The industry is evolving and VC is reshuffling. How can we stay?

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

Original author: Sam Lehman, Symbolic Capital Investor

Original translation: Azuma, Odaily Planet Daily

Just over the past few months, I have witnessed four well-known cryptocurrency funds either switch to pure liquidity management models or quietly shut down. Several first-tier funds have also fallen into fundraising difficulties. Many investors I know have completely left the market - some have switched to AI, while others have directly retired (and not just retired early because they have made enough money).

This is not a coincidence, but a fundamental change in the industry.

If the cryptocurrency industry is compared to a growth story, I think it is bidding farewell to the wild and unruly childhood and entering a steady late adolescence. The early chaos of short-termism, speculative fanaticism and VC game is giving way to a more mature and orderly new stage. This transformation is full of opportunities and will also cause many far-reaching impacts - but IMHO, I don't think most Web3 venture capital institutions are ready for the next changes.

VC Zhong Aikouhi founders need to improve their adaptability, and now it is their turn to adapt.

Web3 VC scripts from the old era

The cryptocurrency venture capital model of the past works like this:

• Looking for projects that have been around 1 year since the token was launched and closely related to the leading exchanges - in those days, there were even funds able to raise funds by just "the partners are former employees of the exchange/having deep relationships." Their "value-added services" are nothing more than sniffing out which projects can be used on the exchange. If there is still a fund promotion rhetoric, stay away as soon as possible.

• Invest through the SAFT agreement - get a consultant title by the way;

• After all, the token issuance (TGE) of the project will be poured to retail investors immediately - after all, the lock-up rules of that year were much more relaxed like the mainstream "1-year lock-up period + 3-year linear release". In a bull market cycle, retail investors often have higher expectations of token valuation, so they always enthusiastically "cooperate" with VCs to perform this gameplay.

This model has condone investors' bad behaviors:

• Short-sighted fund cycles : Most VCs will raise 5-year funds—just half of the traditional Web2 fund cycle. This structure is destined to be unable to support long-term builders. If the fund must allocate assets to the LP in 5 years, how can it be possible to invest in projects that require 10 years of liquidity accumulation?

• The distorted pressure of founders : Founders who accept such investments are forced to accelerate their monetization, and often they rush to issue coins before the product has verified its market fit (PMF).

Thankfully, this model is rapidly dying.

Entering 2025, as the regulatory framework gradually becomes clear and traditional financial institutions re-enter, the crypto market is turning to a rational stage that focuses more on fundamentals, real utility and sustainable business models.

The industry is changing drastically

I think the future cryptocurrency industry will require investors and founders to have greater patience. Some practical changes in the market towards maturity are as follows:

• More stringent locking mechanisms : Most CEXs are using “1-year lock-up period, 2-3-year release period” as the standard rule when listing coins;

• Fundamentals are king : the flood of altcoins and the upgrade of retail investors' cognition has forced projects to break through with hard power - actual income, moats and profit paths are replacing speculative narratives. This is not the end of the token economy, but the end of mediocre tokens;

• Diversified exit path : For crypto companies, IPOs (initial public offerings) are becoming increasingly feasible, and industry mergers and acquisitions can also create large-scale exit opportunities, and token issuance is no longer the only liquidity export.

I doubt most Web3 venture capitalists can adapt to these new normals. As far as I can see, institutions that are aware of this have either completely withdrawn from the industry or have turned to liquidity funds or are raising new funds with different structures to adapt to the new rules of the game. Instead, companies that have been able to support this new model will thrive in this new paradigm.

Who will win in this changing market?

There is no doubt that this new pattern provides a huge opportunity for many funds. Full-cycle investment institutions that can support founder construction during the "from seed round to IPO" can now show their skills in a market with little competition.

Currently, only about 10 cryptocurrency funds are capable of leading the A round and subsequent rounds. In addition to financial strength, there are few funds that can provide full IPO support and resources for cryptocurrency companies. How many funds really attach importance to (and can implement) standardized corporate governance? How many people are well versed in roadshow processes, investor relations management and other aspects? I don't think there are many... but for funds that always adhere to high standards and systematic operations in the casino-style market, now we are ushering in a golden period of investment - when the market allows those unprofessional fund managers to play the role of talented investors, you have quietly built a moat.

In the early stages of the venture capital market, the role of investors in the early stages of the seed round is also changing. In the past, many early and early seed round investors in the seed round had to intervene early and provide advice on community construction and mental share growth, and they could exit before the product was truly formed. Now I think early investors must be better at helping companies find product market fit (PMF), iterate products, and talk to users, rather than rushing to monetize projects online.

There is still a last thought on this. I remember in a 2023 speech at CSX, someone suggested that the project find PMF before launching the tokens - it was incredibly that this view was controversial in our industry at the time. Fortunately, with the increasing emphasis on fundamentals, this concept is changing, which will prompt the industry to build more real businesses that can stand the test. It is worth noting that discussions and experiments on the issuance of "micro" tokens are currently emerging. The plan is designed to allow the team to obtain only the necessary infrastructure funds. I think the feasibility of this path is yet to be verified, but it remains open to explore.

Embrace the maturation of the industry

The maturation of cryptocurrencies is by no means a negative trend. Instead, this pursuit of mainstream adoption and long-term development technology is undergoing necessary evolution. Projects built today are more substantial than early stage companies—they are more focused on solving real-world problems and are more likely to create lasting value.

For venture capital institutions, this transformation is both a challenge and an opportunity. Institutions that can adjust investment models to accommodate longer cycles, focus on fundamentals rather than speculation, and provide real value beyond funds will flourish in the new pattern. Investors who stick to old strategies will be increasingly eliminated by the market -smart entrepreneurs are choosing funds that can best match the new environment.

The crypto industry is maturing. The question left to venture capital institutions is: Can you grow with it?