Hutt Capital 2021-2022 Annual Crypto VC Development Report
Source of this article: Old Yuppie
Original Compilation: Old Yuppie
Source of this article: Old Yuppie
Excited to publish our fourth annual review of the blockchain venture space. Last year was a particularly prosperous year for the blockchain venture space. In the spirit of transparency in our industry, we hope to share the summary publicly. The data.
Focusing only on blockchain VC funds, this report aims to understand the investable universe of institutional LPs, consistent with our mission at Hutt Capital, the leading independent blockchain VC fund platform.
Summary
Summary
This year has been a record year for blockchain venture capital funds, with 76 new blockchain venture capital funds launched in the past 12 months. We are currently tracking 155 blockchain venture funds, up from 79 a year ago and a 96% increase year-over-year.
The field of blockchain venture capital is growing rapidly, but the amount of capital held by funds is expanding even faster. These blockchain venture capital funds have $30.9 billion in committed capital in current funds, up from just $6.8 billion a year ago, a 357% annual growth rate. Blockchain venture capital is no longer the copycat industry of the past few years.
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Blockchain VC Fund Series
Among the 155 blockchain venture capital funds, there are 100 initial funds, 36 S funds (Secondary funds), and 19 third funds.
Longer-lived funds have the most capital. The third funds account for 12% of the total number of funds, but 40% of the capital. 19 third funds have a total capitalization of more than 100 initial funds.
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Blockchain Venture Fund Size
The scale of blockchain venture funds has grown significantly in the past year, and the level of capital controlled by large funds is unprecedented.
The $18.2 billion in capital, or 59% of the industry's capital base, is controlled by just 14 funds of $500 million or more. The funds themselves have almost three times the capital of the industry as a whole a year ago.
The industry is more polarized than ever. The 33 funds have an average fund size of $713 million and control 76% of the capital. The other 122 funds control the remaining 24%, with an average fund size of $60 million.
Despite this split between large and small funds, the 122 funds of less than $200 million still control 9% more capital than the industry as a whole a year ago.
Fund sizes in each category grew significantly from last year except for sub-$50 million funds, which were able to maintain some degree of isolation due to the growth of many of their peers and the rising market. The 44 funds under $50 million control $1.1 billion, a modest increase of 28 percent from the 35 funds controlling $838 million a year ago.
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Geography of blockchain venture capital funds
North America remains the dominant location for blockchain venture capital funds, with 68% of funds located in the region and accounting for 87% of the industry's capital base.
North America is also driving the mega-fund trend, with an average fund size of $259 million, compared with $61 million in Europe and $120 million in Asia. Only one of the 14 $500 million-plus funds is based outside North America.
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other observations
Over the past 12-18 months, the blockchain venture capital market has undergone major changes.
· Emergence of mega funds/asset aggregators
· Increased competition among funds for deals due to capital supply
· High-quality blockchain venture capital funds are massively oversubscribed and hard to come by
· DAOs and guilds are taking market share from traditional VC funds
· Increase in professional funds
· Web3 has become the trend for general-purpose VC funds, but specialized funds dominate
Observation 1: Emergence of mega funds/asset aggregators
There is enough demand for venture capital funds to invest in blockchain so that companies aspiring to raise large sums of money can do so for the first time. These players have moved upmarket with their growing fund sizes and now need to write bigger checks to large rounds to deploy their capital. This has resulted in more capital being deployed to growth stage companies and liquid tokens, whether through outright purchases or treasury deals.
The trend to move upstream in the market has opened a gap for pre-seed and seed stages that has been filled by new and existing small funds that will back founders at the earliest stages. Many larger funds (or their GPs) and industry strategists act as LPs in new early-stage funds as a way to generate vetted deal flow for their own companies.
Observation 2: Capital supply drives more competition for deals among funds
The industry's capital base has grown by 357% in a year, one effect of which is that competition for deals has become cutthroat. Good deals will be available to nearly anyone with a checkbook until 2021. This situation has changed. Funds are now competing fiercely based on reputation and value proposition (or, in some cases, willingness to pay the highest price), and valuations have increased as a result.
From a LP perspective, it is critical to understand which companies have built differentiated brands and value propositions in order to sustainably repeat historical success. Each fund's track record looks good, but those track records were generated in an environment with little competition like today's.
Observation 3: High-quality blockchain venture capital funds are massively oversubscribed and hard to come by
LPs have more options than ever when it comes to investing in blockchain venture funds, but demand from LPs for investing in blockchain venture funds is clearly growing faster than the funds' capital base. Every fund was oversubscribed. Many are being shut out and LPs are vying for a share of the investment. Institutions are coming in with big checks and the threshold game we see in traditional VCs is now being replicated in the crypto space.
Observation 4: DAOs and guilds are taking market share from traditional blockchain VC funds
Venture DAOs and gaming guilds are receiving grants from early stage venture funds, mostly pre-seed and seed stages. High-quality venture DAOs are an attractive source of capital because founders have access to a diverse network of individual members who bring a variety of expertise and relationships. We at Seed Club Ventures saw it first hand. Today, most venture DAOs are relatively small and thus write smaller checks in very early rounds, but we believe this source of capital will grow over time.
Gaming guilds offer blockchain gaming startups a unique source of strategic capital that is difficult for traditional venture funds to replicate. There is a world of ever-growing gaming guilds, and these groups have been occupying the space of early game ownership structures. Guilds themselves often have VC funding, and a VC fund that doesn't know much about the game may be happy to get exposure to a new type of game, rather than trying to pick winners in an unfamiliar category.
Observation 5: The rise of specialized funds
We believe that specialization is increasing due to two main factors. 1) The industry is too large and too broad to cover everything, and different categories require unique expertise and relationships, so funds must identify where they have a competitive advantage and aim to be the best in the field; 2 ) Specialization is a way for emerging funds to differentiate themselves from existing players and gain an edge, especially in younger categories like DeFi, gaming, NFTs or DAOs, where we most often see proprietary niche funds.
Observation 6: Web3 is now the trend of general-purpose funds, but special-purpose funds dominate
General-purpose venture capital firms are becoming more and more interested in Web3, and many companies have assigned specialists to take charge of this field, but most companies entered the market late, and the pie they can seize is too small, which is especially true at this stage. You’ll see ownership structures dominated by crypto-native funds and other industry players in the early stages.
