Venture Capital Expert Warns Crypto Startup Valuations Face Tough Market Conditions

According to the managing partner of hash3xyz, in today's market, mispricing crypto startups can lead to wasted time and unfavorable fundraising results.

Venture capital sentiment in crypto has hit its lowest point since late 2022, driven by valuation declines and investor caution stemming from depleted funds, poor public results and a perceived lack of innovation.

In a recent thread on the X forum, Khooti Rashidifard, managing partner of hash3xyz, emphasized that setting a startup's valuation before engaging with potential investors can be dangerous, warning that in today's environment, setting valuation expectations too high can result in a significant amount of time and resources being wasted.

12/ If you set your valuation expectations too high, you will spend a lot of time finding out that the market price is below your expectations, spend a lot of time finding out that the clearing price is below your expectations, ruin a lot of VC pitches in the process, and most likely get a lower price and worse partners.

— Hootie Rashidifard (@Hootie_R) September 5, 2024

Rashidifard notes that founders who overestimate the valuation of their startup may find themselves forced to lower their expectations, leading to suboptimal terms and less favorable partnerships.

He added that many venture capitalists would now likely walk away from a deal if offered a revised, lower valuation, explaining that a valuation that was too low signals that “everything has been looked at and walked away for some reason.”

13/ Returning to desired partners with a lower rating is a losing strategy

95% of VCs will automatically skip the review when you come back to them with a lower valuation because 1) it's a signal that everyone has already looked at it and skipped it for some reason, and 2) they're moving on to the next opponent.

— Hootie Rashidifard (@Hootie_R) September 5, 2024

Instead, Rashidifard advocates a more flexible approach, suggesting that founders “either set a valuation lower than what they want or let the market set it for you.”

«[…] Once you start to gain momentum, the price can always go up. Ironically, those who have committed feel better about paying more because they have “won” the deal.”

Khooti Rashidifard, Managing Partner, hash3xyz

Rashidifard also addressed the tendency of some founders to wait for more favorable conditions to raise funds, arguing that this strategy can be counterproductive since market conditions may not improve for months or even years.

Venture Capitalists Under Scrutiny Over Cryptocurrency Prices

Meanwhile, venture-backed tokens appear to be struggling in the long term, with significant price drops seen over the past few months, sparking debate in the industry about the underlying causes.

In a May post by X, SwissBorg crypto researcher @tradetheflow_ reported that 80% of tokens listed on Binance since early 2024 have lost value since listing. The analyst noted that most of these tokens that experienced a decline were backed by major venture capital firms such as Coinbase Ventures, Pantera Capital, Paradigm, and Dragonfly.

Haseeb Qureshi of Dragonfly Capital addressed these concerns, suggesting that the token price drop is less about VC dumping and more about broader market dynamics. Qureshi argued that the tokens were stable until the broader market downturn in April, which was impacted by geopolitical tensions. He also challenged theories about VC manipulation, noting that most VCs have long vesting periods and remain locked into their investments.

Read more: Crypto VC Roundup: Bridge Raises $58M, Edge Matrix Chain Raises $20M

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