The crypto industry just suffered another massive jolt – this time, VC firm Sequoia Capital just slashed the size of two of its funds. According to media reports, the VC firm reduced the size of two of its major funds, including its crypto fund, in its latest efforts to downsize and remain relevant during the economic downturn.
According to The Wall Street Journal, the size of its crypto fund got slashed by 65.8% to be reduced to $200 million (from $585 million). The size of its ecosystem fund got reduced by half, dropping from $900 million to $450 million. For those who need a reminder, the ecosystem fund invests in other venture funds, and reports suggest that Sequoia is now aiming to make investments in budding startups.
“We made these changes to sharpen our focus on seed-stage opportunities and to provide liquidity to our limited partners. The crypto fund will primarily focus on new company formation, with the opportunity to supplement these investments from our seed, venture, growth, and expansion funds as the companies mature,” a spokesperson for Sequoia said in an emailed statement. Sequoia had communicated the same to its limited partners in March, informing that it made the decision to reduce the funds to better reflect the changed market.
Both the funds had been announced last year – in February, to be precise – which occurred before the crypto market started to take a massive hit as the pace of investments slowed down and venture firms faced a funding crunch. That, along with other factors, ensured that the crypto industry lost just over $2 trillion in market capitalization, while the prices of popular cryptocurrencies like Bitcoin fell far below their peaks in 2021.
As the crypto market faced ongoing volatility and price corrections, traditional investors exhibited caution and opted for safer investment avenues. Of course, events like the dramatic collapse of popular crypto exchange FTX did not help matters, and served to further drive prospective investors away from the troubled crypto sector. Sequoia had to write down its investment of $214 million in FTX to nil. Other major crypto firms to file for bankruptcy over the past year include Three Arrows Capital and crypto lender Voyager.
It is thus unsurprising that the suffering of the crypto market, along with its volatility, led to a steep decline in overall investor confidence. In fact, this has gone so far, that well-known investors and major venture capital firms like Sequoia Capital are reevaluating their positions in the sector. By reducing its exposure to the crypto sector, Sequoia Capital aims to mitigate potential losses and navigate the uncertain crypto landscape more cautiously. This, in turn, is likely to result in investors further tightening their purse strings, resulting in much reduced funding for crypto projects and startups.