Venture Capital Is Struggling, and Not Just in Crypto

Mechanism Capital’s Marc Weinstein shares advice for struggling crypto entrepreneurs


BigTunaOnline/Shutterstock modified by Blockworks


Late-stage fundraising from venture capital firms is drying up, and not just in the crypto sector, according to Marc Weinstein from crypto investment firm Mechanism Capital.

Weinstein told Blockworks that companies like Near and Alchemy raising hundreds of millions of dollars marked the tail end of the bull run. 

“We’ve seen seed valuations come back to reality,” Weinstein said. 

He pointed to Tiger Global as an example of a firm whose investments — FTX being a major inclusion in its portfolio — got wiped out following the tech rout of 2022. 

The Wall Street Journal reported that its markdowns “erased $23 billion in value from Tiger’s giant holdings of startups around the globe.”

“[Tiger Global was] one of the players that had come into crypto in a really big way, and were writing these later stage checks,” Weinstein said. “When you see public company valuations in the tech sector dropping below the cash value of their previous rounds, down 50 to 80% in some instances, it’s not a surprise that later stage VC [venture capital] funding has really dried up.” 

Blockworks previously reported on a Crunchbase report that showed Web3 VC funding dropped 82% year to year from $9.1 billion to $1.7 billion. Deal flow also slowed. 

Recent data from “Big Four” accounting firm KPMG demonstrates that this phenomenon isn’t isolated to crypto and Web3. 

“Global VC investment fell to $57 billion in Q1 2023 — a particularly low note when compared to the high of $200+ billion seen in the same quarter just one year ago,” KPMG’s April Venture Pulse report said. 

“A myriad of factors combined to buffet the global VC market, from the protracted war in Ukraine and other geopolitical uncertainties to concerns about the global banking system following the sudden turbulence seen in Q1 2023. Stubbornly high inflation and still-increasing interest rates have also posed their own challenges.”

Weinstein agreed, adding that the fair value for a late stage growth equity business has changed as a result of rate hikes. Money is tighter now, he said, but his advice for founders of startups — should a bull market return — is to not raise money at too high of a valuation so as to avoid the crunch of the next bear market.

“If you went out in the bull cycle, and you raised at a $50 [million] to $100 million valuation, and you had seed-stage traction, and now you’ve launched your product and the market is down because retail investors and participants are bearish and institutions are cautious, you haven’t hit growth metrics. And now you’re in a position where you have to raise a down round.”

A down round simply means a company is raising money at a lower valuation than the prior round, diluting ownership of the company for everyone involved. Weinstein said this scenario can “feel like death for founders.”

And founders aren’t necessarily to blame when this happens. Weinstein explained the VCs are assets-under-management businesses, which means they make money off management fees. The larger their fund is, the more fees they can collect. 

This dynamic affects startups because “oftentimes, venture funds will convince a founder that they need to raise more capital…at a higher valuation,” he said, adding that VCs will nudge them to accept dilution.

“I think that’s a practice of the bull market that when we look back on it we’re gonna say, ‘this was not a good idea for founders to listen to.’”

Weinstein’s advice? Raise enough capital to cover your expenses for the 12 to 18 months, build a minimum viable product, discover your customers, and iterate a version of your product or service that people will actually pay for.

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.


Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2024

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research



Aerodrome is a "MetaDEX" that combines elements of various DEX primitives such as Uniswap V2 and V3, Curve, Convex, and Votium. Since its launch on Base, it has become the largest protocol by TVL with more than $495B in value locked, doubling Uniswap's Base deployment.


The former Valkyrie CEO chats with Blockworks about what she has her eye on as Cypherpunk Holdings’ new leader


Thursday’s CPI report shows prices are coming down more quickly than analysts had anticipated, renewing hope that central bankers will cut rates in the fall


If we tokenize all assets in a speculative rush, the risk of creating illiquid markets and trapped value will manifest on a large scale


Plus, Trump is headed to the heart of Bitcoinlandia with a speaking appearance at the Bitcoin 2024 conference


Meanwhile, stocks rally after Jerome Powell finishes his Capitol Hill tour


Plus, Blinks have reshaped many people’s understanding of what blockchains are capable of