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In today’s market, misjudging crypto startup valuations can lead to wasted time and unfavorable fundraising outcomes, according to a managing partner at hash3xyz.
Crypto venture capital sentiment has reached its lowest point since late 2022, with declining valuations and investor caution driven by fund exhaustion, poor public performance, and a perceived lack of innovation.
Hootie Rashidifard, managing partner at hash3xyz, emphasized that establishing a startup’s valuation prior to engaging with potential investors can be perilous. He warned that in today’s environment, setting valuation expectations too high can waste significant time and resources.
If you set your valuation expectation too high, you will waste a lot of time figuring out that the market clearing price is lower than your expectation, burn a lot of VC pitches in the process, and will likely end up with a lower price and worse partners.
Founders who overestimate their startup’s valuation may find themselves in a position where they are forced to lower their expectations, resulting in suboptimal terms and less favorable partnerships, Rashidifard notes.
He added that many venture capitalists are now likely to pass on a deal if approached with a revised, lower valuation, explaining that too low a valuation signals that “everyone has already looked and passed for whatever reason.”
Going back to desired partners with a lower valuation is a losing strategy. 95% of VCs will auto-pass when you come back to them with a lower valuation because 1) the signal is that everyone has already looked and passed for whatever reason, and 2) they’re onto the next opportunity.
Instead, Rashidifard advocates for a more flexible approach, suggesting that founders should either set the valuation lower than what they would like or let the market set it for them.
When you start to build momentum, the price can always go up. Oddly enough, those that are committed feel better about paying more because they ‘won’ the deal.
Rashidifard also addressed the tendency of some founders to wait for a more favorable fundraising environment, arguing that the strategy can be counterproductive, as market conditions may not improve for months or even years.
VCs Face Scrutiny Over Crypto Prices
Meanwhile, VC-backed tokens seem to be struggling in the long run, with significant price declines witnessed over the past few months. This has sparked a debate within the industry about the underlying causes.
A crypto researcher at SwissBorg, under the alias @tradetheflow_, noted that 80% of tokens listed on Binance since early 2024 lost value since their listing. The analyst highlighted that most of these tokens, which experienced declines, were backed by major venture capital firms such as Coinbase Ventures, Pantera Capital, Paradigm, and Dragonfly.
Haseeb Qureshi from Dragonfly Capital addressed these concerns, suggesting that the token price drops are less about VC dumping and more about broader market dynamics. Qureshi argued that the stability of these tokens persisted until a broader market downturn in April, influenced by geopolitical tensions. He also challenged theories of venture capital manipulation, noting that most VCs have long vesting periods and are still locked into their investments.
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