Original Title: Crypto is Growing Up, VCs are Getting Left Behind

Original Author: Sam Lehman

Original Translation: Deep Tide TechFlow

Over the past few months, I've seen four crypto funds I'm familiar with either pivot to liquidity only or quietly close down. Several top funds are struggling to raise capital. Many investors I know have completely exited the space. Some are chasing after artificial intelligence, while others have entirely let go (not just because they early retired on AI memecoins wealth).

This is not just noise or coincidence; something fundamental has changed.

If we view it as a coming-of-age tale, I believe cryptocurrency is bidding farewell to its wild and unfiltered childhood and entering late adolescence. Its early chaotic phase marked by short-termism, speculative frenzy, and venture capital games is giving way to a more mature, systematic era. It's an exciting moment, and this shift will bring about many key impacts. For better or worse, I also believe that most Web3 venture capital firms are not yet prepared for the upcoming changes.

Venture capitalists always love to preach about the importance of adaptability to founders. Now, I think it's time for venture capitalists themselves to make some adjustments.

Here are some of my latest thoughts on this transition: how the old crypto venture capital model is crumbling, what is taking its place, and which investors are most likely to thrive in the next stage of crypto venture capital.

Old Web3 Venture Capital Model

The old crypto venture capital model roughly looked like this:

Seeking projects about a year post-token issuance with ties to a top centralized exchange (CEX) (there used to be entire funds raised on the premise that partners were former CEX staffers or had deep connections to CEX. Their "value-add" was sniffing out which projects would get listed on the exchange. Today, if a fund is pitching you this model, steer clear...)

Investing through a Simple Agreement for Future Tokens (SAFT) (maybe with some advisory services thrown in)

Quickly dumping when the project had its Token Generation Event (TGE) as the lock-up period wasn't as strict as today's standard 1+3. And to support that, typically there would be more significant demand from retail to purchase VC tokens during market cycle peaks.

The feasibility of this model has led investors to exhibit many deleterious behaviors. Firstly, many venture capitalists have raised funds with a 5-year term—only half the length of a typical fund in web2. This structure alone makes it nearly impossible to support long-term builders. If your fund can only hold assets for 5 years before needing to allocate to limited partners, then it cannot systematically invest in projects on a more standard 10-year liquidity timeline.

On the other hand, founders receiving funds from these types of investors face immense pressure, needing to achieve liquidity on a rapid acceleration timeline, even pushing for a Token Generation Event (TGE) before achieving Product-Market Fit (PMF).

For the healthy development of the industry, this model is quickly becoming outdated.

As we enter 2025, we see a maturing market, increasing regulatory clarity, renewed interest from traditional financial institutions, bringing a more fundamental, real-world utility, and sustainable business model-focused systematic approach.

The Shape of Growth

I believe the future of the crypto industry will demand greater patience from investors and founders. A mature market is bringing about some substantive changes:

· Longer Lock-Up Periods: Most centralized exchanges (CEX) are standardizing a 1-year cliff, followed by an additional 2 to 3 years of vesting.

· Focus on Fundamentals: Oversaturation of meme coins coupled with a more discerning retail base is forcing the market to focus more on quality to achieve differentiation—real revenue, defensible moats, and a clear path to profitability are replacing speculative games. To be clear, this doesn't mean tokens are dead, but rather your token needs strong fundamentals to stand out from the crowd.

· Alternative Exit Paths: Initial Public Offerings (IPOs) are becoming more viable for crypto companies while also being able to achieve significant Merger and Acquisition (M&A) outcomes. This provides a liquidity path independent of token issuance.

I am not confident that most Web3 venture capital firms are prepared for this new reality. From what I've seen, those companies that realize this are either completely exiting the space, shifting to liquidity investing, or raising new funds with different structures to adapt to this new playing field. Conversely, those companies that have been able to support this new model are ready to thrive in this new paradigm.

Who Will Win in This Changing Market

No doubt, this new landscape presents a great opportunity for many funds. Those that can support founders through the "seed to IPO" stages of multi-stage companies can now operate in a market that few can access. There are approximately 10 (?) crypto funds that can lead rounds from Series A onwards. Besides capital considerations, there are also few funds that can provide the support and resources to guide crypto companies towards an IPO. How many funds prioritize (and execute) true corporate governance? How many understand the roadshow process, investor relations, etc.? I think not many... However, if you are one of those funds, one of those who still adhere to higher standards and systematic operations amidst a casino where inexperienced emerging managers pretend to be genius investors, then you are entering a magical era of investment.

In the early stages of the venture capital market, the role of seed-stage investors is also changing. Many seed and angel investors can intervene early, provide advice on community building and mindshare growth, and gain liquidity before any actual product development occurs. Now, I believe early-stage investors will have to be more adept at working with their companies, finding product-market fit (PMF), iterating on the product, engaging with users, etc., rather than rushing to launch and gain liquidity.

One final thought on this point. I remember a talk at CSX in 2023 suggesting that companies should find product-market fit (PMF) before launching a token. Admitting that view was somewhat controversial at the time within the industry is just crazy. Luckily, I think that as the emphasis on fundamentals grows, this view is changing. In turn, this should urge our industry to build more sound, robust, and genuine enterprises (I've noticed some interesting conversations and experiments around "micro" token launches, which allow teams to raise enough funds to develop a product. I think the feasibility of this path is still inconclusive, but I am willing to explore further).

Embracing Maturity

The maturity of cryptocurrencies is not a negative development but an evolution necessary for the mainstream adoption and long-term growth of the technology. Projects built today are more substantive, more focused on solving real-world problems, and more likely to create lasting value than many of their predecessors.

For venture capital firms, this shift is both a challenge and an opportunity. Those who can adjust their models to fit a longer time horizon, focus on fundamentals rather than hype, and provide real value beyond capital will thrive in this new landscape. Companies that cling to outdated models will increasingly find themselves left behind, and astute founders will choose to collaborate with funds that can provide them with the best support in this new environment.

The crypto industry is growing. For venture capital firms, the question is whether they can grow with it.

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