Hello!
Please enjoy the September Deal Flow Digest, a monthly newsletter recapping recent Crypto / web3 funding rounds.
Be sure to check out the Airtable below with ALL the deals, and the recent hackathon/demo day results (in the links).
The changing market of early-stage/seed market investments
I’ve written quite a lot about the State of Private Venture Markets (August edition) and the State of Crypto Venture Markets (May Edition). The summary of those posts is… that it’s pretty ugly out there for Venture as a category - not just Crypto Venture.
Part of this is around the “changing market of seed/early-stage investing.” The bread and butter for Venture Capital.
So first, What’s happening in the early-stage/seed markets? Then we’ll go into how they’re likely changing.
The first modern Venture Capital (VC) firm was formed in 1946 – American Research and Development Corporation (ARDC). For the history of Venture investing overall, I’d HIGHLY recommend reading Sebastian Mallaby’s “The Power Law: Venture Capital and the Making of the New Future.” The key takeaway applicable to this write-up is that Venture is not a new asset class - the modern VC Firm has existed for some 75+ years at this point.
In Venture, it’s all about power laws. Simple VC math is that a very small amount of your portfolio winners will make up for the overwhelming majority of your investments that don’t do so well.
I love this chart. The Power Law Distribution in full effect.
Or something like this:
Venture investing is one of those things that you can “fail” spectacularly at - e.g. have 95% of your investments go to 0 - and still perform well. All it takes is that <5% of your portfolio to 10000x and you’re suddenly a great performing fund. This is why the “Babe Ruth Effect” is in full swing in the Venture Industry - you’re swinging for the fences every time.
These power laws aren’t just prevalent in the VC’s portfolios of startups, but this rolls up to the VC funds themselves. In the end, you have a small amount of funds performing exceptionally well, and the rest, less so.
So seed investing is hard, and lots of your investments will fail. But you make more than just one investment. In your portfolio, the startups that achieve product market fit provide outsized returns that make the math work for the entire portfolio of investments, and thus make the early-stage/seed/venture investing category viable as an asset class.
Still certainly not easy, but perhaps a bit easier to predict is what happened over the past ~11 years in Venture.
Enter the “Seed investing factory line.”
During the 2010 - 2021 period, seed deals have been “packaged as part of a factory line of startups.”
The model worked.
Institutional seed funds focused on manufacturing predictable outcomes.
Seed Investors helped get the startup to the next round of Funding (e.g. Series A). Series A investors helped the company get to the next round of Funding (e.g. Series B). The ultimate aim of this factory line is to spit out companies on the end of the line with valuations >$1 billion.
Funds got their markups, raised additional funds, and kept the factory going.
Funds earlier in the factory line just had to make sure their startups made it to the next stop - where they get more funding and can continue blitzscaling their way to “eventually being a profitable company.
The problem is that the focus was on top-line metrics and growth at all costs - capital was cheap and abundant.
This problem became much more apparent when the IPO window softened - that final step in the process jams up the rest of the factory line.
Turns out, your average tech company isn’t worth as much as we thought.
If the bulk of these “unicorns” don’t go public, or do go public in a disappointing manner, then the entire “model” of seed investing starts to look like a different (perhaps less attractive) asset class.
Maybe, just maybe, growth at such a high cost isn’t sustainable.
In this “factory model” approach, at the end, as opposed to having a profitable/sustainable business - you have a startup that still needs a lot of cheap capital to keep growing.
Seed investing worked really well from 2010 - 2021 because the factory model worked really well. There was a predictable path for companies to be passed along the factory line and emerge as public unicorns.
In the crypto markets, this model was more accelerated in the world of early-stage investing from 2017-2022, with Token Generation Events (TGEs) instead of a more traditional liquidity event - IPO. The same process but even faster for crypto startups.
Note: Something to think about, if the IPO window remains closed, and the FTC continues to block meaningful tech M&A - perhaps TGEs will be the only meaningful liquidity event avenue available to founders & investors. S/O Vance Spencer.
So yes, things are changing. And no, venture/seed investing will not go away or anything.
No, I don’t believe that seed investing/venture industry was exactly a “Ponzi scheme” or a ZIRP phenomenon. But this much more predictable factory model was working pretty well and things now are changing. Yes, this is good for the industry.
At the end of the day, Seed Investors need to selectively deploy strategic capital into novel, ambitious ideas driven by passionate founders at the early stage. These investments back these founders to create large high-growth sustainable companies that public shareholders (or token holders) want to own - not just package up the business for the next fundraise.
