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Written by Yogita Khatri Compiled by: Tim, PANews In the previous issue, I talked about how the "Summer of Digital Asset Treasury (DAT)" has attracted the attention and funding of traditional start-up funding rounds. At the time, some venture capital institutions also raised another question: limited partners (LPs) have become very cautious about investing in crypto funds. Therefore, in this issue, I will delve into why raising crypto VC funds has become more difficult, even in bull markets, and what this means for the future development path. Several venture capitalists told me that after the collapse of Terra (LUNA) and FTX in 2022, financing became significantly more difficult, which not only eroded the trust of LPs, but also damaged the reputation of the entire industry. Regan Bozman, co-founder of Lattice Fund, said: "While views on the crypto market have improved significantly, this has not offset widespread concerns about venture capital performance. The new challenge for crypto venture capital today is the need to compete with ETFs and DAT for funding." Michael Bucella, co-founder of Neoclassic Capital, said that only funds with clear advantages or outstanding historical performance can continue to receive LP funding injections today. This market shift has driven what Dragonfly general partner Rob Hadick calls a "premium target transfer." He noted that in 2024, only 20 institutions attracted 60% of LP's total funding, while another 488 institutions shared the remaining 40%. Despite improved liquidity through mergers and acquisitions and IPOs this year, the funding threshold is still well above pre-market crash levels in 2022. This is also confirmed by the broader data. Data from The Block Pro, provided by my colleague Ivan Wu, shows that crypto venture fund funding has shrunk sharply since the 2021-2022 boom period. In 2022, institutions raised over $86 billion through 329 funds, but this figure plummeted to $11.2 billion in 2023 and further to $7.95 billion in 2024. As of 2025, only 28 funds have raised $3.7 billion, highlighting the tough current funding environment. Both the size of financing and the number of funds have shown a steep downward trend, reflecting the cautious attitude of LPs and the increase in capital options. Several VCs have revealed to me that family offices, billionaires, and crypto-native funds are still actively supporting crypto venture capital. But since 2022, pensions, endowments, fund of funds, and corporate venture capital sectors have mostly opted out, resulting in smaller and more selective LP groups. Why financing is harder now than it was in 2021 or early 2022 The last bull market cycle was exceptional, and almost everyone was able to raise crypto venture capital funds in 2021, even if they were inexperienced, but many of these funds have not yet returned capital to investors. LPs now require real data on paid-in capital allocation before investing new capital. Sep Alavi, general partner at White Star Capital, said: "LPs are increasingly skeptical of unrealized returns, and they prefer funds with a history of real returns." The rate hike cycle since March 2022 has also prompted capital allocators to shift to safer, more liquid assets. Steve Lee, another co-founder of Neoclassic Capital, pointed out that this cycle of returns is mainly concentrated in Bitcoin, Ethereum and a few blue-chip stocks through ETFs and DATs, and hardly benefits small projects that usually have venture capital value. "LPs see short-term gains in large-cap stocks, while it takes longer to realize the value of venture capital," Lee said. An early VC founder, who spoke on condition of anonymity, added that the lack of "altcoin buying" has dampened LPs' willingness to invest as few tokens have performed well since the 2021-22 cycle, and many crypto VCs invest in tokens. AI is also a major contributing factor: "AI is an all-encompassing hot thing, attracting a lot of interest from LPs focused on technology," said Bozman of the Lattice Fund. Overall, while financing may not be as difficult today as it was in the years after the collapse of Luna and FTX, it is still much more severe than the easing period of hot money in 2021 and early 2022. What does the future of crypto VCs look like? If financing continues to be difficult, most venture capital institutions expect a wave of consolidation in the industry, and smaller, weaker or less distinctive funds will quietly withdraw from the market. Alavi expects smaller or underperforming funds to struggle to raise follow-on funds, while Hadick notes that the market has begun to shrink as capital is concentrated in the head. The early crypto venture capital founder believes that mid-cap funds will tend to hollow: small funds under $50 million with cutting-edge advantages will survive, and mega-funds such as Paradigm and a16z will continue to develop, but underperforming mid-cap funds will fade away. He added that the crypto risk market may be moving closer to the traditional market structure, with a large liquidity base supported by smaller but better venture capital institutions. "Capital markets have a wonderful ability to self-correct, and we are emerging from a phase where venture capital is over-allocated and liquidity strategies are under-allocated," Bucella said. Others believe that the patterns themselves are evolving. Erick Zhang of Nomad Capital predicts that there will be fewer companies purely focused on cryptocurrencies, Web2 venture capitals will enter the crypto space, and crypto funds will expand into Web2 businesses. The timeline for the large-scale return of liquidity providers is uncertain. Neoclassic's Lee said investors will return once capital shifts from Bitcoin and Ethereum to the low- and mid-cap token ecosystem, a shift he expects to accelerate through stablecoin-driven on-chain capital flows. Alavi believes that institutional investors may return in mid-2026 as interest rates fall and M&A deals boost fund allocation. Hadick believes that most institutional investors, except for pensions, have returned, and expects pensions to return to the market in the next few years as regulations become clearer and markets mature. The early venture capital founder said that LPs will not return on a large scale unless there is the next "super hot narrative" similar to stablecoins or breakthrough use cases.

