Is VC "dead"? No, the brutal reshuffling of Web3 has just begun.

Original author: Lao Bai (X: @Wuhuoqiu )

As a former VC investor, what is your opinion on the current "VC is dead" rhetoric on CT?

Regarding the issue of payment, I will give a serious answer. I also have quite a few thoughts on this argument.

To state the conclusion first -

1. It is an undeniable fact that some venture capital firms are dead.

2. Overall, VCs won't die; they will continue to exist and drive the industry forward.

3. VCs, like projects and talent, are entering a phase of "clearing out" and "survival of the fittest," somewhat similar to the dot-com bubble of 2000. This is a "debt" from the previous bull market; after a few years of repayment, a new, healthy growth phase will begin, but the entry barriers will be much higher than before.

Next, I will elaborate on each point.

1. Some VCs are dead.

Asian VCs have probably suffered the most in this round. Since the beginning of this year, most of the top firms have either shut down or dissolved, and the remaining firms may not make a single move for several months, focusing on exiting their current portfolios, and finding it difficult to raise new funds.

The first half of the year was relatively okay for second- and third-tier European and American VCs, which is related to their LP structure and capital size. However, in the second half of the year, especially in the last month or two, Asian VCs have shown a clear trend of decreasing investment frequency, with some simply ceasing investment or transforming into pure liquid funds. Investment managers/partners have started telling me on Telegram, "It's too difficult, it's hard to exit." The 1011 financial crisis had a fatal impact on altcoin liquidity, and this is now starting to affect VC confidence.

The top-tier European and American companies don't seem to be affected much, at least not on the surface.

In fact, this round of "bear market" for VCs is a "delayed effect" following the Luna debacle in 2022. While the secondary market was bearish, the primary market, in terms of both project valuations and the amount of funding raised by VCs, wasn't significantly affected. Many new VCs were even established after the Luna debacle (such as ABCDE). The underlying strategy wasn't flawed at the time; several star projects from the DeFi Summer, like MakerDAO and Uniswap, were built during the 2018-2019 bear market. The VCs of that 2018-2019 wave made a fortune in the 2021 bull market. The strategy was to invest in good projects during a bear market, and then reap the rewards when the bull market arrived!

But the ideal is often far from reality, for three reasons.

First, the narrative and massive monetary easing in 2021 were too insane. In 2018-2019, the difference between investing in good and bad projects wasn't significant; everything skyrocketed, with any project seeing returns of tens or even hundreds of times. This meant that in 2022-2023, even during a bear market, the valuations and funding amounts of new projects in the primary market remained relatively high due to the anchoring effect, unaffected by the secondary market. This is the "delayed effect" of the primary market bear market I mentioned earlier.

Secondly, the four-year cycle has been broken. There was no so-called "alt market boom" in 2025. This is due to several factors: macroeconomic factors, an overabundance of counterfeit products and insufficient liquidity, a growing disillusionment with narratives and a reluctance to buy into PowerPoint presentations and VC endorsements, the AI boom, and the siphon effect of "true value investing" in US stocks on cryptocurrency funds… Anyway, the previous pattern will not be repeated. The dream of replicating the success of investing in good projects in 2019 and achieving a 100x return in 2021 is impossible.

Third, even if the four-year cycle repeats, the terms of this round of VC funding are completely different from the previous round. Some of our portfolios invested in early 2023 still haven't issued tokens after two or three years. Even with TGE (Treasury Token Offering), they still have to be locked for a year, and then released for another two or three years. A project invested in in 2023 might not receive its final batch of tokens until 2028 or 2029, directly navigating one and a half cycles. In the crypto world, how many projects can survive and thrive through cycles? Very few.

2. VC as a whole will not die.

There's really nothing to worry about. As long as the industry survives, VCs won't die either. Otherwise, who will provide the resources to realize new ideas, new technologies, and new directions? We can't rely entirely on ICOs or KOL funding rounds, can we?

