A notable decline in Coinbase’s investment activity is aligned with decreased investment in crypto startups
Coinbase Global Inc. stands as a pivotal player in the cryptocurrency world, holding the title of the all-time biggest supporter of crypto startups in terms of the sheer number of deals, as per PitchBook data. However, recent months have witnessed a notable decline in Coinbase’s investment activity, aligning with an industry-wide trend of decreased investment in crypto startups, particularly by corporate venture capital arms. PitchBook crypto analyst Robert Le reports a 63% drop in overall crypto venture funding to $2 billion in the third quarter compared to the same period last year.
Corporate investors, including Coinbase, are exhibiting a more cautious stance amid this downturn, opting for a conservative approach to safeguard cash reserves. Le suggests that the shift towards making smaller bets reflects a desire to focus on core business operations in the current economic environment.
In the face of this decline, Coinbase Ventures, the venture arm of Coinbase, has adjusted its investment strategy. Hoolie Tejwani, the director of corporate development and ventures, notes that Coinbase Ventures is now supporting more startups located outside the United States. This strategic shift is attributed to the escalating regulatory scrutiny faced by the crypto industry, leading some companies to revise their business plans by excluding the US market. Tejwani expresses disappointment over this trend but emphasizes that Coinbase Ventures remains actively involved, having made over 50 investments in the past year across 15 countries.
While American startups grapple with increased challenges, Coinbase identifies growth potential in regions such as India, Singapore, Australia, and the UK. The company’s commitment to global investment underscores its confidence in the broader international landscape despite the prevailing cautious investment climate.
Coinbase is not the sole entity reassessing its investment approach; other major crypto companies are also undergoing strategic evaluations. Kraken Ventures, the venture arm of crypto exchange Kraken, reports a decline in deal counts over the past year, but managing partner Brandon Gath stresses that the team remains engaged in active investment. Kraken Ventures is in the process of raising a new $100 million fund, maintaining a diverse investment portfolio both within and outside the crypto industry.
Gath highlights Kraken Ventures’ balanced global approach, with 40% of its startups based in the US, 40% in Europe, and 20% in the rest of the world. Notably, the venture arm invested in a non-crypto startup called Pinwheel last year, emphasizing the potential crossover between traditional and crypto-related industries. Pinwheel, primarily a payroll services provider, could facilitate cryptocurrency adoption by enabling employees to receive payments in digital currencies like stablecoins.
Kraken’s perspective on the startup landscape is nuanced. Gath observes that valuations for very young startups have not experienced a significant decline, often ranging from $10 million to $30 million for early-stage companies. However, both crypto and tech companies at later stages have witnessed a notable 30% to 50% drop in valuations. Gath suggests that some companies may have initially raised valuations that were excessively optimistic, contributing to the subsequent correction in valuation levels.
In conclusion, the current dynamics in the crypto investment landscape indicate a broader industry shift towards a more cautious and discerning approach. While investment activities have seen a decline, strategic adjustments by key players like Coinbase and Kraken Ventures signal a resilient commitment to navigating challenges and identifying opportunities in a rapidly evolving market.