Bitcoin’s surge stirs crypto VC from its slumber

Bitcoin’s price has surged 168% over the past six months. REUTERS
Bitcoin’s price has surged 168% over the past six months. REUTERS

Summary

Startups are more easily tapping venture firms for fundraising deals.

Crypto startups raising capital have been stuck in the mud for much of the past couple of years. They are starting to gain traction now thanks to one of the industry’s key underlying assets: bitcoin.

The digital currency’s price has jumped 38% in the past month to $71,010 as of Monday’s market close and has surged 168% over the past six months, according to the CoinDesk Bitcoin Price Index. Bitcoin is a leading indicator of liquidity in the crypto startup and venture sector and its price swings have historically caused booms and busts in the startup market.

The recent rise has meant startups are having an easier time tapping venture firms that were previously on the fence about deals, investors and entrepreneurs say. Fundraising for crypto startups globally rose for the second consecutive month, with startups netting $735 million through Thursday, according to analytics provider CryptoRank. To be sure, the amount that startups are raising is a far cry from April 2022 when crypto startups raised roughly $7 billion.

LevelField Financial is one such company. The Houston-based financial services startup had been trying to raise capital for roughly a year, said Chief Executive Gene Grant II. Grant said he reached out to roughly 100 venture investors and many returned his calls but didn’t move forward with a deal. Among the reasons, Grant said, were the lagging price of bitcoin, skepticism in the wake of cryptocurrency exchange FTX’s collapse and banking sector turmoil.

Then the price of bitcoin jumped.

“In the last couple of weeks people who we thought were dead were chasing us," Grant said. “There has been a sea-change. Everyone feels good about the asset class again."

LevelField is now reviewing several offers for a roughly $9 million pre-Series A funding round, Grant said, adding that the startup is hoping to complete a deal in the next two weeks.

The price of bitcoin is closely tied to crypto startup and venture activity. The number of entrepreneurs entering the sector is historically tied to the price of bitcoin, according to a January report from crypto venture firm Electric Capital.

Rob Hadick, general partner at crypto venture firm Dragonfly, said a jump in the price of bitcoin makes limited partners, which invest in venture funds, more comfortable with crypto exposure. That, in turn, gives venture fund managers more confidence in their ability to raise subsequent funds, unlocking fresh capital for startups.

“What’s clear is that LPs are starting to feel more comfortable about the space," Hadick said. “That’s speeding up venture fund deployment."

San Francisco-based Dragonfly has roughly six startup investments pending, Hadick said, which is on pace with the firm’s investments over the past several years. The firm didn’t slow its investing pace because of its long-term belief in the crypto market, he said.

Alex Marinier, the founder and general partner of venture firm New Form Capital, said more LPs have contacted him since bitcoin prices have surged. For the past two years, Marinier said he received little inbound interest from LPs about investing in his firm. In the past month, though, about a dozen LPs have contacted him.

“Over the last two weeks, I can draw a correlation between the price of bitcoin and inbound from new LPs who want to learn more about our strategy," Marinier said. “We’re starting to see the return of interest from traditional institutional funds."

Marinier estimates that two-thirds of the companies in New Form’s portfolio are indirect beneficiaries of bitcoin’s price rebound. Those startups become more valuable as the cryptocurrency’s value increases, he said.

Write to Marc Vartabedian at marc.vartabedian@wsj.com

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