Venture Capital in Crypto: What You Need to Know

Venture capital (VC) has long been the engine driving technological progress by supporting nascent industries with funding and strategic support to startups. From the legendary ‘Pirates of Silicon Valley’ that brought personal computing to life, and to the rise of the internet and mobile tech, VC investment has helped visionaries transform promising ideas into world-changing companies. Today, this is relevant for the cryptocurrency and blockchain industry, built on original technology and disruptive potential.

Same as other technologies, crypto relies heavily on venture capital to fuel its rapid evolution. But how exactly does VC work in this unique, decentralised landscape? Let’s break this down in this article together with the team of DWF Ventures, a crypto venture capital arm of DWF Labs.

What is Crypto Venture Capital?

Traditionally, venture capital involves providing funding to early-stage companies that have significant growth potential, typically in exchange for equity or ownership stakes. Crypto VC adapts this model to the specific nuances of blockchain and Web3 projects.

While some crypto VC deals still involve traditional equity investments, most focus on acquiring tokens associated with a specific protocol, project or blockchain platform. These tokens represent utility within a decentralised app (dapp) or network, governance rights, or an underlying asset. This token-centric approach distinguishes crypto VC from its traditional counterpart, offering different mechanisms for investment, value accrual, and liquidity.

Who Represents Venture Capital in Crypto?

The crypto VC landscape is diverse, comprising several types of players:

Crypto-native investment firms and market makers. Some institutional companies blend investment with other financial activities within crypto. For instance, DWF Labs emerged as a crypto market maker, adding venture capital to its suite of services for crypto startups, in particular through its investment arm called DWF Ventures. Other examples include firms like Dragonfly Capital and Electric Capital.
Dedicated crypto and blockchain investment companies. These are professional financial firms that specialise exclusively in funding startups related to blockchain and digital assets. Examples of such companies are Pantera Capital, Boost VC, Selini, Polychain and others.
Traditional VC firms with crypto arms. Established Silicon Valley giants and global VC firms also recognised the potential of crypto and launched dedicated funds or investment strategies for the digital asset space. Among notable examples is Andreessen Horowitz with its crypto investment arm a16z crypto, whereas others like Sequoia Capital and Paradigm are also major players.
Corporate venture arms and ecosystem funds. Major crypto companies often have their own venture vehicles to invest strategically in projects that complement their ecosystem. Coinbase Ventures and Binance Labs fall into this category, often providing not just funding but also technical integration support and access to their large user bases.

Why Is Venture Capital Crucial for Crypto’s Growth?

The crypto industry, much like the early internet, is characterised by rapid innovation and overall immense potential, coupled with technical complexity and high risk. And venture capitalists are the ones nurturing this environment.

First and foremost, VC firms provide funding, essential for technical operations and development: crypto, Web3 and blockchain solutions require significant resources for research, talent acquisition, and building complex infrastructure.

However, funding is not the only role of VCs. They also help projects navigate through volatility, the most common occurrence on the crypto market, providing startups with a longer runway and allowing them to focus on building during market downturns.

In addition, crypto ventures often possess deep technical understanding and market insights specific to blockchain tech, tokenomics, decentralised governance and knowledge in other fields. VCs are often open to share that knowledge with founders and teams of their portfolio companies.

Apart from technical expertise, venture funds maintain sophisticated networking capacity, which allows them to connect startups they invest in with potential partners, talent, auditors, experts in various spheres such as legal, and crypto exchanges, accelerating their opportunities, especially for go-to-market strategies.

Having funds officially secured from some of the well-known VC firms improves validation and credibility for a crypto project: it signals market confidence, helping attract users, developers, and further investment.

Crypto VC Activity: Recent Data and Future Outlook (2023-2025)

VC investment in crypto mirrors the sector’s characteristic cycles. After a painful ‘crypto winter’ of 2018-2019, the investment activity took off around 2020, peaking in 2021 and 2022. Per data in the report ‘Crypto VC Trends Q4 2024’, published by PitchBook, the total deal size reached the all-time-high of $30.2 billion in 2022, with more than 3,500 venture deals made. It was followed by a sudden drop in activity in 2023 and 2024, when the total amount of crypto VC deals decreased to about $10 billion.

However, according to The Block, venture capitalists invested $13.7 billion in crypto startups in 2024, which is a 28% increase compared to 2023, signaling the recovery. Despite the total funding remaining well below peak levels, there was a significant surge in early-stage activity: The Block reported a record high of over 1,180 pre-seed deals (+68% year-over-year) and a strong increase in Series A deals (+59% YoY).

