How has blockchain equity financing evolved in 2021

In the past year, the financing of the blockchain industry has blown out, and it is unique in the field of technology. Top institutions such as A16z, Sequoia, Tiger Fund, etc., will arbitrarily gallop in the blockchain industry in 2021, and have supported DeFi, NFT, Metaverse and other fields. A large number of entrepreneurial projects.

Everyone hopes to be able to judge the future development of the industry. Can we find some patterns and evolutions from the data that these VCs have spent 17 billion dollars in real money? This article is from Joel of He sorted out 1278 equity financings this year and found some patterns. Rhythm BlockBeats translated the full text.

In today’s article, I want to explore how equity financing in the blockchain ecosystem has evolved in the past year. Among them, I excluded financing obtained through Token sales, debt borrowing, and donations, so that everyone can better understand the behavior of long-term investors. Before starting this article, I want to make a statement: I am writing this article from the perspective of someone who is actively involved in fundraising and helping the founder to raise funds. Therefore, compared with other industry reports, all the numbers you see in this article will be more conservative. Without further ado, let’s get started.

How has blockchain equity financing evolved in 2021

A total of 17 billion U.S. dollars in blockchain ecological equity financing this year

Compared with the USD 1.3 billion equity financing amount in 2017, we accumulated equity financing of USD 3.7 billion in 2018. The increase in the amount was mainly due to the idle funds caused by the weak market reaction to IC0. In 2019 and 2020, the amount of equity financing has been hovering at around US$2.7 billion. So you can guess, how much funding is there so far this year? The answer is $17 billion! In other words, blockchain-related companies can raise an average of $20 million in financing every day. This trickle-down effect of capital precisely explains why the number of advertisements for well-known institutions such as stadiums and cricket leagues has soared. However, the irony is that although more capital has flowed into the field, the financing rounds in the industry have not increased as a result.

In terms of specific figures, there were 1,289 equity financing rounds in 2018, which is more than 1,278 in 2021. This shows that although the industry has mastered more capital, the number of companies that received financing during the year has decreased. In 2017 and 2018, the blockchain industry was still in its infancy, so it also received a lot of seed investment. The scale of venture funds is small, so they are more inclined to invest in early-stage organizations. By 2021, many early-stage financiers have obtained sufficient equity financing, so they have chosen to withdraw. After large venture capital companies have gained positions in startups with huge development potential, they have all entered the field, and early-stage investment funds have sufficient liquidity to raise large amounts of capital. However, there is a time difference between the raising of new capital and the withdrawal of early investment. This is because the legal operation of capital withdrawal and the creation of a new fund is different. Therefore, if these figures have certain guiding significance, then we will likely see an explosion of early-stage financing in the second quarter of 2022. However, during this period, signals released by the market indicate that early financing of blockchain companies will still be as difficult as before. In order to further understand the reasons for this phenomenon, we have deeply analyzed the frequency and distribution of capital financing of venture capital companies in recent years.

Trickle effect

The picture below counts the number of financing rounds over the years and the scale of capital financing in the ecosystem. From this, we can see that there will be a large-scale increase in funding at all stages of financing in 2021, but the B and C rounds accounted for the largest proportion. Among them, the B round of financing jumped from US$695 million to US$6.692 billion, an increase of nearly 10%. Times; Series C financing has also seen a similar increase-from 421 million U.S. dollars to 3.1 billion U.S. dollars. Most of the capital flowed to the next few rounds of financing, but in terms of financing amount, seed financing and Series A financing surged by about five times compared with last year.

There are a lot of numbers involved here, so let me summarize what kind of impact they will have:

1. Large-scale and long-established fund companies such as Tiger Fund and Sequoia Capital are entering this round of financing through late-stage equity investment. Instead of participating in small projects, they are building their own investment portfolios by investing large sums of money in projects that have a good product-market match.

2. Earnings from past investments and the Crypto open market are returning to seed financing. Therefore, although financing rounds (as described above) have remained flat, companies in the seed financing stage have been able to raise more funds.

3. The early stage of financing is still based on consensus. The reason is that in order to establish a healthier investment equity ratio table, the founder will allocate a smaller amount of capital to each of the multiple funds. Therefore, what we may see is that multiple foundations participate in co-investment, thereby attracting more funds in the seed investment stage. The average seed stage financing scale has risen from USD 1.5 million in 2020 to USD 3.3 million this year, which to some extent also illustrates this situation.

If you want to have a clearer understanding of the financing scale of different investment stages in the past few years, you can check this link.

