VCs ❤️💔

In the first quarter of 2022, venture capitalists invested more than $10 billion in crypto startups despite a falling market. It was a reminder that investment horizons can differ sharply from market sentiment: some investors focus on the long term while everyone else watches the latest downturn.

Firms such as A16Z, Pantera, Paradigm and DCG became familiar names in crypto funding. When much of the capital comes from a handful of investors, a question follows: can concentrated financing undermine the decentralisation that Web 3.0 promises?

Funding choices are shaped by regulation as well as by demand. Selling equity privately to angel investors or VCs can be a more practical route than a public token offering, depending on the jurisdiction and the project. The wave of poor-quality ICOs in 2017 damaged trust in that route. STOs, IEOs and IDOs introduced other approaches, but changing the fundraising mechanism does not remove legal obligations or the need to earn trust. For large rounds, venture firms can remain attractive sources of capital.

Yet, the entrance of traditional venture investors into the crypto space has not been as welcoming as they are accustomed to. The highly engaged and active online communities and the founders with a vision of decentralisation are not what VCs used to with Web 2.0. initiatives. Fortunately, while the majority of crypto businesses are high-risk investments, they can also give some of the highest returns in any industry. And VCs understanding that crypto and Web 3.0 is the future, won’t want to miss out on what may be the biggest investment opportunity of their time. That gives founders the power to negotiate a better position by creating agreements so that their investors won't have an outsized say in the governance of the company, and they can't overrule something that the community wants and votes for.

Whenever institutional capital enters a community-driven project, founders should remember that the value of their vision gives them something to negotiate with. They can use that position to protect the governance principles that made the project worth funding in the first place.