Many potential projects are actually born at the bottom of the bear market. From the perspective of past cycles, 90% of the projects will fall in the bear market. For investors, they prefer to invest in a lean team in the bear market. Only by using the “power saving model” and using the raised money to develop and implement solidly can they successfully survive the bear market.
“If I invested in this Web3 company two months later, the valuation would be half cheaper, and the team is complaining that I shot too fast.” Mark, who returned from Hangzhou after attending the Polkadot Ecological Conference, smiled awkwardly.
In April of this year, a Web3 fund he was in charge of completed an investment in a GameFi project at a valuation of US$45 million. In May, the project took the initiative to reduce the valuation to US$35 million to continue financing. Today, the project’s external financing valuation has dropped to $25 million.
In the context of the bear market, most projects cannot escape the decline in tier one valuations. According to the statistics of Messari founder Ryan Selkis, the over-the-counter transaction prices of many Web3 unicorn project investment quotas are now facing a relatively large shrinkage compared with the price of the previous round of financing valuations, among which there are many OpenSea, FTX, Star unicorns like ConsenSys. The valuation of more than 10 Web3 unicorns has shrunk by about 50%, and the highest has even reached 90%.
One of the extreme examples is BlockFi. In March 2021, BlockFi raised US$350 million at a valuation of US$3 billion, and later in the same year raised funds at a valuation of more than US$5 billion; in June this year, the media The Block reported that BlockFi was working at a valuation of US$1 billion. Financing, just over a year, now there is news that FTX is acquiring BlockFi at a variable price of up to $240 million.
This is also the true epitome of the Web3 primary market in the bear market: the valuation of some projects has declined, institutions generally wait and see cautiously, and large platforms are accelerating industry mergers and acquisitions.
In the bear market Web3 primary market also encountered a cold environment, G3 chatted with more than ten Web3 investment institutions and entrepreneurs to explore the thinking and opportunities of bear market Web3 investment and entrepreneurship.
Primary market begins to cool down
“We have been looking at projects in the last three months, but we have not made a single shot.” KiWi, who is engaged in investment work at a leading exchange, said that at the end of 2021, they have smelled the signal of increased risks in the global capital market, and at the same time Tracking the performance of all the newly launched projects on the exchanges, we found that many of the primary and secondary markets have broken upside down. Therefore, it was judged that the bear market will soon be transmitted from the secondary market to the primary market, and the investment pause button was decisively pressed.
Since the end of last year, the market has been calling the Fed to raise interest rates and inflation is coming. However, there are still many professional institutions that have not been able to withdraw from such a cyclical bear market due to excessive inertia.
The bull market has a great profit-making effect. Whether it is a retail investor or an institution, once Fomo is established, it is rarely difficult to rationally evaluate crypto startup projects based on long-term cash flow, and more is the analysis of comparable companies and public peers. The valuation of many projects has also risen because of this.
For example, X-to-Earn, which was popular in the first half of the year, caused many institutions to deploy GameFi projects. According to the statistics of encrypted media Odaily, this year’s Q2 GameFi concept raised a total of 82, accounting for 16% of the total market financing; the financing amount reached US$2.996 billion, accounting for 23.5% of the total market financing. far ahead of the industry.
Now, with the Fed raising interest rates and the spread of major risk asset declines, the bear market X-to-Earn project has collapsed, and the valuations of many crypto startups with such concepts are likely to decline.
Source of data on the decline of the GameFi sector in the past year: Messari
For example, about StepN, the leader of X-to-Earn, in the hundreds of existing analysis and research, most of them have avoided a core factor: Binance. The winner of StepN lies in Binance’s full incubation and trading, coupled with its ingenious ponzi economic model, and finally achieved a market value of up to tens of billions of dollars and the hot X-to-Earn track.
If you take a project that pays attention to the right time and place as a typical example, and then use it as a reference in the open market to compare the valuation of other similar projects, it will naturally be easy to catch up, and the investment projects will also be decoupled between the valuations in the primary and secondary markets.