How has blockchain equity financing evolved in 2021

This large-scale capital inflow has changed the direction of the industry’s previous venture capital development. The founders soon realized that employees can obtain benefits from open market transactions, which will make them seek higher wages, which may lead to our wages may reach new highs. As more and more institutions begin to support early-stage venture capital, these institutions may make substantial additional investments in order to achieve growth. Therefore, they will not consider the open market at all, and will only concentrate on recruiting top talents at higher prices. For most founders in the early stages of entrepreneurship, they may need to issue equity or tokens to new employees as rewards. At the same time, founders should also let employees know that these entrepreneurial projects may bring millions of dollars in revenue in the future, which is crucial for the formation of a strategic employee team. This trickle-down effect of capital on founders also applies to service providers such as audit companies and media.

In the face of increasing demand, any service-oriented organization will find that without diluting capital, they cannot increase labor hours proportionally. Moreover, the onboarding and training of new employees takes time, so as more and more founders begin to seek these services, their asking prices will naturally increase. In such a market environment, for those self-reliant entrepreneurs, the opportunity cost of recruiting top talents is too high, which prevents them from relying on huge salaries to compete with their peers. At this time, explaining the company’s vision to employees will be It is a good choice. At the same time, they can also choose to spend a lot of time improving the capabilities of early team members so that they don’t have to hire those high-end talents. If the founder is willing to spend time training employees, there are really no shortage of workers in the entire market who want to enter this field. (I really want to talk about the role of DAO in it, but this article is long enough, and talking about DAO does not fit the subject of the article)

We will soon further explore the whereabouts of capital, but before that, let’s take a look at the total amount of equity financing at different stages over the years.

How has blockchain equity financing evolved in 2021

Where the funds go

How has blockchain equity financing evolved in 2021

In 2021, nearly 50 companies have raised more than US$100 million in funding. In contrast, in 2018, there were only 8 venture capital companies with financing lines of more than 100 million U.S. dollars, and there may be only five in 2019. Part of the reason for this phenomenon is that it takes several years for startups to mature. For example, the number of companies established in 2015 may only account for a small percentage of the companies established around 2018. After three years of reaching product-market matching, more institutions will naturally raise a lot of funds in 2021. Interestingly, many of them are companies that focus on retail.

In the past, blockchain financing was often dominated by financial technology, exchanges or institutional service platforms. This phenomenon still exists today. FTX, Celsius, Gemini and Fireblocks are the ten most critical financing projects; in addition, there are also There are Sorare, Moonpay, Forte, and Dapper Labs, each of which wants to bring the next billion users to the digital asset ecosystem. From the founder’s point of view, this is a critical turning point. In the past three years, most of the capital has flowed to financial-related start-ups, and in the future, any founder dealing with consumers will need to undergo a transformation from a traditional enterprise to a Web3 unicorn enterprise-this is why There are many reasons why financial workers enter this field in one cycle. In the next cycle, musicians, artists and game players will all participate. Looking at the venture funds that have participated in the largest financing, we will find that this change is actually very significant.

The following table summarizes some of the investment projects of major venture funds investing in this field. In each project, the fund shown is the main investor in this round of financing.

How has blockchain equity financing evolved in 2021

As you can see, the leading investors in the largest venture capital in the field of digital assets are no longer the “Crypto native” funds in the past, but some traditional well-known companies. They usually participate in equity investment in the later stage and want to Exit through IPO. For me, this clearly shows the evolution of the ecosystem. The fund no longer participates in large investments and hopes that it will be able to withdraw immediately with Token alone. Although these situations do happen from time to time, the industry is now more gradual and strategic large-scale capital flows. This provides companies in the growth stage with more time and capital so that they can keep pace with their traditional corporate counterparts in the future. Perhaps this is why this year’s ecosystem is fundamentally different from the 2017 cycle. Many people pointed out that if there is a price drop, the multi-billion dollar funds that have emerged in the past few months may provide strong “support” to asset prices.

In my opinion, this analysis is not valid, because these large funds may manipulate the market in the following three ways:

1. Instead of using discounted financing in exchange for discounts (such as Sushi), they will buy assets in the spot market and cooperate with the agreement. In this case, investment will be more like a type of private equity.

2. If they want to invest in Layer 1, then they can supplement that investment by supporting applications built on Layer 1. In this case, most of the new funds will play the role Consensys plays in Ethereum. Without a large team and strong funds, this is not easy.

3. The company will no longer cast its own Token, but will directly raise equity financing, because they find that large-scale financing is the general trend. However, equity financing requires not only patience, but also the ability to bear risks and a network capable of obtaining equity transaction information. The newly issued foundation invests in large-value notes in projects that meet the product-market match and plans to exit at the time of IPO. OpenSea is one of the funds that tried to adopt this model.

