Despite the resurgence of fundraising activities in crypto projects, many venture capital (VC) funds in this sector are facing significant downsizing and large-scale mergers. According to data from DefiLlama, in just the first quarter of 2025, crypto startups raised $5.85 billion – equivalent to nearly 61% of the total capital raised for the entire year of 2024.

However, Tom Dunleavy – Director of Venture Capital at Varys Capital – stated that the number of funds actually disbursing is sharply declining, and many funds established during the previous bull cycle are no longer actively participating. He calls this a period of "mass purging" in the crypto venture capital industry, where many funds are out of capital but still operate in name – also known as "defaulting in the shadows."

Dunleavy predicts that most funds without a clear brand or reputation will have to close before 2026 – including some names that were once highly regarded.

Source: X

Conflict between startups and investment funds

Data from Galaxy Research shows that while crypto startups are recovering strongly in fundraising, VC funds are struggling to attract new resources. The number of newly established venture capital funds has sharply decreased from over 300 funds in 2022 to only about 50 in 2024, and the first quarter of 2025 only recorded a very small number of new funds launched.

Even in the past 180 days, only 67 funds made more than one investment - less than half of what it used to be. Dunleavy believes the main reasons are: lack of clear return on investment (DPI), a shortage of standout deals to attract capital allocators, and a slowdown in cash flow from the ultra-wealthy. Additionally, large financial institutions are still hesitant despite the legal framework gradually being improved.

Venture capital funds enter a purging phase

Capital raising activities of crypto startups continue to increase, but most of the funding comes from a small group of professional investors and large funds with available capital and clear strategies. This leads to high centralization in the crypto venture capital industry.

According to Dunleavy, this could be a positive sign as funds now have to be more cautious in selecting projects to invest in, which helps create conditions for truly promising companies to grow strongly.

The overall market landscape is shifting to a phase of deep differentiation: startups are still raising funds faster than last year, while VC funds are struggling to assert their roles, attract new capital, and maintain operations in a more cautious and disciplined investment environment.



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