The industry is evolving, VC is reshuffling, how to stay relevant?

This article is from: Symbolic Capital investor Sam Lehman

Compiled by Odaily Planet Daily (@OdailyChina)

Translator | Azuma (@azuma_eth)

In just the past few months, I have personally witnessed four well-known cryptocurrency funds either switch to a pure liquidity management model or quietly close down. Several top-tier funds are also facing fundraising difficulties. Many investors I know have completely exited the market — some have turned to AI, while others have simply dropped out (and not just because they made enough money to retire early).

This is not a coincidence, but a fundamental change happening in the industry.

If we compare the cryptocurrency industry to a growth story, I believe it is bidding farewell to its wild and unruly childhood and entering a stable late adolescence. The early chaos filled with short-termism, speculative frenzy, and VC games is giving way to a more mature and orderly new phase. This transition is full of opportunities and will also bring about many far-reaching impacts — but I must say, I think most Web3 venture capital firms are simply not prepared for the upcoming changes.

VCs always love to hype, and now the founders need to improve their adaptability; it’s their turn to adapt.

The Venture Capital Script of the Old Era in Web3

The venture capital model of cryptocurrency in the past generally operated like this:

• Identify projects that are about 1 year away from token launch and have close relationships with leading exchanges — In the past, some funds were able to raise capital simply because their “partners were former employees of exchanges/had deep connections.” Their “value-added services” were merely sniffing out which projects could get listed on exchanges. If any fund is still promoting this narrative today, it’s best to steer clear.
• Invest through the SAFT Agreement —— By the way, pick up a consultant title;
• Token Generation Event (TGE) for projects, immediately allocated to retail investors — After all, the lock-up rules back then were much looser compared to today’s mainstream “1-year lock-up + 3-year linear release”. During bull market cycles, retail investors often have higher expectations for token valuations, so they are always eager to “cooperate” with VCs in this play.

This model condones many of the investors’ bad behaviors:

• Short-sighted Fund Cycle: Most VCs raise 5-year funds — only half the duration of traditional Web2 fund cycles. This structure is destined to be unable to support long-term builders; if the fund must distribute assets to LPs after 5 years, how can it possibly invest in projects that require 10 years of liquidity to mature?
• Distorted Pressure on Founders: Founders accepting such investments are forced to accelerate monetization, often rushing to issue tokens when the product has not yet validated its market fit (PMF).

Fortunately, this model is rapidly disappearing.

As we enter 2025, with regulatory frameworks becoming clearer and traditional financial institutions re-entering the market, the crypto market is shifting towards a more rational phase that emphasizes fundamentals, real utility, and sustainable business models.

The industry is undergoing dramatic changes

I believe that the future of the cryptocurrency industry will require investors and founders to have greater patience. Some tangible changes as the market matures are as follows:

• Stricter Lock-up Mechanism: Most CEXs are adopting “1 year lock-up period, 2-3 years release period” as standard rules when listing coins; Fundamentals are king: The proliferation of altcoins and the upgrading of retail investors’ perceptions are forcing projects to rely on hard power to break through - real revenues, moats and profit paths are replacing speculative narratives. This is not the end of the token economy, but the end of mediocre tokens;
• Diverse Exit Paths: For crypto companies, IPOs (Initial Public Offerings) are becoming increasingly viable, and industry mergers and acquisitions can create large-scale exit opportunities; token issuance is no longer the only liquidity outlet.

I doubt whether most Web3 venture capitalists can adapt to these new norms. From what I can see, institutions that have realized this have either completely exited the industry, turned to liquidity funds, or are raising new funds with different structures to adapt to the new rules of the game. Conversely, those companies that have been able to support this new model will thrive in this new paradigm.

Who will win in this changing market?

There is no doubt that this new pattern provides huge opportunities for many funds. Those full-cycle investment institutions that can support founders in building from “pre-seed round to IPO” can now showcase their abilities in a market with almost no competition.

**At present, there are only about 10 crypto funds that have the ability to lead Series A and subsequent rounds, and in addition to financial strength, there are even fewer funds that can provide full IPO support and resources for crypto companies. How many funds really value (and can implement) regulated corporate governance? How many of them are well versed in the roadshow process, investor relations management, etc.? I don’t think it’s much… but for those funds that have consistently held high standards and systematically operated in a casino-style market, it’s a golden age for investing – you’ve quietly built a moat when the market has allowed less professional fund managers to play the role of genius investors.

In the early stages of the venture capital market, the role of pre-seed investors is also changing. In the past, many pre-seed and seed investors only needed to get involved early to provide advice for community building and growth of mind share, allowing them to exit before the product was fully formed. Today, I believe early investors must be better at helping companies find product-market fit (PMF), iterate on products, and engage in dialogue with users, rather than rushing to push projects to go live and monetize.

There is one last thought on this matter. I remember during a speech at CSX in 2023, someone suggested that projects should find PMF before launching their tokens - incredibly, this viewpoint was actually controversial in our industry at that time. Fortunately, with the increasing emphasis on fundamentals, this perspective is changing, which will encourage the industry to build more resilient and genuine businesses. It is worth noting that discussions and experiments around “micro” token issuance are currently on the rise, aiming to allow teams to obtain only the necessary infrastructure funding. I believe the feasibility of this approach remains to be verified, but I maintain an open-minded attitude towards exploration.

Embracing the Maturity of the Industry

The maturation of cryptocurrency is by no means a negative trend. On the contrary, this pursuit of mainstream adoption and long-term development of technology is undergoing a necessary evolution. The projects being built today have more substantive value than early ventures – they are more focused on solving real-world problems and are more likely to create lasting value.

For venture capital firms, this transformation is both a challenge and an opportunity. Those that can adjust their investment models to adapt to longer cycles, focus on fundamentals rather than speculation, and provide genuine value beyond just capital will thrive in the new landscape. In contrast, investors who cling to outdated strategies will increasingly be eliminated by the market — savvy entrepreneurs are increasingly choosing to collaborate with funds that are best suited to the new environment.

The cryptocurrency industry is maturing. The question left for venture capital firms is: can you grow alongside it?