In July, two venture capital funds raised more than $350 million to invest in cryptocurrency and blockchain startups.

The volume of investments in crypto startups has fallen for five consecutive quarters. But some venture capitalists are still making multi-million dollar bets on blockchain projects.

Fortune’s source said Polychain Capital, one of the most prominent venture capital firms in the cryptocurrency space. And has raised about $200 million in its fourth fund. This fundraising can be considered a positive signal for the industry. The event indicates continued investor interest, despite a period when the volume of funding has decreased for both startups and venture capital firms.

The event indicates the continuing interest of investors. And despite the period when the volume of funding has decreased for both startups. As well as for venture capital firms.

Founded in 2016 by Olaf Carlson-Wee – one of the first employees of the Coinbase exchange – Polychain Capital has quickly joined the list of leaders in the cryptocurrency venture capital market. The firm has invested in Coinbase, Uniswap, CoilnList, dYdX, Matrixport, Scroll and dozens of others.

According to Pitchbook, Polychain has raised three funds with $2.6 billion in assets under management, and while this amount is volatile due to the fact that some of the Polychain funds are held directly in a few liquid crypto stocks. Several services, such as CoinMarketCap or Messari, separately highlight Polychain’s portfolio. According to them, the company invests in bitcoin (BTC), Ethereum (ETH), Polkadot (DOT), Avalanche (AVAX), Cosmos (ATOM), Filecoin (FIL), Maker (MKR), Tezos (XTZ), Compound (COMP) and other assets.

Polychain has deployed most of the previously raised capital in 2022 and 2023, according to a Fortune interviewee.

And before starting to raise a fourth $400 million fund, which reporters have now learned about. As for the $200 million already raised, Polychain has signed new agreements with investors or partners to begin placing those funds. At the same time, the company will continue to attract new investors in order to raise the full amount.

The attraction of new financing was accompanied by a reorganization of Polychain’s team of about 25 people, about 15 of whom are engaged in market research. According to the interlocutor of the publication, three employees from the research group were dismissed. And another with a background in data science was hired. One of the general partners also left the company to start his own project.

According to Fortune’s source, Polychain will primarily consider Ethereum-based “second-tier” infrastructure solutions for investment. And such as Arbitrum or Scroll, as well as in projects such as EigenLayer.

According to Pitchbook, global cryptocurrency VCs raised just $1.7 billion in 12 funds in the first half of 2023.

In comparison, they raised $22.5 billion in 91 funds over the course of 2022. On the same day as the new fund raising from Polychain was announced. And Bloomberg reported that another cryptocurrency venture capital firm, CoinFund, raised $158 million to support early-stage crypto startups.

According to the company’s CEO Jake Bruchman. That for the new fund managed to attract more funds than originally planned. Investor interest in the fund was higher than expected.

The last year and a half in the cryptoindustry was held in the crisis. But during this time CoinFund managed to raise $550 million, Brukhman told reporters. The year 2022 was “extremely challenging,” he said. Part of the problem was that major players in the market became interested in cryptocurrencies at the stage of their growth. But they changed their minds about investing when they saw prices fall sharply.

The new investment fund CoinFund is also the fourth for the company. Under the previous funds, the company supported startups such as, for example, Dapper Labs (creators of the FLOW blockchain). Or the blockchain infrastructure service Blockdaemon. Funds from the new fund have already been partially invested in the startup Giza. And which deals with the implementation of artificial intelligence in smart contracts. And in the company Superstate, which plans to combine decentralized finance (DeFi) with mutual funds.

More investments

CoinFund plans to invest the raised funds in startups. Which are at the intersection of cryptocurrencies and artificial intelligence. Previously popular areas such as NFT are now not interesting to investors due to the market lull and capitalization decline of the largest projects.

Our experts note that CoinFund will also continue to invest directly in cryptocurrencies and tokens. And the company has an advantage here. When it comes to crypto market regulation in the US, there is uncertainty over whether cryptocurrency tokens are considered securities. And that was vividly demonstrated in the recent ruling by a judge in the US Securities and Exchange Commission’s (SEC) lawsuit against Ripple Labs. However, CoinFund is a registered investment adviser. And can make investments in securities, so even equating their portfolio crypto assets with securities shouldn’t pose a problem.

According to Alex Felix, CoinFund’s chief investment officer. That now about 90% of the company’s transactions are directly related to the purchase of cryptocurrencies and tokens. According to him, the company still believes that this industry can coexist with traditional finance in a regulated manner.

Our experts tell us what you need to know about the cryptocurrency division of venture capital firm Andreessen Horowitz. And what startups and technologies the company is allocating more than $7 billion to

The a16z crypto portfolio has dozens of crypto projects. And among them are both established players and startups that are still building infrastructure. The company’s early bet on Coinbase, the second largest crypto exchange, turned out to be one of the best in the history of venture capital funds. Though it came with very specific allegations of insider trading. The fund invested in leading decentralized exchange Uniswap, NFT marketplace OpenSea and large infrastructure blockchain project Alchemy.

This year, the company has led several multimillion-dollar investment rounds for various crypto projects. Among them, for example, is a $25 million round by Here Not There Labs. Which is developing the Towns protocol for group chat rooms. And which are blockchain-based and use end-to-end message encryption.

