tl;dr
Crypto venture capital (VC) funds are struggling to raise and deploy capital despite a rebound in crypto startup fundraising, which raised $5.85 billion in Q1 2025. Many VC firms from previous market cycles face capital constraints and lack significant returns, leading to consolidation and inactivit...
Crypto venture capital (VC) funds are facing significant operational strain and consolidation despite a strong rebound in crypto startup fundraising in early 2025. In Q1 2025, crypto startups raised $5.85 billion, representing nearly 61% of total capital raised in 2024. However, many crypto VC firms from previous market cycles are struggling with capital constraints and insufficient returns, leading to fewer active funds and consolidation across the sector.
Varys Capital's head of venture, Tom Dunleavy, highlighted that many funds raised in 2021 and 2022 are "shadow insolvent"—technically still active but out of capital. He predicts substantial closures of non-brand-name and some established VC firms by 2026, emphasizing a market shift.
While startup fundraising is gaining traction and attracting larger investors, venture capital activity has contracted. The number of new crypto VC funds peaked at over 300 in 2022 but has dwindled to about 50 in 2024, with even fewer launching in early 2025. Repeat investors have also declined, with less than half of active funds making multiple investments in the past 180 days.
The contraction stems from a lack of distributions to paid-in capital (DPI), absence of headline investment successes, and slower capital inflows from high-net-worth individuals. Institutional investors remain cautious despite regulatory progress globally.
This concentration has resulted in venture capital becoming more focused within a smaller group of well-capitalized funds that maintain specific, disciplined investment theses. Dunleavy views this trend as positive, arguing that sharper capital deployment will promote better companies and healthier industry development.
In summary, the crypto fundraising landscape in 2025 is bifurcated: startups enjoy accelerated capital raises, while VC funds face challenges in raising and deploying capital, driving consolidation and discipline within the sector.