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Cryptocurrency startups are increasingly adopting an aggressive form of funding known as open or rolling funding rounds.
This approach allows startups to raise capital consistently and grow their valuations quickly, as opposed to the traditional venture capital model of conducting individual funding rounds over several years.
According to a report by Bloomberg, the rise in open-ended funding rounds in the cryptocurrency industry reflects both the sector’s recovery from the 2022 bear market and venture funds’ desire to deploy previously stagnant cash.
This funding model allows early investors to later benefit from a rapid increase in the startup’s value due to the backer’s commitment.
While some investors and industry experts see these “liquid valuations” as puzzling and potentially lacking fundamental drivers, the report argues that traditional approaches to venture capital formation may not be suitable for digital asset companies.
“Cryptocurrency capital formation is always evolving,” said Matt Luongo, CEO of Thesis. “Governance, liquidity and other important concepts we find in traditional startups are often slightly different.”
Thesis is a venture studio that helped develop and launch Mezo, a Bitcoin L2 protocol designed as an economic layer.
Ed Roman, managing partner at Hack VC, pointed out that cryptocurrency startups typically prefer “decentralized cap tables” to help with governance, making traditional pricing rounds involving a single large lead investor less suitable.
Michael Heinrich, co-founder of 0G Labs, a blockchain startup focused on decentralized and modular artificial intelligence, noted that this type of structure is becoming more common as transactions become oversubscribed.
“Investors are still willing to pay higher prices, even if it continues at a rapid pace, because it is seen as a sign of market success,” Heinrich said.
0G Labs itself raised $35 million through rolling fundraising in March, and its offering exceeded its planned fundraising by 20x. The company’s valuation ranged from less than $40 million to hundreds of millions of dollars, depending on the investor.
The average Series A round for a cryptocurrency reached $26 million in the first quarter of 2024, the highest since early 2022, according to data from The Block Research cited by Bloomberg. Total venture investment in the sector increased to $2.5 billion during the same quarter.
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