBA Top Shot non-flavored chips.
According to the recently released Blockchain Venture Capital Report from Cointelegraph Research, funding for crypto and blockchain startups in the US has eclipsed the numbers elsewhere since the rise of the crypto and blockchain space. This trend has been observed despite the lack of regularity in the country’s market.
According to Jehan Chu, founder of Hong Kong-based investment firm VC Kenetic, the regulatory environment in the US has done little to discourage private equity funding for blockchain startups, Cointelegraph has learned :
Nothing is more compelling than peer pressure like Michael Saylor, Elon Musk and the influx of institutional funds into the market. VPs must have a point of view or perspective on crypto or risk missing out on the biggest market opportunity in a generation.
The potential for excess return remains a driving force behind the increase in equity investments in cryptocurrency startups for both blockchain and core venture capital funds. In a recent report on blockchain venture capital, Cointelegraph Research found that private investment in blockchain has outpaced traditional private investment over time horizons of one, three and five years.
In fact, private equity blockchain results were largely independent of the major asset class. This trend offers certainty to venture capital funds looking to diversify their investment portfolio at an early stage.
Xinshu Dong, a partner at venture capital firm IOSG Ventures, commented to Cointelegraph on the main investment thesis of venture capital funds in the blockchain space: Crypto is a very attractive space with not only unprecedented growth potential, but also promising validation, especially in recent months following purchases by US institutions.
Given the notable increase in funding for cryptocurrency startups in Q1 2021, the share of blockchain-focused venture capital funds in the overall market may be turning around. After nearly peaking at 2% during a bull market in 2017, private investment in blockchain has fallen to less than 1% of the global venture capital market by the end of 2020.
This decrease is partially due to downward trends after 2018 and the ongoing coronavirus pandemic. According to Cointelegraph Research, blockchain venture capital funding decreased by 13% between 2019 and 2020, while traditional equity funding increased by 18% over the same period.
Driving the emergence of crypto finance in 2021
Since its inception, the landscape of cryptocurrencies has been compared to the early days of the Internet marketplace in the 1990s and early 2000s. While the internet boom has led to the rise and growth of sectors such as e-commerce and social media, the blockchain space has been used to drive innovations such as decentralized finance and decentralized networks.
Long established brands that ignored the promise of the then young online marketplace have seen the rise of e-commerce and online retailers challenge the supremacy of these traditional retailers. Social media will also overshadow the reach of print and broadcast media as online services have disrupted several sectors.
Since blockchain is believed to have similar potential to disrupt global business operations, several major players seem to want to get involved in this developing technology. This appetite to support singers in the new arena is even more evident among venture capitalists with dong tells Cointelegraph : This is a generational opportunity not to be missed.
The token economy associated with blockchain startups also offers early adopters the opportunity to acquire cryptocurrencies that can increase in value in a short period of time. Even with acquisition plans that allow venture capital funds to make a significant commitment to these tokens, the returns often exceed their original capital investment.
Interest on FFi and advances to investment
The growing importance of decentralized finance has led to a significant expansion of the cryptocurrency market through activities such as strike and protocol management. According to Baek Kim, investment director at VC Hashed Fund: The most important thing about investing in crypto VC is that it is also the ticket to participate in crypto networks as a shareholder. He added others:
Cryptocurrency portfolios allow investors to participate and contribute to the ecosystem in a much more exciting way than traditional equity investments – through equity investments, node trading, management offers, cash downloads and more. VCs’ involvement in crypto and blockchain projects means that you can participate in this paradigm shift not only as an investor, but also as a participant.
This growing appetite for blockchain startups is not limited to established players in the still nascent crypto space. New projects, especially in the area of deFi, are also attracting a lot of interest from private equity firms who are early sponsors for the next blue ship in the area of deFi.
Speaking to Cointelegraph, Rob Weir, COO of emerging DeFi platform Jigstack, said that raising investment from venture capital funds was the easiest part of the funding process. According to Weir, new blockchain designs must take into account things like exercise schedules and the impact of equity tokens on the future actions of their native coin prices.
Weir said it is important to weigh these important issues for new projects to determine how tokens should be allocated for private and public funding, adding: Companies need a significant amount of equity tokens and are consolidating much of what could become selling pressure. If they keep their promises, they are worth the sacrifice. He also added that doctorates in the community make you shy and carry other risks.
Startup support from private investors is also a growing trend in 2021, particularly given the increase in projects launched at DCO startup sites. Launchpads often use a tiered subscription plan that gives native coin holders access to a project’s token distribution prior to public listing.
According to cryptocurrency aggregator CryptoDiffer, the top 10 platforms in the startup market posted average returns on investments ranging from 11.3% to 68.2% in 2021.
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