Naval Ravikant Thinks Crypto Does Not Actually Need the VC Approach to Financing Startups

The crypto model does not require VC funding, said Naval Ravikant, one of the leading US investors in early-stage products.

One of the leading US investors in early-stage products has stated that the crypto model does not require VC funding. This statement comes at the end of a trend that saw crypto projects attract more VC funding than ever before to build some of the most prominent chains and projects.

VC was crucial for the latest batch of startups that arrived during the 2021 bull market. Before this, crypto projects relied on the ICO model, which provided high-level funding from regular buyers. However, ICO fundraisers did not always ensure a fair launch, leading to issues with the credibility of projects.

The problem with VC funding is that it helps create low-float projects. Retail investors later realized that they were the exit liquidity for these projects, which permanently depressed the token price.

Funds have been entering the crypto space for a decade, like Pantera Capital. Other big names included Andreessen Horowitz, Sequoia Capital, Coinbase Ventures, and Blockchain Capital.

Some of the big names in venture funding also helped legitimize FTX Ventures, the arm of the now-defunct exchange. Sequoia Capital, Black Rock, and SoftBank were among the backers that brought FTX to prominence. The presence of VC funding also accelerated the cycle of crypto startups, leading to faster exchange listings and more aggressive marketing.

However, by 2024, even exchanges were becoming skeptical, with Binance increasing its scrutiny of projects with a low initial float. Skepticism about VC also increased as Worldcoin prepared for one of its biggest insider unlocks in just a week. WLD was an asset to start trading and gain market exposure with a float of just 1.4% of the supply.

VC inflows coincide with bull marketsThe involvement of VC investors, especially from traditional funds, also gave legitimacy to crypto projects. Inflows of VC coincided with the price of Bitcoin (BTC).

However, not all VC investments come from outsiders. Older ICOs sitting on ETH and BTC treasuries also fund newer projects, as they can do so with a fraction of their treasury.

But even mined projects are not always fairly launched, as several coins started with a premine for the team. Fair launch tokens became a trend in 2024, reflected in the creation of meme assets that were fully diluted and immediately available to the community.

In Q2, VC inflows in crypto also showed no sign of stopping. For the last period, crypto projects received $3.19B in 577 deals. The number of deals decreased compared to Q1, but each deal received slightly more funding.

Crypto funding is just a fraction of the global VC market, which also saw overall growth in Q2. But in the case of crypto, the relatively small size of the market has an outsized effect.

The golden age of VC market inflows into crypto is now in the past, having peaked in 2021. The current market is still absorbing the token unlocks and inflows.

The present market prices have shown the market's capacity to absorb selling but achieved lower returns for late retail buyers.VC inflows lag behind crypto market hypeIn Q2, the expansion of VC inflows lagged behind the trend of the current bull market. The previous crop of investments is now re-evaluating its potential returns.

Projects are also being scrutinized more closely for delivering utility rather than just hype.Some VC funding is flowing into already established projects, such as the prediction hub Polymarket, Eigen Layer, and the crypto social media Farcaster.

The slowdown in VC has also affected the gaming sector. Web3 gaming was one of the main vectors of investment, spearheaded by Animoca Brands.

Web3 gaming also needed a bull market to be sustainable. Most game tokens also felt the pressure from unlocks. Even leading tokens like SAND slid further as early investments became available to sell.