ICOs are primarily for getting some retail investors and the community on board and generating buzz. KOL rounds mainly handle promotion; these are things that happen in the later stages of a project. In the very early stages, with only one or two founders and a PowerPoint presentation, only VCs can truly understand and actually fund the project. In my two years at ABCDE, I talked to over 1000 projects and ultimately only invested in 40. Of those 40 carefully selected, I estimate another 20 or 30 will fail. Many of the projects you see on the market that you consider "garbage" have already been screened many times and are considered relatively "high-quality." Otherwise, if all 1000+ projects launched ICOs and KOL rounds, how could retail investors, and even KOLs themselves, possibly distinguish and differentiate them?

Think about all the phenomenal projects from the last funding round to this one. Aside from a very few exceptional cases like Hyperliquid, which one didn't have VC backing? Whether it's Uniswap, AAVE, Solana, Opensea, PolyMarket, Ethena… no matter how much you might be anti-VC, the industry still needs the combined efforts of founders and VCs to move forward.

A few days ago I talked about a prediction market project that's completely different from most copycats like Polymarket/Kalshi; it's extremely unique. I've shared it with some VCs and KOLs these past couple of days, and the feedback has been very interesting—they all want to schedule a chat. You see, good projects don't die, and neither do good VCs.

3. The entry barriers for VCs, projects, and talent will increase, trending towards Web2.

VCs – in terms of reputation, funding, and professionalism, have clearly entered a phase where the strong get stronger.

The most important aspect of a VC's reputation and brand isn't how famous you are among retail investors, but rather whether your developers, or founders, are willing to take your money, and why they choose your money over another VC's. This is the true moat of a VC. This round of funding clearly shows that VCs are shifting from a pyramid structure to a more sturdy, more structured approach, similar to CEXs.

Project - We transitioned from looking at narratives and white papers in the previous round (or even ignoring white papers altogether, like when Li Xiaolai raised hundreds of millions for an idea in 2017), to looking at TVL, VC endorsements, narratives, transactions... in the last round, and now we're looking at real user numbers and protocol revenue... It feels like we're finally getting closer to the direction of US stocks.

Jeff from Hyperliquid once said in an interview that the only business model for most projects in the crypto world is selling tokens. This is because during TGE (Trust of Tokens), there's nothing but a mainnet, no ecosystem, no users, no revenue… so selling tokens is the only option. Imagine a company going public on the US stock market with just a corporate entity and a bunch of employees, maybe some factories and workshops, but no customers and no revenue—no wonder it's unlikely to be listed on Nasdaq! Why can we Web3 projects directly TGE or list?!

Polymarket and Hyperliquid set a perfect example in this round. One spent several years building a large user base and revenue, even creating a new sector, before considering issuing its own token. The other initially attracted early users with the promise of a token airdrop, but their product was unbeatable. Even after issuing the token, people continued using it, making the project itself a cash cow, with 99% of its revenue used to buy back tokens. When projects have real users and real revenue beyond the farmer level, then we can talk about TGE and listings. Only then will our industry truly be on the right track.

Talent – A major reason why I've always been confident in Web3 is because this industry gathers some of the world's brightest minds. As I've written before, of the 1000+ projects I've discussed, nearly half have founders and core teams who graduated from Ivy League universities. Domestically, founders are almost exclusively from Tsinghua and Peking Universities, with the occasional few from Zhejiang University, Shanghai Jiao Tong University, or Xiamen University (all 985 universities).

Of course, this isn't about solely focusing on academic qualifications; I myself am not from a prestigious university. But it's undeniable that from a statistical perspective, the concentration of so many highly intelligent people here, even if only due to the wealth effect, will certainly lead to some useful or interesting things being created.

So, as I said before, although the market is bearish, the direction of this round of startups is actually quite clear: stablecoins, PERP, on-chain connectivity, prediction markets, and the Agent Economy all have definite product-market fit (PMF). A good founder plus good VCs can definitely create truly good products. Polymarket and Hyperliquid have set the best examples, and I believe we will see more star products emerge in the next year or two.

For ordinary people, Web3 remains the most promising place to go from nobody to somebody—of course, this "most promising" is compared to the hellish difficulty of the already turbulent Web2. Compared to the previous two cycles, the difficulty has gone from Easy to Hard. I remember seeing a tweet from a Web3 VC partner the other day, saying that he was recruiting a junior intern and received over 500 resumes in just a few days, many from graduates of prestigious universities, which scared him so much that he immediately shut down the job posting.

So ultimately, it comes down to this: pessimists are always right, optimists always move forward.

Original link