• Blockchain startups received a record $25.2 billion in venture capital investments in 2021, with a surge in funding for NFTs and DeFi projects.
• Funding slowed dramatically in 2022, with major companies like Three Arrows Capital, Celsius and FTX collapsing.
• David Pakman of CoinFund predicts that in 2023, investments will focus on layer 1 and layer 2 blockchains, NFTs, gaming and Web3 development, as well as risk management and conservative use of leverage.
The blockchain industry has seen a huge surge in venture capital investments in 2021, with a total of $25.2 billion invested in startups utilizing the technology. The investments were driven by optimism surrounding non-fungible tokens (NFTs) and decentralized finance (DeFi) projects. However, in 2022, funding slowed significantly after a wave of major companies, such as hedge fund Three Arrows Capital, lending platform Celsius, and exchange giant FTX, collapsed.
In order to gain insight into the investment landscape of 2023, CoinDesk interviewed David Pakman, managing partner and venture investing head at crypto-focused venture capital firm CoinFund. Pakman discussed how the crypto industry can move forward in a post-FTX world, and what he believes the investment focus will be in the coming year.
Pakman explained that CoinFund had a small amount of equity in FTX before its collapse, which has now been written to zero. He noted that the downfall of FTX was due to human behavior, not technological failure, and expressed hope that the industry will weed out the scammers and unethical actors that are damaging the reputation of the crypto space.
When asked about CoinFund’s own fundraising efforts, Pakman said that they were nervous even at the beginning of 2021, but that they had lucky enough to have limited partners who preferred to invest during the current pricing environment. He also mentioned that bear markets can benefit venture capital firms, as shakier markets lead to lower valuations and more attractive entry points for potential investors.
Looking forward to 2023, Pakman predicted that investments will continue to focus on areas that were in progress before the turbulence, such as layer 1 and layer 2 blockchains, NFTs, gaming, and the Web3 development stack. The collapse of a centralized exchange has also put more emphasis on DeFi, and Pakman believes that there will be renewed interest in productizing DeFi in a way that is easier to access by both institutions and individuals.
In terms of risk management, Pakman advised startups to avoid using leverage altogether and to retire risk as they move on. He concluded the interview by noting that creating a startup is one of the riskiest things that can be done, and that it almost never works, so companies should focus on minimizing risk, rather than increasing it.