Crypto Venture Capital in a Bull Market: Raising Funds Is Harder Than Scaling the Sky

By: Yogita Khatri

Translation: Tim, PANews

In the previous article, I discussed how the "summer of Digital Asset Treasuries (DAT)" diverted attention and capital away from traditional startup funding rounds. At that time, some venture capitalists raised another issue: limited partners (LPs) have become extremely cautious about investing in crypto funds. In this article, I will delve into why raising crypto venture funds has become more difficult—even during a bull market—and what this means for the future trajectory.

Several digital asset investors told me that fundraising became significantly harder after the Terra (LUNA) and FTX collapses in 2022, which not only eroded LP trust but also damaged the industry’s reputation. Regan Bozman, co-founder of Lattice Fund, said: "While sentiment toward the crypto market has improved considerably, it hasn't offset widespread concerns about venture capital performance. The new challenge facing crypto VC today is competing with ETFs and DATs for capital."

Michael Bucella, co-founder of Neoclassic Capital, said only funds with clear advantages or strong track records can consistently secure LP commitments today. This market shift has led to what Dragonfly general partner Rob Hadick calls a "flight to quality." He noted that in 2024, just 20 firms captured 60% of total LP capital, while the remaining 40% was split among 488 others. Despite improved liquidity through M&A and IPOs this year, the fundraising bar remains far higher than pre-2022 market crash levels.

Broad data confirms this trend. Data from The Block Pro provided by my colleague Ivan Wu shows that since the boom period of 2021–2022, crypto venture fund sizes have sharply contracted. In 2022, firms raised over $86 billion across 329 funds, but that dropped to $11.2 billion in 2023 and further declined to $7.95 billion in 2024. As of 2025, only 28 funds have raised $3.7 billion—highlighting the current fundraising environment's difficulty. Both fund size and number are on a steep decline, reflecting LP caution and greater capital alternatives.

Multiple VCs told me that family offices, high-net-worth individuals, and crypto-native funds remain active supporters of crypto venture capital. However, since 2022, pensions, endowments, fund-of-funds, and corporate venture arms have largely exited, resulting in a smaller and more selective LP base.

Why fundraising is harder now than in 2021 or early 2022

The previous bull cycle was unusual—almost anyone could raise a crypto VC fund in 2021, even without experience. But many of these funds still haven’t returned capital to investors. Today, LPs demand concrete distributions before committing new capital. Sep Alavi, general partner at White Star Capital, said: "LPs are increasingly skeptical of unrealized gains and prioritize funds with actual profit histories."

The interest rate hiking cycle since March 2022 has also pushed allocators toward safer, more liquid assets. Steve Lee, another co-founder at Neoclassic Capital, pointed out that this cycle’s returns have been concentrated in Bitcoin, Ethereum, and a few blue-chips via ETFs and DATs, leaving little spillover for the small projects that typically offer venture-like upside. Lee said: "LPs see short-term gains in large caps, while venture returns take much longer to materialize."

An early-stage VC founder who requested anonymity added that the lack of standout token performance since the 2021–22 cycle has suppressed LP appetite, especially since many crypto VCs invest in tokens. Artificial intelligence is another major factor: Bozman of Lattice Fund said, "AI is the all-encompassing hot theme, capturing the interest of many tech-focused LPs."

Overall, while fundraising may not be as hard as in the years immediately following the Luna and FTX collapses, it remains significantly tougher than the loose, capital-flush period of 2021 to early 2022.

What the future of crypto venture capital looks like

If fundraising remains challenging, most VCs expect consolidation across the industry, with smaller, weaker, or undifferentiated funds quietly exiting. Alavi expects small or underperforming funds will struggle to raise follow-on vehicles, while Hadick notes the market has already begun shrinking as capital concentrates at the top.

The early crypto VC founder believes mid-sized funds will hollow out: small funds under $50 million with sharp edges will survive, and giants like Paradigm and a16z will continue growing, but underperforming mid-tier funds will gradually disappear. He added that the crypto venture market may increasingly resemble traditional structures, with a base of robust liquidity supported by fewer but higher-quality venture firms. Bucella said: "Capital markets have a beautiful self-correcting ability—we’re moving past a phase of excessive VC allocation and insufficient liquidity strategy."

Others believe the model itself is evolving. Erick Zhang of Nomad Capital predicts pure-play crypto firms will decline, as Web2 VCs enter crypto and crypto funds expand into Web2 businesses.

The timeline for a broad return of liquidity providers remains uncertain. Neoclassic’s Lee said investors will come back once capital rotates from Bitcoin and Ethereum into mid- and low-cap token ecosystems, a shift he expects will be accelerated by stablecoin-driven on-chain capital flows.

Alavi believes institutional investors may return by mid-2026 as rates decline and M&A drives capital distributions. Hadick thinks most institutional investors—except pensions—have already returned and expects pensions to re-enter over the next few years as regulation clarifies and the market matures. The early VC founder said LPs won’t return en masse unless there’s another "super-hot narrative" like stablecoins or a breakthrough application use case.