This trend is confirmed by Galaxy’s study of the state of crypto venture capital market by the end of 2024: with the total investment amount of $11.5 billion, authors found that early-stage deals took the most share of this pie (60%). A sector that attracted the most interest from VCs in 2024 appeared to be stablecoins, led by a $600 million funding round by Tether. Pitchbook and The Block also named DeFi, AI x Crypto, NFT and related sectors such as GameFi.

Should Retail Users and Traders Pay Attention to VC Activity in Crypto?

For ordinary crypto users, investing moderate amounts in crypto, engaging with DeFi protocols, or trading relatively small amounts, the world of multi-million dollar venture capital deals can seem distant. Concerns often revolve around market sentiment, price charts, project updates, and community buzz. Does knowing whether a project has secured VC funding actually matter for the average retail participant? The answer is not straightforward, but generally, being aware of VC involvement can be a valuable piece of the puzzle.

On a positive side, venture capital firms typically conduct significant due diligence before investing in a crypto startup. Their backing can indicate that a project has met certain standards regarding its team, technology, and potential market fit. This can serve as an initial positive signal for retail users who lack the resources and skills for comprehensive research.

VC funding also gives financial means for crypto projects to hire top talent, invest in development, execute marketing campaigns, and weather market downturns. Thus, this can increase the project’s chances of success and longevity.

Last but not least, VCs can leverage their extensive networks to help portfolio companies secure crucial partnerships, crypto exchange listings, and integrations, which can drive adoption and potentially positively impact token value.

At the same time, everyone should remember that venture capital funding is not a magic bullet for a crypto startup. There are no guarantees, and many well-funded crypto projects still fail due to flawed execution, market changes, or unforeseen challenges. Relying solely on VC backing as a sign of quality is risky.

Additionally, there is the fact of information asymmetry: venture capital companies negotiate specific terms and can have access to information unavailable to the general public. Retail users are typically operating with less information regarding the true state and prospects of the project compared to its major backers.

What Future Lies Ahead for Venture Capital in Crypto?

There are several trends most analysts agree with for venture capital on the crypto market in 2025 and beyond.

Deepening Institutional Involvement

Institutional adoption is accelerating, with surveys indicating most plan exposure and larger allocations in 2025, according to EY Parthenon’s ‘2025 Institutional Investor Digital Assets Survey’. Fueled by regulated products (like crypto ETFs) and hopes for clearer regulations, this boosts confidence and liquidity. Institutions are also diversifying beyond Bitcoin, exploring altcoins and DeFi, thus increasing demand for compliant, institutional-grade services.

Shift Towards Real-World Utility

As foundational infrastructure matures, VC focus is shifting towards dapps offering tangible utility to attract mainstream users. Tokenization of real-world assets (RWAs) like real estate and bonds is a prime example, aiming to unlock liquidity in traditional markets. Another instance of real-world utility for crypto is the nascent sector of Decentralised Science (DeSci). Expect more investment in user-friendly applications rather than purely infrastructure projects.

Focus on Technologies

Key tech sectors remain crucial. DeFi has entered a new Renaissance, evolving towards institutional use and enhanced security. Stablecoins remain vital for transactions and yield, with regulation being their critical point, especially after the new compliance rules for stablecoins entered force in the European Union in 2025. Scaling and modular architectures based on Layer 2 protocols keep attracting funds to improve blockchain efficiency. The intersection of AI and crypto is also a major focus, exploring synergies in analytics, automation, and decentralized AI, even leading to the emergence of new market niches such as DeFAI.

The Overarching Influence of Regulation

Speaking about the prospects of crypto, it is impossible to avoid the subject of global regulation. Clear frameworks for tokens, stablecoins, and issuance procedures could significantly boost investment and reduce uncertainty. Conversely, ambiguity or overly strict rules can stifle innovation and funding. New regulatory actions in key jurisdictions will definitely be catalysts (or inhibitors) for venture capital in crypto throughout 2025.

Conclusion

Venture capital is more than just a source of financing in the crypto industry: it’s a vital partner in innovation. By providing capital, expertise, strategic guidance, and invaluable network access, crypto VCs help startups navigate the complexities of building decentralised technologies. While the market experiences cycles of boom and bust, the underlying flow of venture capital continues to fuel the development of potentially transformative blockchain applications and infrastructure. The symbiotic relationship between visionary founders and supportive VCs remains crucial in shaping the future of Web3 and the broader digital economy.