The crypto industry is entering adolescence. Are VCs ready?

In the past few months, I have seen four crypto funds that I am familiar with either turning to liquidity-only or quietly shutting down. Several top funds are struggling to raise capital. Many investors I know have completely exited the field. Some are chasing AI, while others have completely let go (not just because they made early retirement wealth from AI meme coins). This is not just noise or coincidence; something fundamental has changed. If we view it as a growth story, I believe cryptocurrency is bidding farewell to its wild and unfiltered childhood, entering late adolescence. Its early chaotic period, characterized by short-termism, speculative hype, and venture capital games, is giving way to a more mature, systematized era. This is an exciting moment, and this transformation will bring many key implications. For better or worse, I also believe that most Web3 venture capital firms are not yet prepared for the changes ahead. Venture capitalists always love to tell founders about the importance of adaptability. Now, I think it's time for the VCs themselves to make some adjustments. Here are my latest thoughts on this transformation: how the old crypto VC model is disintegrating, what is replacing it, and which investors are most likely to thrive in the next stage of crypto venture capital. The Old Web3 VC Model The past crypto VC model was roughly as follows: Finding projects about a year from token generation, with connections to top centralized exchanges (CEX) (There were entire funds raised solely on the premise that partners were former CEX employees or had deep connections with CEX. Their "added value" was being able to sniff out which projects would be listed on exchanges. Today, if any fund tries to sell you this model, don't listen...) Investing through SAFT (Simple Agreement for Future Tokens) (and perhaps some advisory services) Quickly selling to retail investors when the project has its Token Generation Event (TGE), because lockup periods were not as strict as today's standard 1+3. And to support this, there was usually greater retail demand during market cycle peaks. This model's viability led investors to exhibit many bad behaviors. First, many VCs raised 5-year funds - just half the typical length in web2. This structure alone made supporting long-term builders almost impossible. If your fund can only hold assets for 5 years before distributing to limited partners, you cannot systematically invest in projects on a more standard 10-year liquidity path. On the other hand, founders receiving funding from these types of investors faced enormous pressure to achieve liquidity on an accelerated timeline, even pushing for Token Generation Events (TGE) before achieving product-market fit (PMF). For the industry's healthy development, this model is rapidly becoming obsolete. As we enter 2025, we see a maturing market with increased regulatory clarity, renewed interest from traditional financial institutions, bringing a more systematized approach focused on fundamentals, real utility, and sustainable business models. The Shape of Growth I believe the future crypto industry will demand more patience from investors and founders. A maturing market is bringing some substantial changes: • Longer Lockup Periods: Most centralized exchanges (CEX) are standardizing a 1-year cliff, followed by an additional 2-3 year vesting period. • Focus on Fundamentals: Oversaturation of Altcoins and a more discerning retail base are forcing the market to focus on quality for differentiation - actual revenue, defensible moats, and clear paths to profitability are replacing speculative games. To be clear, this doesn't mean tokens are dead, but your token needs strong fundamentals to stand out from the crowd. • Alternative Exit Paths: Initial Public Offerings (IPO) are becoming more feasible for crypto companies, along with significant mergers and acquisitions (M&A). This provides a new liquidity path independent of token generation. I'm not confident that most Web3 venture capital firms are prepared for this new reality. From what I've seen, companies that recognize this have either completely exited the field, shifted to liquidity investing, or are raising new funds with different structures to adapt to this new game. Conversely, those companies that have always been able to support this new model are preparing to thrive in this new paradigm. Who Will Win in This Changing Market Undoubtedly, this new landscape is an excellent opportunity for many funds. Those multi-stage companies that can support founders from pre-seed to IPO can now operate in a market with few participants. About 10 (?) crypto funds can provide lead checks for Series A and beyond. Beyond capital considerations, few funds can provide support and resources to guide crypto companies to IPO. How many funds prioritize (and execute) genuine corporate governance? How many understand the roadshow process, investor relations, etc.? I don't think many... However, if you are one of these funds, those that maintained higher standards and operated systematically even when the casino was making immature emerging managers pretend to be genius investors, you are entering a magical investment era. The role of pre-seed investors is also changing in the early stages of the venture capital market. Many pre-seed and seed investors could enter early, provide community building and mindshare growth advice, and obtain liquidity before any actual product development. Now, I believe early-stage investors will have to be more adept at working with their companies, finding product-market fit (PMF), iterating products, communicating with users, rather than rushing to launch and obtain liquidity. One final thought on this. I remember a CSX talk in 2023 suggesting companies find product-market fit (PMF) before launching tokens. Acknowledging this perspective was somewhat controversial in the industry at the time was crazy. Fortunately, I think this view is changing as focus on fundamentals increases. In turn, this should encourage our industry to build more sound, robust, and genuine enterprises (I've noticed some interesting conversations and experiments around "micro" token launches that allow teams to get enough funding to develop products. I don't think the viability of this path is settled, but I'm willing to explore further). Embracing Maturity The maturation of cryptocurrency is not a negative development but an essential evolution for a technology seeking mainstream adoption and long-term development. Projects built today are more substantial, more focused on solving real problems, and more likely to create lasting value than many previous companies. For venture capital firms, this transformation is both a challenge and an opportunity. Companies that can adjust their models to accommodate longer time horizons, focus on fundamentals over hype, and provide genuine value beyond capital will thrive in this new landscape. Those clinging to outdated models will increasingly find themselves left behind, with savvy founders choosing to partner with funds that can best support them in this new environment. The crypto industry is growing up. For venture capital firms, the question is whether they can grow with it. 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