Speaker 1: This is Bloomberg Crypto, a daily Bloomberg I heard podcast,
Speaker 1: and I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg.
Speaker 1: Mus It's Thursday, October. Let's say you're crypto startop trying
Speaker 1: to raise money from venture capitalists. All things being equal,
Speaker 1: you'd have done decently well in twenty ridiculously well in
Speaker 1: one and not bad at all in the first half.
Speaker 1: But right now maybe not so much. Bloomberg Report. Hannah
Speaker 1: Milla joins me to discuss what's happening with crypto vcs
Speaker 1: and the startups who need them. I think for a
Speaker 1: lot of vcs, they're seeing this as an opportunity for
Speaker 1: talent to step in that's maybe more experienced. Welcome back, Hannah.
Speaker 1: How's life in San Francisco. Life in San Francisco is great. Um, yeah,
Speaker 1: October's always kind of summary here. So it's actually been
Speaker 1: warm temperatures as of late. Well, you spoke to our
Speaker 1: colleague vill Donna about the fact that October has also
Speaker 1: been historically speaking like a pretty decent one for crypto markets,
Speaker 1: and that's I mean mixed results given the extent of
Speaker 1: the crypto winter. But you've also been reporting on an
Speaker 1: area where October has been a little bit more challenging
Speaker 1: than maybe folks were expecting, and that is in the
Speaker 1: venture capital market for crypto starts up fundraising. What's going
Speaker 1: on over there. Yeah, So I got some data from
Speaker 1: Pitchbook looking at venture capital funding in the third quarter
Speaker 1: compare to the same period in one and it's a
Speaker 1: steep drop. It's a thirty seven percent declined to four
Speaker 1: point four billion dollars uh and venture funding four crypto startups,
Speaker 1: and that's roughly half of the record amount of funding
Speaker 1: that vcs poured into crypto and blockchain startups in the
Speaker 1: first quarter of two. So it's it's really a bit unsettling,
Speaker 1: you know, seeing this big drop, but it makes sense
Speaker 1: considering market conditions. We are in the depths of crypto winter. Uh.
Speaker 1: There there are still a lot of issues within the industry. Uh.
Speaker 1: And that podcast with bel Donna referred to October as
Speaker 1: potentially October in terms of market performance, but it's actually
Speaker 1: been Hackedober with a lot of security incidents. As a la,
Speaker 1: protocols have become an easy target for attackers. That's according
Speaker 1: to blockchain analysis firm Chain Analysis, which estimates around one
Speaker 1: point nine billion dollars worth of digital tokens have been
Speaker 1: stolen and hacks this year of the we're talking about
Speaker 1: declines from a record and kind of if we you know,
Speaker 1: vcs will love to say, well, we have a long
Speaker 1: term view, and so if we take the long term
Speaker 1: view for a second, we're still talking about money being
Speaker 1: deployed at levels unthinkable three four, five years ago because
Speaker 1: this industry barely existed then, both on the startup side,
Speaker 1: but also some of the investors who are pouring money
Speaker 1: into these startups. Talk a little bit about who those
Speaker 1: venture capitalists are. We've seen big names back the crypto industry.
Speaker 1: I'm talking about Andres and Horowitz here, which has massive,
Speaker 1: massive crypto funds and has a big crypto team dedicated
Speaker 1: to examining and investing in this industry. UM. We also
Speaker 1: have other big names. Electric Capital is one, UH, they're
Speaker 1: more crypto focus UM and how also raised a massive
Speaker 1: fund UH. Paradigm another big crypto name, UM founded by
Speaker 1: um co founded by Fred Orsu from coin base. And
Speaker 1: it's just really interesting to see kind of this growing
Speaker 1: divide now between generalist specs which look at many different industries,
Speaker 1: back many different areas of tech versus crypto native vcs.
Speaker 1: These are firms that specialize in crypto investments. They might
Speaker 1: have a dedicated research team, dedicated coding team, and these
Speaker 1: crypto native vcs are very much committed still to the space.
Speaker 1: This is everything that they have hinged their entire investment
Speaker 1: philosophy on blockchain going big. Who are some of those startups?
Speaker 1: So you've mentioned the venture capitalists, like the big traditional names,
Speaker 1: the newer but big crypto names, who are they still
Speaker 1: invest sting in even if they're investing maybe at lower
Speaker 1: levels than they were this time left you. Yeah, it's
Speaker 1: been really interesting to see a trend where n FT
Speaker 1: gaming startups are actually scoring a big round still um.
Speaker 1: In September we saw Lute Mogul and improbable Um raise
Speaker 1: over a hundred million dollars. And what's interesting about these
Speaker 1: startups is that yes, they use blockchain technology, but it's
Speaker 1: more to sort of sort of more in the background.
Speaker 1: They're not like explicitly crypto startups. They just kind of
Speaker 1: take advantage of blockchain technology and they're more focused on
Speaker 1: gaming and the metaverse. So I think a lot of
Speaker 1: crypto vcs still see gaming as an opportunity to broaden
Speaker 1: blockchain and cryptos appeal to the main to mainstream consumers.
