Author: Sam Lehman
Translated by: TechFlow
In the past few months, I've seen four crypto funds I'm familiar with either convert to liquidity-only or quietly shut down. Several top funds are struggling to raise capital. Many investors I know have completely exited the field. Some are chasing AI, while others have completely let go (not just because they made early retirement wealth from AI meme coins).
This is not just noise or coincidence; something fundamental has changed.
If we view it as a growth story, I believe cryptocurrency is bidding farewell to its wild and unfiltered childhood, entering late adolescence. Its early chaotic period, characterized by short-termism, speculative hype, and venture capital games, is giving way to a more mature, systematized era. This is an exciting moment, and this transformation will bring many key implications. For better or worse, I also believe most Web3 venture capital firms are not prepared for the changes ahead.
Venture capitalists always love to tell founders about the importance of adaptability. Now, I think it's time for the venture capitalists themselves to make some adjustments.
Here are my latest thoughts on this transformation: how the old crypto venture capital model is disintegrating, what is replacing it, and which investors are most likely to thrive in the next stage of crypto venture capital.
The Old Web3 Venture Capital Model
The past crypto venture capital model was roughly as follows:
Finding projects about a year from token issuance with connections to top centralized exchanges (CEX) (There were entire funds raised on the premise that partners were former CEX employees or had deep connections with CEX. Their "added value" was their ability to sniff out which projects would be listed on exchanges. Today, if a fund tries to sell you this model, don't listen...)
Investing through SAFT (Simple Agreement for Future Tokens) (and perhaps some advisory services)
Quickly selling to retail investors when the project has its Token Generation Event (TGE), because the lock-up period was not as strict as today's standard 1+3. To support this, there was usually greater retail demand during market cycle peaks to buy venture capital tokens.
The viability of this model led investors to exhibit many undesirable behaviors. First, many venture capitalists raised 5-year funds—which is only half the typical length of a web2 fund. This structure alone made it almost impossible to support long-term builders. If your fund can only hold assets for 5 years before distributing to limited partners, you cannot systematically invest in projects on a more standard 10-year liquidity path.
On the other hand, founders obtaining funds from these types of investors faced enormous pressure to achieve liquidity on an accelerated timeline, even pushing for a Token Generation Event (TGE) before achieving product-market fit (PMF).
For the healthy development of the industry, this model is rapidly becoming obsolete.
As we enter 2025, we see a maturing market with increased regulatory clarity, renewed interest from traditional financial institutions, bringing a more systematized approach focused on fundamentals, real utility, and sustainable business models.
The Shape of Growth
I believe the future crypto industry will require more patience from investors and founders. A maturing market is bringing some substantial changes:
Longer lock-up periods: Most centralized exchanges (CEX) are standardizing a 1-year cliff, followed by an additional 2-3 years of vesting.
Focus on fundamentals: Oversaturation of Altcoins and a more discerning retail base are forcing the market to focus more on quality to differentiate—actual revenue, defensible moats, and clear paths to profitability are replacing speculative games. To be clear, this doesn't mean tokens are dead, but your token needs strong fundamentals to stand out from the crowd.
Alternative exit paths: Initial Public Offerings (IPOs) are becoming more feasible for crypto companies, while also enabling significant mergers and acquisitions (M&A). This provides a new liquidity path independent of token issuance.
I'm not confident that most Web3 venture capital firms are prepared for this new reality. From what I've seen, companies that realize this have either completely exited the field, shifted to liquidity investments, or are raising new funds with different structures to adapt to this new game. Conversely, those companies that have always been able to support this new model are preparing to thrive in this new paradigm.
Who Will Win in This Changing Market
There's no doubt that this new landscape is an excellent opportunity for many funds. Those multi-stage companies that can support founders from "pre-seed to IPO" can now operate in a market with few participants. About 10 (?) crypto funds can provide lead checks for Series A and beyond. Beyond capital considerations, few funds can provide support and resources to guide crypto companies to IPO. How many funds truly value (and execute) proper corporate governance? How many understand the roadshow process, investor relations, etc.? I don't think many... However, if you are one of these funds, one that maintains higher standards and operates systematically even when the casino tries to make immature emerging managers pretend to be genius investors, you are entering a magical era of investing.
The role of pre-seed investors is also changing in the early stages of the venture capital market. Many pre-seed and seed investors were able to enter early, provide community building and mindshare growth advice, and obtain liquidity before any actual product development occurred. Now, I believe early-stage investors will have to be more adept at working with their companies, finding product-market fit (PMF), iterating products, communicating with users, etc., rather than rushing to launch and obtain liquidity.
One final thought on this. I remember a suggestion at a 2023 CSX talk that companies should find product-market fit (PMF) before launching tokens. Acknowledging this perspective was somewhat controversial in the industry at the time was crazy. Fortunately, I think this view is changing as focus on fundamentals increases. In turn, this should encourage our industry to build more sound, robust, and genuine enterprises (I've noticed some interesting conversations and experiments around "micro" token launches that allow teams to obtain enough funding to develop products. I don't think the viability of this path is conclusive, but I'm willing to explore further).
Embracing Maturity
The maturity of cryptocurrency is not a negative development, but a necessary evolution for technologies seeking mainstream adoption and long-term development. Projects built today are more substantial, more focused on solving real problems, and more likely to create lasting value than many previous companies.
For venture capital firms, this transformation is both a challenge and an opportunity. Companies that can adjust their models to accommodate longer time horizons, focus on fundamentals rather than hype, and provide real value beyond capital will thrive in this new landscape. Those that cling to outdated models will increasingly find themselves left behind, with savvy founders choosing to work with funds that can best support them in this new environment.
The crypto industry is growing up. For venture capital firms, the question is whether they can grow with it.
