Crypto Startups and Venture Capital: A Pricing Dilemma
In the rapidly evolving world of cryptocurrency, many startups are facing an uphill battle when it comes to attracting venture capital funding. Dan Tapeiro, the CEO of 10T Holdings—a prominent crypto-focused venture capital firm—recently highlighted a key obstacle: unrealistic valuations. He shared insights during a panel discussion at the Consensus conference in Toronto, emphasizing how many founders are setting their sights far too high when it comes to raising capital.
The Valuation Conundrum
Tapeiro pointed out an alarming trend among startup founders and CEOs who believe they should be garnering capital at valuations upwards of 50 to 80 times current revenue. This expectation is not just unrealistic but also detrimental. "For some reason," he noted, "founders think such lofty valuations are justified." However, this can create a barrier for venture capitalists, like those at 10T, who need to ensure that their investments yield adequate returns for their liquidity providers.
Automatic Passes on High-Valued Deals
As a direct consequence of these inflated valuations, Tapeiro revealed that his firm has turned down over 200 companies—some of which were otherwise promising ventures. Notably, this list includes high-profile names like FTX, BlockFi, and Celsius. If the initial price isn’t reasonable, even businesses that pique the firm’s interest are dismissed almost automatically. This rigid approach underscores the increasing caution venture capital firms are exercising in the crypto space.
Seeking Balance in Valuations
10T Holdings aims for a valuation range between $400 million to $500 million while insisting on a valuation-to-revenue ratio of 10 times or less. This strategy is not without merit—lower valuations offer more upside potential with reduced risk for investors. Furthermore, they facilitate follow-on funding rounds, making future investment more appealing and simplifying the exit strategies for venture capitalists.
The Growing Interest in Crypto Investments
Despite the apparent disconnect between startup expectations and investor readiness, the venture capital scene in cryptocurrency continues to flourish. Recent reports from PitchBook revealed that total value of crypto venture capital deals skyrocketed by over 100% on a quarter-on-quarter basis, reaching an impressive $6 billion in Q1 2025. Notably, this spike happened even as the number of deals only increased by 8.8%. This suggests a thriving market for crypto investments, albeit one marked by cautious valuations.
Diversification in Investment Strategies
During the same panel, Dan Morehead, CEO of Pantera Capital, shared a different perspective on the venture capital landscape. He argued that more investors should consider diversifying their portfolios by blending private equity with token investments. This dual approach allows investors to take advantage of the unique benefits offered by both asset classes.
Morehead explained that the market often experiences "wild pendulum swings," leading to periods where one type of asset—whether tokens or ventures—might be perceived as disproportionately expensive or cheap. His advice encourages investors to spread their investments across various sectors, thereby mitigating risks associated with the volatility of the crypto market.
Success through Aggressive Investment
Pantera Capital’s more aggressive investment strategy has paid off significantly, with the firm achieving a return on 86% of the startups it has invested in. Additionally, an impressive 22 of these companies reached unicorn status—valuations surpassing $1 billion. This impressive track record illustrates the potential rewards that can come from a diversified, yet strategic approach to venture capital in the crypto world.
The Importance of Realistic Valuations
In Tapeiro’s view, the importance of realistic valuations cannot be understated. They not only enhance the attractiveness of follow-on funding rounds but also simplify exit processes for venture capital firms. As the landscape continues to shift, the challenge remains for crypto startups: how to align their valuation expectations with the realities of a cautious, yet optimistic, investment community. With the crypto market consistently proving its resilience and capacity for growth, the interplay between valuations and venture capital will undoubtedly shape its future trajectory.