Original title: The Funding: Why raising a crypto VC fund is harder now — even in a bull market Original author: Yogita Khatri, The Block Original compilation: Tim, PANews   In the previous issue, I talked about how the "Summer of Digital Asset Treasury (DAT)" has attracted the attention and funding of traditional start-up funding rounds. At the time, some venture capital institutions also raised another question: limited partners (LPs) have become very cautious about investing in crypto funds. Therefore, in this issue, I will delve into why raising crypto VC funds has become more difficult, even in bull markets, and what this means for the future development path. Several venture capitalists told me that after the collapse of Terra (LUNA) and FTX in 2022, financing became significantly more difficult, which not only eroded the trust of LPs, but also damaged the reputation of the entire industry. Regan Bozman, co-founder of Lattice Fund, said: "While views on the crypto market have improved significantly, this has not offset widespread concerns about venture capital performance. The new challenge for crypto venture capital today is the need to compete with ETFs and DAT for funding." Michael Bucella, co-founder of Neoclassic Capital, said that only funds with clear advantages or outstanding historical performance can continue to receive LP funding injections today. This market shift has driven what Dragonfly general partner Rob Hadick calls a "premium target transfer." He noted that in 2024, only 20 institutions attracted 60% of LP's total funding, while another 488 institutions shared the remaining 40%. Despite improved liquidity through mergers and acquisitions and IPOs this year, the funding threshold is still well above pre-market crash levels in 2022. This is also confirmed by the broader data. Data from The Block Pro, provided by my colleague Ivan Wu, shows that crypto venture fund funding has shrunk sharply since the 2021-2022 boom period. In 2022, institutions raised over $86 billion through 329 funds, but this figure plummeted to $11.2 billion in 2023 and further to $7.95 billion in 2024. As of 2025, only 28 funds have raised $3.7 billion, highlighting the tough current funding environment. Both the size of financing and the number of funds have shown a steep downward trend, reflecting the cautious attitude of LPs and the increase in capital options. Several VCs have revealed to me that family offices, billionaires, and crypto-native funds are still actively supporting crypto venture capital. But since 2022, pensions, endowments, fund of funds, and corporate venture capital sectors have mostly opted out, resulting in smaller and more selective LP groups. Why financing is harder now than it was in 2021 or early 2022 The last bull market cycle was exceptional, and almost everyone was able to raise crypto venture capital funds in 2021, even if they were inexperienced, but many of these funds have not yet returned capital to investors. LPs now require real data on paid-in capital allocation before investing new capital. Sep Alavi, general partner at White Star Capital, said: "LPs are increasingly skeptical of unrealized returns, and they prefer funds with a history of real returns." The rate hike cycle since March 2022 has also prompted capital allocators to shift to safer, more liquid assets. Steve Lee, another co-founder of Neoclassic Capital, pointed out that this cycle of returns is mainly concentrated in Bitcoin, Ethereum and a few blue-chip stocks through ETFs and DATs, and hardly benefits small projects that usually have venture capital value. "LPs see short-term gains in large-cap stocks, while it takes longer to realize the value of venture capital," Lee said. An early VC founder, who spoke on condition of anonymity, added that the lack of "altcoin buying" has dampened LPs' willingness to invest as few tokens have performed well since the 2021-22 cycle, and many crypto VCs invest in tokens. AI is also a major contributing factor: "AI is an all-encompassing hot thing, attracting a lot of interest from LPs focused on technology," said Bozman of the Lattice Fund. Overall, while financing may not be as difficult today as it was in the years after the collapse of Luna and FTX, it is still much more severe than the easing period of hot money in 2021 and early 2022. What does the future of crypto VCs look like? If financing continues to be difficult, most venture capital institutions expect a wave of consolidation in the industry, and smaller, weaker or less distinctive funds will quietly withdraw from the market. Alavi expects smaller or underperforming funds to struggle to raise follow-on funds, while Hadick notes that the market has begun to shrink as capital is concentrated in the head. The early crypto venture capital founder believes that mid-cap funds will tend to hollow: small funds under $50 million with cutting-edge advantages will survive, and mega-funds such as Paradigm and a16z will continue to develop, but underperforming mid-cap funds will fade away. He added that the crypto risk market may be moving closer to the traditional market structure, with a large liquidity base supported by smaller but better venture capital institutions. "Capital markets have a wonderful ability to self-correct, and we are emerging from a phase where venture capital is over-allocated and liquidity strategies are under-allocated," Bucella said. Others believe that the patterns themselves are evolving. Erick Zhang of Nomad Capital predicts that there will be fewer companies purely focused on cryptocurrencies, Web2 venture capitals will enter the crypto space, and crypto funds will expand into Web2 businesses. The timeline for the large-scale return of liquidity providers is uncertain. Neoclassic's Lee said investors will return once capital shifts from Bitcoin and Ethereum to the low- and mid-cap token ecosystem, a shift he expects to accelerate through stablecoin-driven on-chain capital flows. Alavi believes that institutional investors may return in mid-2026 as interest rates fall and M&A deals boost fund allocation. Hadick believes that most institutional investors, except for pensions, have returned, and expects pensions to return to the market in the next few years as regulations become clearer and markets mature. 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