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Venture capital executive states that a ‘shortage of innovation’ is causing a decline in investment in cryptocurrency.
In contrast to 2022, when the first two quarters collectively attracted $20.3 billion in venture capital investment, 2023 has experienced a notable decline.
This year, venture capital investment in the cryptocurrency sector has seen a significant drop. The first quarter recorded approximately $2.6 billion in crypto VC transactions. In the second quarter, the sector garnered around $2.1 billion across 292 funding rounds, marking one of the weakest performances in crypto fundraising.
In light of the current venture capital funding landscape, Cointelegraph’s Zhiyuan Sun recently spoke with Tony Cheng, a partner at the crypto investment firm Foresight Ventures. They discussed how the absence of new innovations may be deterring venture capital firms from the sector, how founders should navigate the bear market, and what companies should prioritize between user acquisition and profitability.
Cheng noted that many narratives, including layer-2 solutions, zero-knowledge proofs, and non-fungible tokens (NFTs), have “largely played out.” He believes that these topics have “kind of died down” due to the diminished trading volume on exchanges and within decentralized finance (DeFi). He elaborated:
“I think right now the biggest problem and obstacle for a lot of these people is the lack of confidence, mainly because we haven’t really seen any new innovation in this space.”
Furthermore, he indicated that the limited market activity and user base have prevented the sector from gaining “too much traction in any direction.” Nevertheless, he remains optimistic that conditions could improve with a more favorable macro environment and renewed enthusiasm for the next crypto cycle.
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When asked whether founders in the sector should accept funding offers even if the terms are not as favorable as anticipated, Cheng emphasized that the primary focus should be on “survival.”
“If you are lacking in capital, if you don’t have the runway to kind of get you through the next year or so, you should be taking capital and taking as much as you can get because that money might not be available anymore after maybe two or three months,” he clarified.
The executive underscored the significance of self-preservation for founders and remaining active in the market. Otherwise, he warned that all the efforts made over the past few years could be lost.
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Cheng added that in the context of the bear market, the “growth at all cost” mentality is not practical. Instead, companies should prioritize achieving profitability. “You just have to make sure that you can survive. Like in any kind of downturn, surviving is priority number one,” he stated.
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