The prices of crypto tokens have fallen over the past year, with BTC and ETH both falling more than 50% since September last year. But despite the fall in cryptocurrency prices, early-stage web3 startups have shown remarkable resilience in their valuations, Seth Ginns, managing partner and head of liquid tokens at digital asset investment firm CoinFund, told us in Tuesday’s episode of chain reaction.
Startups haven’t been completely immune to the downturn — late-stage companies have taken the biggest valuation discounts during the downturn, Ginns said. Ginns has a broad understanding of different parts of the crypto market as an investor at CoinFund, which puts capital into private investments such as startups and liquid investments such as crypto tokens.
You can listen to the full episode with Ginns here:
“When liquid markets represent the best opportunities, we can lean more in the liquid markets, and when venture markets represent the best opportunities, we can lean more on that,” Ginns said of CoinFund’s strategy. While Ginns said he has seen late-stage crypto startups undergoing depreciation in recent months, the downturn appears to have spared seed-stage companies to some extent, he noted.
“I would rather say, you just see a step down what valuations are for” [startups where] either the team just got together and launches that real pre-seed type round, or that next stage right after that where you’re not sure if they’re fit for the product market yet but have a great team and some great early ones momentum on the BD side, I’d say those initial out-of-the-gate valuations have gone down a bit,” Ginns said.
For startup startups, valuations are down about 15-30%, Ginns estimates, a drop far less severe than what we’ve seen in token prices and even public technology stocks.
The valuations for early stage crypto startups are “not where traditional technology was at that stage two or three years ago. They are also not where crypto was two or three years ago, and I’m not sure if they will get there.” Ginns said, explaining that he doesn’t think valuations for these early-stage companies will drop as low as they have in previous market cycles.
So what drives that resilience?
“I think one of the really interesting dynamics in crypto is that we see network valuations for protocols increase by an order of magnitude every cycle, I don’t think it’s going to stay an order of magnitude every cycle, but they are taking big steps up. And every time you take that step up, you have a validation of this new valuation range, which means you end up having people thinking about how to value their early stage startup, referring to the last figure you got in the last bull market,” explains Ginns.