0xTodd, a partner of Nothing Research, believes that the upside-down valuation of the primary and secondary markets in the bear market is especially obvious on the Web3 track. “The entire Web3 track itself is still in the proof-of-concept stage. The feature is that cash flow is relatively small, and user data is mainly subsidized. In this case, it is actually very dependent on the bull market’s narrative (narrative) blessing-that is, selling dreams. Once Entering a bear market, everyone’s data will immediately shrink by an order of magnitude, and in this case, it is difficult for the secondary market to be satisfactory.”
Entrepreneurs are more difficult to raise financing
“The explosion of Terra (LUNA and UST) is a very obvious turning point, which has caused many mainstream investors to lose their investment interest and slowed down venture capital in the Web3 field.” A DeFi project leader said that there were several Traditional VCs are investing in them, including top dollar funds. But most of the investment negotiations were suspended after Terra’s explosion.
Since the transmission effect of the secondary market does not occur quickly, there is often a certain lag in the primary market. The collapse of Terra and the subsequent series of liquidations undoubtedly accelerated the spread of panic throughout the market, dampening everyone’s confidence.
According to Odaily’s comprehensive statistics, in April 2022, there were 184 financings with a financing amount of about 7.05 billion US dollars, a total of 165 financings in May with a financing amount of about 3.54 billion US dollars, and a total of 162 financings in June, with a financing amount of about 2.12 billion. Dollar. It can be seen that in May and June, the crypto market was affected by the crash of Luna and the negative news of major institutions. The market sentiment continued to be sluggish, the funds on the market suffered serious losses, and the number and amount of financing showed an accelerated decline.
Data source: Odaily
The cooling of the primary market has directly affected many start-up projects being funded. The above-mentioned DeFi project party stated that in addition to the suspension of investment negotiations by traditional VC institutions, many institutions specializing in investing in Web3 reduced the amount of a single investment, or required investment projects to actively reduce the valuation.
Compared with projects that have completed or partially completed financing, other early-stage Web3 entrepreneurs have encountered obstacles in financing. When G3 helped many entrepreneurs in the community transitioning from Web2 to Web3 to connect with investment institutions, they found that if they lacked sufficient Web3 Native background experience and related resources, even if they had certain product and technical capabilities, it would be difficult to get money at this stage. .
A person in charge of the DID project in the G3 community said that after about half a year of product polishing, the project started financing after completing the internal test in June. After chatting with more than a dozen VC institutions, the results were not satisfactory. At this stage, I had to stop market activities and focus on products and R&D.
Some entrepreneurs also began to turn their attention to various industry vertical conferences, hackathons, startup camps, incubators and other activities, hoping to get better exposure opportunities, endorsement of Web3 Native resources, Grant bonus support, etc.
A Web3 storage protocol project leader said that they participated in the Polkadot Decoded conference held in June, which was their first public appearance at an offline large-scale conference, which gave the team the opportunity to have direct close contact with industry institutions in a bear market.
Exchanges buck the trend and expand in mergers and acquisitions
Since retail investors do not know whether the chip held by the institution is cash or currency (assets); if it is holding currency, retail investors still do not know whether the institution holds mainstream currency or altcoin.
Therefore, in the bull market, many institutions can use their own professional technology, information difference advantages, first-level cost advantages, and leverage to form capital scale advantages, and switch back and forth between cash, mainstream coins, hot altcoins in various sectors, and even NFTs, creating extreme Large trading volume and huge volatility to make profits.
However, in the bear market, the activity and transaction volume of retail investors gradually decline, which will form a stock game between large institutional investors. At this time, in the bull market, the leverage is too high and they hold a large number of altcoin positions. Especially in the bull market, the large institutional investors who exchange cash chips for coins and sacrifice liquidity to pledge and lock up positions are prone to thunderstorms or cash flow difficulties if they fail to withdraw in time. .
