PwC: Pension funds and venture capitalists enter crypto, push prices up

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Unlike the first quarter of 2021, the second quarter did not see a list of top companies buying Bitcoin. However, what we saw in the second quarter is that a massive amount of capital was invested in crypto firms through venture capital funds.

Given the speculative nature of the crypto industry, it’s fair to expect to see a limited number of VCs and pension funds interested in the space. However, the chief crypto at PwC says the competition is actually pretty fierce and the smaller players are being crowded out by the bigger VCs.

VCs Are Passionate About Crypto Firms

In the first half of 2021, venture capital funds invested $ 17 billion in companies focused on blockchain and crypto. In comparison, that’s more than all transaction activity for crypto-centric companies in 2020 – by a wide margin.

Global venture capital funding across all industries has reached record levels so far this year. In the first quarter, global venture capital investment hit a record $ 125 billion. That figure is up 50% from Q4 2020 and 94% from Q1 2020, according to data from Crunchbase.

During this period of inflated investments, the share of transaction activity devoted to crypto and blockchain initiatives has also seen unprecedented growth. CoinDesk data reveals that while only 0.89% of global venture capital funding went to crypto in the second half of 2020, that percentage rose to 5.97% in the first half of 2021.

In 2021, the crypto space also saw landmark deals involving crypto firms, with the size and scope of one standing out above the rest. In May, Block.one, a blockchain software company backed by billionaires Peter Thiel, Alan Howard and Louis Bacon, invested $ 10 billion in digital assets and money in Bullish Global, a new crypto exchange.

Another memorable crypto fund from this year is venture capital firm Andreessen Horowitz (a16z). On June 24, Andreessen Horowitz announced that he had created the largest crypto-related fund to date, raising $ 2.2 billion for his highly anticipated Crypto Fund III. Around the same time, a16z hired a swarm of former regulators, arguably, to play the regulatory battles better.

Bigger VCs Offer Higher Valuations

The aforementioned data reveals that venture capital funds are quite passionate about crypto-centric companies. However, Henri Arslanian, crypto leader and partner at PwC, argues that there is even a certain degree of competition among VCs when it comes to crypto companies. He added that small venture capitalists are unhappy.

Arslanian said:

“Let’s say they’re looking at a deal and they think it’s worth $ 10 million, and you see some big VCs come in and bid for a higher valuation. This happens a lot with early stage companies, say $ 5-20 million – the prices are inflated. “

This is a clear indication that more and more investors now believe in the future of the crypto ecosystem, which can mainly be attributed to the boom in digital currency adoption. Recent research from the cryptocurrency exchange Crypto.com puts this growth into perspective.

According to the report, the crypto user base doubled from 100 million to 200 million in just four months earlier this year. Following the report, the CEO of Crypto.com noted that the growth rate was “encouraging” and that they planned to “continue to invest heavily” in the field.

However, despite all the growth and positive momentum surrounding the crypto industry, there are still not many crypto-based companies with the potential to absorb huge investments. Arslanian highlighted this challenge by saying:

“If your minimum ticket size is around $ 50 million, there aren’t many companies that have that status yet. If you are a large pension fund and have decided to make a crypto allocation, there are no more than two dozen companies in the world that are invested, looking for capital and could take 100 million dollars. dollars.

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About the Author

Tim Fries is the co-founder of The Tokenist. He has a BSc in Mechanical Engineering from the University of Michigan and an MBA from the Booth School of Business at the University of Chicago. Tim was a Senior Associate in the investment team of RW Baird’s US Private Equity division and is also a co-founder of Protective Technologies Capital, an investment firm specializing in detection, protection and protection solutions. control.