Speaker 1: You know, people love games, they love playing them. There
Speaker 1: it's a lot more accessible than something like a complicated
Speaker 1: defy platform that might be prone to hacks and bankruptcies.
Speaker 1: I mean, it's so interesting that what we're essentially talking
Speaker 1: about is people doubling down on one of our go
Speaker 1: to phrases here on this podcast, the underlying technology as
Speaker 1: opposed to some of like the buzzier applications built on
Speaker 1: top of that technology. Yeah, it's all about infrastructure and
Speaker 1: picks and shovels. So we have seen investments raised for
Speaker 1: companies that are still building on l one blockchains, or
Speaker 1: even companies that kind of help bridge the gap between
Speaker 1: Web two players and Web three. So I recently wrote
Speaker 1: about a company called Stardusts that does that for gaming. Now,
Speaker 1: when you talk about l one blockchains, we're talking like,
Speaker 1: as you say, the picks and shovels, like the bitcoins,
Speaker 1: the ethereums, right, like those sort of fundamental things. But
Speaker 1: we've also seen folks like um Anamocha raise money blockchain
Speaker 1: dot com. How are they still fundraising in this environment?
Speaker 1: I mean, is it because Anamoca is partly a gaming play,
Speaker 1: is it something else? Yeah, Animoca is you know, it
Speaker 1: does fall into that gaming space. The last round they
Speaker 1: had was flat. Um, so it wasn't necessarily a down round.
Speaker 1: I spoke with Yatsu who founded Animoca, and he really
Speaker 1: gave a very rosy picture of what's happening with his company. Uh.
Speaker 1: He is still very much interested in eventually going public.
Speaker 1: He is very excited about what lies ahead for blockchain gaming,
Speaker 1: and he really thinks that Crypto Winter hasn't actually come
Speaker 1: for gaming right now. And then you mentioned blockchain dot Com.
Speaker 1: So they were looking to raise a down round uh
Speaker 1: recently and we've seen, you know, some shifts there. Um.
Speaker 1: They just recently did a strategic financing round. Um. So
Speaker 1: it's kind of been interesting to see what's going to
Speaker 1: happen with that company. They did have a layoff um recently.
Speaker 1: There are two sort of concepts which seemed to be
Speaker 1: really important in the context of Crypto Winter especially. The
Speaker 1: first is a down round. When folks talk about a
Speaker 1: down round, it's often like, oh my god, he raised
Speaker 1: a down round, but like, what is it exactly? Yeah,
Speaker 1: So that's referring to the valuation of a company. Uh.
Speaker 1: So you know, companies were raising at these these massive valuations.
Speaker 1: Uh last year really that were you know, saying that
Speaker 1: these were unicorn and some of them many times over,
Speaker 1: meaning that they were worth more than a billion dollars.
Speaker 1: So it's been a real calmdown this year. We've seen
Speaker 1: more companies like watching dot Com looking to raise at
Speaker 1: lower valuations UM than they were at previously. So the
Speaker 1: reason people get sort of weird about it is because
Speaker 1: there's this implied suggestion that you're definitely not worth as
Speaker 1: much as the last time we had a conversation about
Speaker 1: fround raising, but maybe you were like never worth that much.
Speaker 1: We'll be right back with more from Bloomberg Report, Hannah Mila.
Speaker 1: We've talked about gaming and the fact that it's sort
Speaker 1: of an outlier in terms of its ability to continue
Speaker 1: to be attractive. Do you have a sense of what's
Speaker 1: going on with like VC overall? Right? Is it that, like,
Speaker 1: is crypto a sector that's being hit harder by the
Speaker 1: decline than other places or are we looking at a
Speaker 1: general pullback in liquidity. Yeah, there's definitely a general pullback
Speaker 1: across tech um. The crypto is not the only area
Speaker 1: being affected. The thing is, though crypto has an extremely
Speaker 1: high profile as being risky. UM. We see that because
Speaker 1: of the volatility of tokens. We see that in the
Speaker 1: hacks that affect the industry, and we just see this also,
Speaker 1: you know, there are shady characters and you know there
Speaker 1: have been very spectacular fails um UM different players, major
Speaker 1: players within the industry. I'm thinking three rows capital here,
Speaker 1: I'm thinking Celsius, I'm thinking Voyage or Digital. So it's
Speaker 1: very I think in some ways the stakes are a
Speaker 1: bit higher for the crypto industry UM with this you
Speaker 1: know slow down, and even with this more broad slowdown,
Speaker 1: it'll be interesting to see how things shape up. I
Speaker 1: will say that a lot of the vcs I talked
Speaker 1: to are still very hopeful about the space. Even though
Speaker 1: they're telling their portfolio companies to buckle down for the
Speaker 1: next eighteen twenty four months, make sure they have enough
Speaker 1: cash on hand to last crypto winter. They still believe
Speaker 1: we will come out of this. And one thing that's
Speaker 1: also interesting about this current bear market and how it's
Speaker 1: different from previous crypto winters, is that we do see
Speaker 1: more institutional money coming in UM, more big players from
Speaker 1: traditional finance entering crypto. So I think this has given
Speaker 1: a lot of people hope UM, and they're saying, you know, hey,
Speaker 1: the industry is more mature than it was in previous
Speaker 1: bear markets, and you know, it's we're gonna overcome this.