In a bull market, a platform that exchanges coins for a lot of cash chips can start investing at this time, and acquire those oversold institutions and projects that are in difficulty to expand the market.
On July 1, Binance CEO CZ said that it currently holds a large cash reserve and is actively seeking to support struggling crypto companies, hoping to help most companies with some liquidity crunch through this cycle, currently working with more than 50 A crypto company negotiated an acquisition.
“At present, the biggest gold owners in this market are still large exchanges, and they are the main buyers in the bear market merger market. Because large exchanges have accumulated a lot of principal in the bull market, and at the same time good cash flow, it is difficult for them to use rude operations. Play it by yourself. Although sometimes you will pay some tuition fees for blind expansion or security issues, it is still relatively safe compared to some institutions with a lot of leverage.” 0xTodd said.
It is worth noting that some investors in the M&A market also include DEX (DeFi). For example, Uniswap Labs recently acquired Genie, an NFT aggregation market.
Another major investor who has aggressively expanded against the market is FTX’s SBF. In April of this year, FTX announced the completion of the acquisition of Japanese cryptocurrency trading platform Liquid; recently, FTX may acquire BlockFi for a variable price of up to $240 million. There is also news that FTX is open to acquisitions in the battered cryptocurrency mining industry, while FTX is still looking to acquire US securities brokerage opportunities to provide US customers with stock trading services.
Many foreign institutions have been in trouble due to risk control and other reasons, which objectively created opportunities for leading exchanges such as Binance and FTX to expand by “picking leaks”. Alex Zuo, the investment VP of Cobo Ventures, believes that “many American (foreign) institutions are not as strong as we imagined, and they are trying to use laws and regulations to re-take the road that we did not work in the past, such as mining machine lending, inter-bank lending; They put most of their energy into applying for licenses for compliance, participating in Wall Street meetings, etc., but they did not make efforts to improve profitability and technical risk control, and even custodial peers moved client funds, so some recent crises are inevitable.”
Write at the end, about when to buy the bottom
Some institutions have also given their own suggestions on when to buy the bottom in the institutional bear market, and how entrepreneurs can survive the bear market and raise funds.
As an investor who has experienced many rounds of bulls and bears, Yang Linyuan, founder of Web3Vision, is optimistic that bear markets are the best window for investing in the primary market. Really outstanding entrepreneurs need to be baptized by the market, and good assets are valued in bear markets. will also become more reasonable. At the bottom of the last bear market, many early-stage high-quality projects did not have much institutional competition, and they were more likely to invest.
“There are some good projects to follow up. We missed the seed round and early rounds. In the middle and late stages of the bear market, due to cash flow and other reasons, the valuation of the new round of financing was loosened for such projects. I think this is also a good time to invest. ” Iren, head of crypto geek investment, said that once the valuation of the previously optimistic projects fell in the bear market, they would also consider follow-up or additional investment.
Iren also suggested that project parties without much cash must survive this bear market anyway. It would be a pity if they fell on the eve of dawn (from past experience, the proportion is not low). If you can lower the valuation and get financing to survive, it is also a good choice.
0xTodd also believes that many potential projects are actually born at the bottom of the bear market. From the past cycle, 90% of the projects will fall in the bear market. For investors, they prefer to invest in a lean team in the bear market. Only by using the “power saving model” and using the raised money to develop and implement solidly can they successfully survive the bear market. For the project side, even if you just persevere and achieve the simple task of surviving, you have already outperformed 90% of your peers.
“Investing is an anti-human process, so we generally don’t guess the bottom, usually when no one cares about it. It is difficult to bet on the left index of the best bargain hunter. I tend to think that we need to wait until the market has a clear right side. After the indicators, we will usher in the next best time to buy the bottom.” 0xTodd said.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/the-bear-market-pessimism-has-been-transmitted-to-the-primary-market-of-more-than-ten-web3-unicorns-with-their-valuations-slashed-by-50/
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