The Breakdown - ‘Every Company Will Be a Crypto Company’; A Venture Funding Outlook for 2022

Starting point is 00:00:00 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexo.io, Abra, and FTX, and produced and distributed by CoinDesk. What's going on, guys? It is Saturday, January 15th, and that means it's time for the weekly recap. Now, every week I always tell you, the weekly recap is one of two things. Either, it is a topic that I didn't have a chance to get to in the week, or it's a true recap of a bunch of different news. Interestingly enough, this week is sort of both. I'm going to be looking at a bunch of different venture fundraising news from the crypto industry for 2022, but we'll also tie it together with

Starting point is 00:00:49 sort of a big picture theme. Before that, however, if you were enjoying the breakdown, please go subscribe it, rate it, give it a review, and if you want to get into the conversation on a deeper level, join the Breakers Discord. It's at bit.com. Lee slash breakdown pop. or there's a link in the bio. Lastly, a disclosure as always, in addition to them being a sponsor, I also work with FTX. Today, we are talking about funding. There were a ton of monster financing this week, more than $1.5 billion going into startups and another $2 billion going into venture funds, and I want to go through and share some of those

Starting point is 00:01:27 details, as well as give a little bit of context first. Venture funding into the crypto sector in 2021 absolutely exploded. In 2020, there were about $3.1 billion invested into crypto and Web3 startups. In 2021, that number jumped to $29.1 billion, more than 800% growth. Dove Metrics just put out a great report on venture capital in 2021 in the crypto sector, and this is what they gave as a summary. 2021 was a year of extremes. Every metric around fundraising grew dramatically, round sizes increased more than 50% between the first half of the year and the second half of the year.

Starting point is 00:02:07 2022 is likely to be more of the same. Dedicated crypto funds hauled in nearly $20 billion in dry powder in 2021 and will likely deploy most of that over the next year. Alternative layer ones continue their rise. The share of D5 fundraise is going to non-Etherium projects doubled from the first half to the second half. NFTs completed their ascendance. NFT projects raised dramatically more than DFI ones this year, $2 billion versus $600 million in Q4, clearly cementing their position as one of the hottest sectors.

Starting point is 00:02:39 Growth investing is having its day, most evidently in mature sectors like centralized finance, which saw nearly as many late-stage rounds as early ones. So, getting into their deck, their overview report, their number for fundraising for crypto companies was actually even higher than the block statistics I was cited, earlier. They suggest that over 1313 rounds, $30.2 billion was raised. Of that $1.7 billion went into Defi, $5.8 billion was into Web 3 and NFTs, 6.9 billion into infrastructure, and 15.8

Starting point is 00:03:14 billion into centralized finance. Looking at NFT fundraising specifically, there is clear growth quarter over quarter between the beginning and the end of the year. Q1 in 2021, saw a little under $500 billion in funding, while Q2 saw around $1 billion, Q3 saw around $1.5 billion, and Q2 saw well over $2 billion in fundraising to NFTs. The number of deals in Q4 was 218% higher than it was in Q1, and the total volume of deals was 389% higher than the first quarter. In addition to the startups themselves, venture funds in the crypto industry also had a monster a year. There were 103 rounds and $18.8 billion in total raised for venture funds in the space.

Starting point is 00:04:00 A big preponderance of that happened in the back half of the year. One major trend that was back with a vengeance, something we saw a little bit of back in the 2017-2018 cycle, was ecosystem-focused funds around Ethereum alternatives. Salana saw a $270 million ecosystem fund, Binance saw a billion, Pocodot had 20 million, Algorand had 600 million, Avalanche saw 200 million, Polygon, 321 million, and Terra another 200 million. This is obviously one of the ways that these protocols are trying to compete. Ecosystem funding is a way to incentivize developers and builders of all stripes to work on your platform, or at least make things compatible with your platform versus someone else's. One new and interesting phenomenon that is very clearly still nascent,

Starting point is 00:04:44 but something I think that's worth watching going into next year, is investment DAWs. Dove put it this way. Investment DAOs are on the rise, participating in 10% of the 2021 crypto-related funding deals. There were 182 deals that had at least one investment Dow participating. The total raised in those deals was $896 million, so coming up on a billion dollars that at least touch an investment Dow in some way. Certainly that's still a far cry from the total, but that's a phenomenon that I would expect to at least 10x, if not more, this year. Nexto is a trusted and easy-to-use crypto platform where you can buy cryptocurrencies at the touch of a button and start earning up to 17% annual interest that is paid out daily.

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Starting point is 00:06:30 FtX is the safe, regulated way to buy and sell Bitcoin and other digital assets. Trade crypto with up to 85% lower fees than top competitors. FtXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. You can trade NFTs with no gas on FTXUS, and gas is subsidized when you withdraw off the platform. Help support the breakdown and visit FtX.us today. That's FtX.us. So that's the background context. 2021, obviously a huge year in funding in the crypto space, both on the startup side as well as on the venture fund side. But let's look at what announced funding this week. Near Protocol raised $150 million, quote, to become a hub of Web3 development.

Starting point is 00:07:18 This round was led by Three Arrow's Capital and had just a host of other crypto investors. This was the first big action with new CEO Marike Flament, who was previously the managing director for Europe and Global CMO at Circle. Of the round, she said, NIR enables the creation of open web leveraging blockchain technology. Our vision is to create a world where users own their data, their money, their creations, their journeys, a world where all can engage and participate, a world where new business models can be invented, where creators, developers, and users can be better rewarded. Our mission is to bring this open web web 3 vision mainstream.

