According to Blockworks, as the crypto winter begins to thaw, investors and industry participants are showing interest in fundraising through extended seed rounds. These seed extensions allow startups to access new investor capital without having to meet the stricter Series A requirements that emerged during the bear market. Additionally, extended seed rounds enable startup teams to avoid diluting their equity as they anticipate a potential bull market.
In the traditional venture capital world, a Series A is often the first priced round for a startup, where founders and investors formalize governance and preferred shareholder rights. However, this is not always the case in the crypto industry, where protocols may not follow the conventional path of young companies by appointing a board or issuing shares. Matt Luongo, CEO of venture capital firm Thesis, explained that in crypto, a Series A is often just a piece of marketing.
Luongo also noted that investors are currently more cautious, holding off on later-stage fundraising until the market shows signs of recovery. For example, when Adam Bialy was raising funds for his banking-as-a-service provider Fiat Republic, he observed higher standards for a Series A round. Fiat Republic announced its extended seed round on December 19.
Raising a Series A during unfavorable market conditions can lead to less favorable terms for startups. Several startup founders told Blockworks that their extended seed rounds allowed them to attract operational funding without diluting their equity. One such example is crypto project Brahma, which gained investor interest after demonstrating an on-chain execution and custody product called Brahma Console. The company plans to use the funds from this round to develop its Console concept, anticipating that a fully developed and scaled version of the product would result in more favorable conditions for future fundraising.
Alessandro Tenconi, Brahma's co-founder, said that the extended seed capital allowed the company to extend its runway, make new hires, and perform security audits while waiting for a potential future Series A. Interest in extended seed rounds may also indicate portfolio diversification on the part of funds, particularly given the current market's volatility and limited liquidity in altcoins. Bill Qian, Chairman of crypto VC firm Cypher Capital, stated that early-stage investments are becoming a strategic choice for regional diversification.