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Why VCs want equity, not token-based investments

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Records show that VC funding for 2022 has been low compared to that of 2021. Up to 999 venture funds were initiated last year, while only 415 have been done in 2022. Will VCs still do much in 2022? What kind of investments are VCs going into? Are VCs changing their focus from token-based to equity-based investments?

Kyle Simani, co-founder of Multicoin Capital; Matthew Graham, CEO and Managing Partner, Sink Global Capital; and Amy Wu, Head of Ventures & Commercial, FTX Ventures, agreed at a Breakpoint Session by Solana that closing deals and fundraising has slowed down in this bear market compared to 2021. 

However, there are still VCs in the market making equity-focused investments, the panelists, including Min Teo, Managing Partner & Co-Founder, Ethereal Ventures noted. Amy added that 2021 saw a larger project evaluation than what was seen in 2022.

When Danny Nelson, Managing Editor of Coindesk, asked what they look out for before investing, Matthew shared that he wants a genuine, authentic, and social team. He added that it doesn’t matter whether it’s a bull or bear market. 

Min explained that the structure of the team and nature of projects in the crypto world has changed, and one of the factors is the migration of laid-off talents by Web2 organizations. Another thing she noted was that there are more equity-based rounds by VCs than there were six months ago.

Equity or token-driven VCs

Reacting to the change of interest by VCs as mentioned by Min above, Kyle and Matthew noted that they noticed the same change where VCs are becoming more interested in equity and not tokens. However, the duo explained that their firms are still bullish on tokens, not equity, when they invest in crypto companies.

Matthew also revealed that apart from token and equity-focused VCs, there are those who tend to be hybrid depending on what has higher returns. While I am equity-focused, I have invested in token-focused companies, Amy said.

Security and the future of the market

The crypto industry has not given enough attention and money to security, and it has affected projects a lot, Matthew pointed out. Although incentives drive how teams invest in security, we are taking steps to advise projects we invest in to prioritize security.

Min added that the last twelve months have been filled with “expensive lessons” as it relates to security; however, moving to a crypto world where rollups will become a major part of the ecosystem is a positive step toward security.

On the future of the market, Kyle said that his focus is on helping entrepreneurs build and be successful and not on whether we’re in the bear or bull market. Matthew highlighted that the bear market is the time to make money, which will be seen in the bull market. 

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