Top Five Crypto Funding Rounds
Core Scientific | $53.90M | 9/21/2023
Core Scientific secured $53.9 million from Bitmain,the world's leading manufacturer of digital currency mining servers, to expand the two companies' long standing relationship. Bitmain and Core Scientific have agreed on a combination of equity and cash to finance the purchase of new and more efficient bitcoin mining equipment. Separately, Bitmain has executed a new hosting agreement with Core Scientific to support Bitmain's mining business. The deals demonstrate Bitmain's ongoing commitment to the North American digital asset mining industry.
Proof of Play | $33M | Seed | 9/21/2023
A high-profile list of investors including a16z crypto, Anchorage Digital and Naval Ravikant have participated in a $33 million seed round in a blockchain-gaming startup led by FarmVille co-creator Amitt Mahajan. Greenoaks co-led the seed round alongside a16z. On top of Ravikant, who invested in both Uber and Twitter at an early stage, other participants in the round included Balaji Srinivasan, Twitch founders Justin Kan and Emmett Shear, angels & founders from Mercury, Firebase, Zynga, and Alchemy, the statement said.
Bastion | $25M | Seed | 9/18/2023
Bastion disclosed that it has secured $25M in seed financing led by a16z crypto, with additional participation from Autograph, Laser Digital Ventures, Not Boring Capital, Robot Ventures, Alchemy Ventures, and Aptos Ventures. The seed round will be used to scale Bastion's operations, recruit top engineering talent, and secure additional licensing to further diversify Bastion's product offerings.
Zeebu | $25M | ICO | 9/7/2023
Zeebu, “the innovative blockchain-based settlement platform for the telecom carrier industry,” has successfully raised $25 million in a presale funding round, surpassing its hard cap target of $15 million. The round saw participation from several strategic investors, including Bankai Ventures.
Story Protocol | $24.7M | Series A | 9/6/2023
Story Protocol, “ a blockchain-based intellectual property (IP) agreement platform,” has raised $24.7 million in a round led by A16z Crypto bringing the total for the round to $54 million. Other participants in the round included Korean Web3 investment company Hashed, Samsung Next, Paris Hilton's 11:11 Media, dao5, Eva Lau's Two Small Fish Ventures and several individual investors.
Click to see all of September funding rounds here:
September Crypto VC Fund fundraise Announcements
Yes, new crypto VC funds continue to announce their successful fundraises. We’ll flag them here when they’re announced.
19-Sep-23: Oak Grove Ventures, a new venture capital fund, has been launched to invest in early-stage web3, artificial intelligence (AI) and biotechnology startups. Oak Grove has $60 million in capital and is founded by Shawn Shi, co-founder of crypto payment solutions provider Alchemy Pay. The fund's other members include Sally Wang, former vice president of Sino Global Capital (now Ryze Labs), and Zac Pan, former associate partner at Lightspeed Venture Partners — who have both joined Oak Grove as investment partners — Wang told The Block.
18-Sep-23: Blockchain Capital, the San Francisco-based venture capital firm, raised $580 million for two new crypto investment funds. Founded in 2013, the company today announced its sixth early-stage venture fund and a first opportunity fund, having raised $580 million in total. Payments giant Visa was among those that contributed capital. Both Visa and PayPal also invested in Blockchain Capital’s fifth $300 million fund, which closed in 2021. Venture investment in crypto startups has fallen sharply in the past year. Less than $500 million was invested in the space in August - the lowest level recorded in more than two years.
18-Sep-23: Lowercarbon Capital has raised over $550 million for a pair of new venture funds focused on climate tech startups. The first fund, dubbed 421.0, will focus on pre-seed and seed-stage deals. The second will be an opportunities fund that lets Lowercarbon double down on select portfolio companies.
Hackathons
Hackathons
Ongoing
Bitcoin Olympics Hackathon August 9 - September 30
$100,000 Available in prizes. Virtual too!
Hyperdrive Hackathon September 6 - October 15
$100,000 in prizes. Virtual too.
Neo APAC Hackathon July 22 - October 15
$1,100,000 Available in prizes.
Upcoming
ETH Online October 6 - 27
ETH Lisbon November 3 - 5
Nearcon November 7 - 10
Hong Kong Hacker House November 14-17
Recently Completed
Permissionless II Hackathon September 9-10
ETH Global New York September 22 -24
Not Another Virtual Hackathon July 6- September 6
InnovateX - Nibiru Global Hackathon June 16 - August 31
Bengaluru Hacker House September 14 - 17
Mumbai Hacker House September 21 - 24
Demo Days
Upcoming Demo Days
Orange DAO Fellowship 2 (OF2): Demo Day October 3
Recently Completed
Adaverse Demo Day September 29
Seed Club : The Event September 28
ABCDE Hacker Camp July 15 -September 15
GPC S23 Demo Day September 19
XRPL Accelerator Demo Day September 5
That’s a wrap for September.
Enjoyed this newsletter or the data? Please share it with a friend, and THANK YOU for your time.
Good luck out there!
Ben
Quality, ser.