Speaker 1: So I still I will say, I still see a
Speaker 1: lot of optimism within crypto because you mentioned October. You know,
Speaker 1: you've previously reported that security startups have been an area
Speaker 1: of growth. Are they raising enough money to keep up
Speaker 1: with the outbreak of hacks right now? I'm like, what's
Speaker 1: going on over there? I would say so with the
Speaker 1: most recent hack UM for Mango, UH, I spoke to
Speaker 1: one of a startup that had just uh done a
Speaker 1: recent raise and it's called Hawborn, and you know, they
Speaker 1: seem to be doing really well, UM, very very busy.
Speaker 1: So again, and I think that's sort of that security
Speaker 1: piece falls into the infrastructure category where you're you're you're
Speaker 1: looking for flaws and either UM platforms, code or even
Speaker 1: its economic models and testing them to see whether they can,
Speaker 1: you know, or whether they have any vulnerabilities and whether
Speaker 1: they can withstand extremes this extreme market conditions that we
Speaker 1: see in crypto at times, extreme market conditions is a
Speaker 1: very diplomatic way of putting it. As a sort of
Speaker 1: a closing thought. You know, we've talked on previous episodes
Speaker 1: about one of the propositions that the crypto native vcs
Speaker 1: like to make is that like we we are the experts,
Speaker 1: like we really know this area inside out. We can
Speaker 1: provide expert council expert guidance. Are you hearing it all
Speaker 1: that in this wave of C suite departures, when you
Speaker 1: know companies like actually really need that expert guidance. Are
Speaker 1: you hearing from either founders or vcs that folks are
Speaker 1: stepping up in that area. Yeah, I know. It's I
Speaker 1: think for a lot of vcs, they're seeing this as
Speaker 1: an opportunity for talent to step in that's maybe more
Speaker 1: sperienced in dealing with growing regulatory scrutiny or you know,
Speaker 1: handling a larger company. Um. So, I think for some
Speaker 1: of the founders it's nice for them to you know,
Speaker 1: maybe pull back focus on something else, whether it's policy
Speaker 1: or just their own you know, sanity. Um And it's
Speaker 1: it's interesting to see whether we're going to have more
Speaker 1: talent pulled in from traditional finance, whether we're gonna see
Speaker 1: familiar names from big institutional players common too crypto and
Speaker 1: sort of fill these leadership gaps that have been left.
Speaker 1: You know, you're making an interesting point about folks coming
Speaker 1: in to be you know, we've called them in the
Speaker 1: past like the adults in the room. That may play
Speaker 1: to the strength of the more traditional, noncrypto native vcs
Speaker 1: because they have you know, much bigger benches of experience
Speaker 1: in those types of policy areas and that regulatory area
Speaker 1: in the how to testify but before the Senate Banking
Speaker 1: Committee area. So it's certainly going to be an interesting
Speaker 1: time for all involved. Yeah. I mean, you see, with
Speaker 1: a lot of the larger, more established VC firms, they
Speaker 1: have legal experts, legal teams who can help growing startups
Speaker 1: navigate this changing landscape for crypto regulation. So I do
Speaker 1: think that there are things that traditional vcs can offer
Speaker 1: these companies, and it'll be interesting to see how crypto
Speaker 1: native vcs evolved to offer similar benefits their portfolio companies. Terrific. Well, Hannah,
Speaker 1: I'm sure we'll have you back on the show soon
Speaker 1: and have a great rest of your San Francisco summer.
Speaker 1: Thank you have a good one. You can find more
Speaker 1: of Hanna Miller is reposing on the Bloomberg terminal on
Speaker 1: Bloomberg dot Com. I'll follow her on Twitter. She's at
Speaker 1: h G. Miller nine. That's h G m I L
Speaker 1: L e Er two nine. On the next episode of
Speaker 1: Bloomberg Crypto, crypto traders are still hoping that October will
Speaker 1: turn into October. But are their hopes misplaced? And what's
Speaker 1: the effect of all this looming regulation on sentiments? Oh,
Speaker 1: and have you heard about some guy named Matt Levine?
Speaker 1: All this and more on the next episode. This is
Speaker 1: Bloomberg Crypto, a daily podcast from Bloomberg and I Heart Radio.
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Speaker 1: We're at Crypto. The supervising producer of Bloomberg Crypto is
Speaker 1: Vicky very Galina. Our senior producer is Janet Babin. Our
Speaker 1: producers are Mohammed Faruk and Sharon Barriro. Our associate producers
Speaker 1: are Ty Butler and Moses on Them. Desta wonder At
Speaker 1: is our engineer original music by Leo Sidrin. I'm Stacy
Speaker 1: Maria Shmael. We'll be back tomorrow.