Multicoin Capital Partner Warns of Crypto VC Hangover

Multicoin Capital Managing Partner Tushar Jain, speaking at the Messari Mainnet conference, recently stated that the crypto venture capital space is not fully acknowledging the ramifications of the previous market downturn.

According to The Block, Jain said on stage:

"I think there's still a bit of a hangover that needs to be digested. This is true across the entire venture capital landscape – not just crypto – where there was a lot of capital flooding into venture as an asset class in 2021 and 2022, and a lot of people have not come to terms with the reality of the situation."

A report pointed out that investors poured $33 billion into crypto startups in 2021, representing 5% of all global venture investments. During the bull market peak of the pandemic, many crypto companies, like NFT platform OpenSea and the now-bankrupt lending firm BlockFi, became “unicorns” with valuations exceeding $1 billion. However, Jain pointed out that these companies' "paper valuations" were inflated due to excessive capital investment.

Despite the changed market environment, Jain noted that many companies' valuations haven't significantly declined or adjusted, remaining at their previously high levels. This suggests that the market's adjustment to these valuations might not be complete. This "hangover" effect seems to extend beyond the venture capital space. Jain believes that many promises of the crypto industry have yet to materialize:

"There was a lot of hype and excitement. And at the same time, we saw price stagnation, a significant drop in the issuance value of many major tokens over the past year, and uncertainty around the current political landscape."

Despite these challenges, the long-time crypto investor remains optimistic.

"I still believe in the core tenets underpinning this industry, and we've been through these cycles before. This is probably the most cyclical industry in the history of capitalism. A lot of times, people’s emotions get swept up with the price action."

In 2022, Multicoin completed fundraising for its “Venture Fund III” at $430 million. Jain stated that the company is still making investments. He mentioned that the company isn't actively seeking additional funds but admitted to making past investment mistakes.

"We've made many mistakes. We’ll continue to make mistakes. In fact, I have a view: If you have a venture capital fund where none of your investments go to zero, then you’re not taking enough risk."