A recent nearly $30 million investment round closed the Story Protocol project from the developers of the Radish Fiction app, which was bought out by Korea’s Kakao. Andreessen Horowitz’s cryptocurrency division also led the round. Although it had previously invested $10 million in the project. A $40 million round led by the fund was also completed by blockchain game developer CCP Games.

Probably the main crypto-investment of the company this year was the project LayerZero.

Its developers, led by a16z, closed a $120 million round, after which the valuation of the company behind it, LayerZero Labs, jumped to $3 billion. The total amount of venture capital investment in the project. Which creates an infrastructure for exchanging data between ecosystems that are isolated from each other. And built on different blockchains, exceeds $250 million.

Other projects in the fund’s portfolio with more than $100 million in investments include Optimism, Aleo, Matter Labs (developer of the zkSync solution) and several others. From the last two, as well as from LayerZero, the cryptocurrency community expects to launch tokens. And to conduct airdrops following the example of Arbitrum. Or the same Optimism, but none of the companies have yet announced plans to issue their own assets.

Problems and failures

Despite its scale and strong market position, a16z faced problems in 2022, as did the entire cryptosphere. In October, The Wall Street Journal sources reported that the value of the company’s cryptocurrency fund fell 40%. And that’s noticeably more than other avenues. This was recorded even before the general collapse of the crypto market. Which was triggered by the bankruptcy of the FTX exchange.

Some of the fund’s biggest investments probably didn’t justify themselves. Among them is Helium, a mobile WiFi hotspot startup. In April, the company announced it was moving its infrastructure from its own blockchain to the Solana network. And the HT token trades only on second-tier crypto exchanges. And judging by the price movement, it’s not much in demand.

Another example from our experts is Dfinity. It’s a project that was rebranded as Internet Computer. Which raised $100 million from a16z in 2017. But it did not actually produce any product. And investor funds were invested mainly in a marketing campaign. However, given the success of other projects in the fund’s portfolio. And the financial return from investing in them will surely be able to outweigh the losses from unsuccessful investments.

CPIC and investment firm Waterdrip have launched new crypto venture capital funds. Which targets institutional and high net worth private investors from Hong Kong

Hong Kong-based China Pacific Insurance Company (CPIC) has partnered with investment fund Waterdrip Capital to launch two investment funds in Hong Kong. Which are focused on the blockchain and digital assets industry, reports the Chinese publication 36kr.com.

Hong Kong-based Chin Pacific Insurance Investment Management is part of the CPIC group. According to Forbes, the group’s income for the year 2022 exceeded $68 billion. CPIC is the fourth-largest insurance company in China and more than 60% of its shares are owned by government.

Waterdrip Capital is an investment fund specializing in blockchain projects and has already supported more than 45 crypto startups. This includes the blockchain Polkadot and the Web3 infrastructure project MetisDAO.

The companies launched two digital asset funds, Pacific Waterdrip Digital Asset Fund I and Pacific Waterdrip Digital Asset Fund II. The funds will target institutional investors as well as high net worth private investors.

Pacific Waterdrip Digital Asset Fund I will invest in early stage blockchain projects. Pacific Waterdrip Digital Asset Fund II will manage digital assets that can be channeled into staking (cryptocurrencies on the Proof-of-Stake algorithm).

Our experts note that more and more companies are thinking of opening cryptocurrency-related businesses in Hong Kong. According to The Wall Street Journal, more than 20 industrial companies have informed the government of their plans to open branches there. As well as another 80 have expressed interest in doing so.

The collapse of FTX put the brakes on venture-backed activity, but analysts expect funding for blockchain startups to grow this summer. Crypto-Upvotes expert review

Venture capital investment in the cryptocurrency industry fell to its lowest level in nearly two years in the fourth quarter of 2022. According to PitchBook analysts, $2.3 billion was invested in crypto startups in the last three months of last year. And that’s 75% less than the same period last year.

The last time less money was invested in the crypto industry was in Q4 2020. At that time, it was $1.4 billion. Since then, investments in the crypto industry have been growing, from Q1 2021 ($3.5 billion) to Q1 2022 ($12.1 billion). Between April and June of last year, $7.4 billion was invested in the industry. Аnd between July and September, $4.9 billion.

In all, a record $26.7 billion was invested in blockchain startups last year. Аnd most of that came in the first half of the year. Ventures then began to slow their investment activity. But the collapse of FTX in November prompted them to slow down even more, according to PitchBook crypto analyst Robert Le. According to him, investors are trying to figure out what will happen next and are in no hurry to place capital.

FTX Group’s departure from market, which lacked strict controls and due diligence when investing, also changed the situation for investing in the crypto business. According to Le, FTX had a reputation for making deals and writing big checks. While asking founders only a few questions during the quick approval process. And it often crowded out other venture capitalists.

Immediate prospects

Not having FTX will make for a better market for other crypto investors. Because now they can get back to properly evaluating projects and the necessary prudence. The analyst still expects venture capital investment in the crypto sector to grow in the summer of 2023. That’s partly because many crypto funds are required to use the capital they raised during the digital asset boom.