In the case of a full-blown bear market triggered by regulators, these capitals may be invested in games, social trading, or other areas that venture capital firms have invested in in the past 10 years (such as mobile apps and food delivery). They may not be in a hurry to buy yours from the spot market

Altcoin. Not only that, but I also observed the financing situation of different cities in the past few years. I found that although regional centers like Singapore and London attract a lot of capital, the amount is actually only half that of San Francisco and New York. Large Indian cities like Mumbai and Bangalore are hardly included, because so far, Indian blockchain companies have only raised 400 million U.S. dollars.

How has blockchain equity financing evolved in 2021

In my opinion, the reason why San Francisco and New York can attract a large amount of capital inflow is because these regions have gathered many talents in capital markets and technology fields. However, the global prosperity of unicorns in the blockchain industry has not yet arrived. Taking into account the lagging nature of venture capital in the capital investment market, we have every reason to believe that the next billions of dollars in financing by blockchain-related companies may appear in Southeast Asia and Europe. As American investors withdraw (partially through IPOs) and traditional investment institutions in Europe and Southeast Asia have increased their willingness to invest, they will seek lower investment prices in the industry. As a result, the amount of financing for other ecosystems will rise accordingly.


Next, I will summarize the main points of the above text and diagrams:

1. The frequency of seed financing has not increased, but its financing scale has almost doubled. Today, the signal from early supporters is actually more important.

2. This year 75% of funds are invested in 5% of transactions, and the power law distribution will become more and more extreme.

3. The Crypto funds you see on Twitter cannot determine the future of this industry in the later stages. Power brokers are gradually becoming established investors with the human resources and capital needed to invest billions of dollars.

4. We are moving towards the era of large-scale use of blockchain applications in the retail industry, and the financialization of the blockchain industry has become a reality in the past few years, laying the foundation for the purchase and transaction of assets such as NFTs. Today, we still need users to join.

For fund managers and founders of the ecosystem, their world has changed dramatically. In the past, they only needed to understand the development laws of the Token economy, and do basic work in marketing, exchange listings, and community building. Because there were still many unknown risks in this field at that time, the companies that entered the early stage did not have many competitors.

Nowadays, entering Web3 has become a “consensus”, just like the construction of the Internet at the beginning of the 21st century, both are considered a wise move. In other words, when an action changes from risk to consensus, the whole situation is different. From a financial perspective, this is equivalent to a popular transaction that is sought after. The competitiveness of start-up companies will increase exponentially, and the investment these companies will receive will also increase significantly. In discussions on Twitter about the role of venture capital in the field of digital assets, there are often serious differences of opinion between established investors and new entrants. Their main difference lies in whether the venture capital fund should withdraw after the early investment, or continue to make additional follow-up investments, and make the final investment amount higher than the investment amount of the company’s founder. When fund companies like Tiger Global spend $4 million in P2E games, you should be aware of the development of this industry, and it’s time for you to make corresponding changes.

In my article on the scale of ecosystem financing in the first quarter of 2021, I hinted that the sector’s expertise will drive annual investment returns, and this is indeed the case.

Funds have been segmented around the following points:

1. The acquisition of developers and governance knowledge-1kx is an incredible example

2. Access to a specific area

3. Industry knowledge (for example: build primitives for DeFi and help it expand)

I think in the future, for early-stage venture capital supporters, they may achieve the above points at the same time. For example, venture capital funds may not be the most suitable funds to invest in India, but they know best how to expand DeFi primitives in a regional regulatory environment. You should draw these Venn diagrams to find the most suitable position for you, instead of blindly pursuing the success of each early transaction, because the survival rate of blockchain-related companies is actually as low as that of traditional startups, or even more Low.

(Note: I will release some data on this as soon as possible)

So what should founders do? With the continuous influx of capital, industry competition will intensify. In the market bubble of 2021, “on the chain” can help you raise more funds, but with the alleviation of missed phobia and job burnout next year, the situation will be different. When people no longer worry about missing investment, capital will be exhausted, and when people can stabilize their job burnout, labor market prices will rise further. We are now moving towards an era in which major players in various fields have effectively transferred part of their ownership to their communities. Uniswap and ENS are the best examples. Next year, the strongest momentum for growth must be achieved by providing space for community development so that all stakeholders can create wealth. If you don’t believe this, you might as well think about why Axie Infinity will become the hottest P2E game brand in 2021.

I will explain how this theory forms the basis of Web3 in my next article on imitation theory.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

Like (0)
Donate Buy me a coffee Buy me a coffee
Previous 2021-12-23 09:12
Next 2021-12-23 09:15

Related articles