Starting point is 00:07:49 Suezoo from Three Arrow said, pumped to leave this growth round for NIR, going to be a big year for crypto adoption and massively scalable defy. Now, one of the questions that the near round is bringing up is the role of VCs in theoretically decentralized protocols, which is, of course, at the heart of the critique that Jack Dorsey has been making around Web 3. There is a lot more to explore there. Go listen to last week's long read Sunday if you haven't yet. It's something that I expect to come back to, but for now, let's continue through this parade of financings from the last week. Payments processor checkout.com raised $1 billion on a

Starting point is 00:08:22 $40 billion valuation, making it one of the largest private companies in the world. The funding will be used to help drive U.S. market growth and to continue to evolve the technology platform and meet Web3 needs. Over 50% of checkout.com's business is currently crypto companies. So although it's not strictly a crypto company, it is very much integrated into this infrastructure. I'm always interested to see who the participants are in these large rounds, and notables from this one include TradFi actors like Franklin Templeton as well as Tiger Global. This also marks an increase in valuation of $25 billion in just a year. Next up, Zero Hash, which calls itself digital assets as a service, has raised $105 million

Starting point is 00:09:01 in a Series D just three months after raising $35 million in a Series C. Basically, Zero Hash offers tech to third-party retail brokers and fintech firms. So they power neobanks, they power payment processors like MoonPay. And Edward Woodford, who's the co-founder and CEO, had, I think, one of the best quotes of the week, saying that every company will be a crypto. company in some form. Siba is a Switzerland-based crypto bank. They received one of the first licenses from the Swiss Financial Market Supervisory Authority, FINMA in 2019, and added a license to offer digital assets to Swiss domicile mutual funds last year. They raised another $119 million.

Starting point is 00:09:41 A very cool one here from Indonesia. Pluang raised $55 million in an extension of their Series B. So this is a company that's only a couple years old. It launched in 2019. It started with gold, then has since grown to include a range of different asset classes, and the idea here is to allow investors to diversify their holdings. What's really cool is that investments can start with less than one USD, four gold, indexes, mutual funds, and crypto, and it's also launching new features that will allow users to invest in fractional US stocks. Co-founder and co-CEO Claudia Colonas said that part of the reason for this investment is that Indonesia has massively high rates of smartphone penetration and savings per capita. She says, because of this, there are millions of potential first-time

Starting point is 00:10:22 investors just starting to establish money management habits and practices that were previously impossible where they live. Until very recently, most of the asset classes that can be accessed through Pluang were only available to the privileged and wealthy, while most others were faced with low financial literacy and very limited investing options. I think this is phenomenal. I'm incredibly excited to see the growth here, and I think that it's a very strong argument that we need tools to allow anyone, no matter what their portfolio size is, to invest in good opportunities to grow their holdings for the future. We basically need to break the hierarchy of how we think about whether investors are informed or not and stop pinning it to how much money they already have.

Starting point is 00:10:59 Indonesia has 273 million people. They have a median age of around 30 years old. This is a ton of people who are in their prime earning years who haven't, frankly, had good access to markets at all. All right, we're moving on. Yes, somehow we still have more. The Defi Alliance has rebranded itself to Alliance Dow and raised $50 million from 300 individual contributors. I got to give it to Danny Nelson at Coin Desk for this lead. Defy Alliance, the incubator of platforms ranging from sushi to Olympus Dow, rebranded itself as Alliance

Starting point is 00:11:28 Dow Thursday, a who's who of crypto investors, executives, non-fundable token, bowls, and also Jake Paul, back the self-styled digital startup nation. So they are really trying to be a Founders Dow. As one of their partners, Imran Khan says, our Dow is ultimately a Founders' Dow for the best founders in the world that are building Web 3. One of the things that I always observe is that when wealth starts to recycle in a particular area. So when people got rich off of Uber in Silicon Valley, that begat the next round of startups because it was new capital that was going to be deployed to other new types of

Starting point is 00:12:00 startups. I think that sort of recycling is exactly what's happening in defy and NFTs. You're seeing a first generation of people who made money on some of the early booms who are now plowing it into new startups. That's exactly how sectors grow and so I'm really excited to see what Alliance Dow does next. Finally, one final one announced on Friday, FTX Ventures. This is a $2 billion, yes, $2 billion fund, and it will be led by Amy Wu, who's coming over from Lightspeed. It'll be one of the industry's largest funds with capital from FTX itself, as well as from Sam Bankman-Free, the CEO. Investments will range from $100K up to as high as hundreds of millions of dollars. And while there's tons of themes that Amy and the team are going to be interested in,

Starting point is 00:12:40 to the Wall Street Journal, she mentioned crypto gaming, insurance, and security products specifically. Now, this is a very different division than what I do at FTX, but I'm really excited to see it grow, and I hope that it's a positive force for new companies in this space. For those keeping track, that's about a billion and a half dollars announced this week into startups and another two billion into funds. So all of those trends that we started with from 2021 seem to be ready to just pop off again, extend, and even grow in 2022, and I'm excited to see what comes out of it. I want to say thanks again to my sponsors, nexo.io, Abra, and FTF. and thanks to all you guys for listening. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - ‘Every Company Will Be a Crypto Company’; A Venture Funding Outlook for 2022

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