As the crypto market continues to grapple with falling prices, many traditional investors are moving away from the sector in search of safer places for their capital. Mega VC firm Sequoia Capital is the latest to do so, with the firm reducing two major venture funds, including its crypto fund, in an effort to reduce its size.
Sequoia has cut its crypto fund by 65,8% to $200 million, from $585 million, the Wall Street Journal, citing anonymous sources. The firm has also halved its ecosystem fund, which provides capital to other venture funds, to $450 million, according to the report.
“We made these changes to sharpen our focus on early-stage opportunities and to provide liquidity to our limited partners. “The crypto fund will primarily focus on the formation of new companies, with the opportunity to complement these investments with our seed, venture, growth and expansion funds as the companies mature,” a Sequoia spokesperson said in a sent statement.
Sequoia launched the two funds in February 2022, months before the crypto market suffered a cascade of industry-unraveling events, beginning with the collapse of Terra/LUNA. Since then, confidence in cryptocurrencies has gone downhill and there has been a drought of venture capital investments in this space.
Now, Sequoia is looking to invest in younger startups, after crypto companies Three Arrows Capital, Voyager and FTX filed for bankruptcy.
Sequoia had invested around $150 million in FTX, one of the largest crypto exchanges in the world. It marked that investment to zero in November 2022, shortly after the exchange collapsed. While that investment represented a smaller portion of the company's capital, it still burned a hole in its pocket and left a mark on its reputation.
Earlier this year, a SEC filing revealed that Sequoia Capital Fund housed a whopping $13.6 billion, indicating the company's commitment to new investments amid a generally unstable market.
Given the size of Sequoia's largest investment vehicle, its cryptocurrency investments now appear less than modest.
In general, funding for cryptocurrency startups has become scarce. As of the second quarter of 2022, venture capital investments in the industry fell for the fifth consecutive quarter with a second quarter of 2023, to $2340 billion, according to data from PitchBook. Although funding has fallen 80,7% in that time period, some cryptocurrency-focused venture capital firms, like CoinFund, continue to hold out.
Other venture capitalists, like Electric Capital's Maria Shen, believe crypto winter is showing signs of maturity as projects ship products that were once relegated to the realm of theory. She also noted that many companies that launched massive funds during the previous bull market are almost at the end of the life of their funds.
The crypto industry has attributed the decline in funding to several trends, including the fact that companies are allocating less capital to preserve the deployment of their funds, regulatory tension in the US, lower valuations and higher rounds. little. All of that is resulting in less capital outflow, and it doesn't help that companies like Sequoia are moving backwards in the industry.
