The dramatic crypto crash has wiped out nearly $2 trillion from the market. Many have lost money and the crash has stirred an underlying fear of what the future will bring. Whether or not the market will make a comeback weighs on everyone’s mind.
Entrepreneurs have flocked to the crypto and blockchain space as hype heightened over the past couple years.
ITP.net spoke with Tal Elyashiv, the co-founder and managing partner of SPiCE VC to understand what the recent crash means for venture capital firms in the space, and what his thoughts are on the crash – and a potential rebound in the market.
What does the recent crypto crash mean for an industry like yours?
Venture capital investments are long-term investments. There may be some impact on VCs investing in late-stage crypto-related companies, with valuations of such companies being pushed down due to low crypto prices and market conditions. But I expect that even this impact will be temporary.
Difficult times help separate companies that excel in strategy and execution and can adapt quickly from the rest of the companies. It also may mean more sane company valuations.
Do you view the recent crash as short-term volatility or a sign of long-term trouble?
The next months have all the reasons to be volatile times, with downward pressure in the markets. China lockdowns and the impact on world production and consumption, the war in Ukraine with its impact on energy markets and otherwise, rising interest rates, and market performance. This all spells an uneasy period in the market. Crypto has proven to be relatively correlated with the market – so I expect nervousness and downward pressure here as well. The recent meltdown of Luna and UST, and the current issues DEI is facing will only add to the pressures the crypto markets are facing.
G7 and US regulators independently have expressed their intent to act in response to the recent market crash and stablecoin issues. The actions that regulators will (or will not) take regarding crypto markets and specifically regarding stablecoins, may also have an impact on this volatility.
I do believe that the crypto market will eventually recover from the recent crash, but it may take a while.
What is Web3.0 and what’s on the horizon for the VC world in the realm?
Web 2.0 disrupted the way we used the web: interactivity, social connectivity, and user-generated content became part of our everyday life, driven by the proliferation of mobile internet access, mobile phones, and social networks. Web 3.0 is used to describe the next phase of the web/internet which will be no less disruptive than web 2.0 was. It represents the potential for yet another big paradigm shift in the way we interact and use the web. Web 3.0 is built upon the core concepts of decentralisation, openness, and greater user utility.
The same way web 2.0 presented huge challenges and opportunities to VCs (think Airbnb, Twitter, Meta, Instagram, Uber, WhatsApp, and TikTok for example), Web 3.0 represents a world of new investment opportunities in infrastructure, technologies, new businesses, and business models that will evolve as part of this next phase. Some early beginnings we can already see today in the NFT domain and the Metaverse.
There are a lot of virtual asset-related scams right now. OpenSea just recently said they’re making their rules tighter on the platform to guard against such scams. In such a new space where regulations are still evolving, how do you ensure you’re not backing fraudulent firms?
Trying to predict the future is a key part of a VC job. How do you know which way the industry will go? How do you know whether the company can execute its vision? How do you know if the company has what it takes to succeed? Avoiding fraudulent companies and leaders is part of the same thing. This is all part of the thorough due diligence we perform on prospective investments – the industry, the ecosystem, competitors, the leadership team, the technology, and many other parameters are part of the “deep dive” we perform as part of the process of investment.
Why do we need specific VCs for this space, compared to the other, established major VCs?
The debate between generalist VCs versus VCs specialising in an industry is an old and lasting debate. There are good VCs and less successful ones in both camps. I believe that given the nature of the Blockchain space and the challenges it presents, the depth of knowledge required, and the need to be well-connected and constantly informed in all recent developments to make good investment choices and be able to bring significant value to portfolio companies, there is a need in specialising.
Even Andreessen Horowitz recognised the need in creating 16z, their blockchain and crypto-focused fund.
What are the challenges in investing in this space?
Blockchain is a new and fast-evolving technological and business space. Competing infrastructure, networks, protocols and business applications are constantly being developed. New developments also lead to creation of new businesses and services. The legal and regulatory environment in the blockchain space is incomplete at best and keeps evolving and changing.
Due to the incredible growth the domain has been experiencing, the scene is peppered with companies and projects chasing ideas that are either not achievable, impractical, or useless. They may look good on paper but may rely on external services or technology that may or may not be there in time, or to participate in an ecosystem that will fail to grow to the expected target sizes. Sifting through all this and selecting the companies with the best chance to be successful leaders of their domain takes well-defined processes and discipline, deep understanding of the technology and the business across multiple industries and being well-connected in the ecosystem.
