Crypto startup valuations face tough market conditions, VC expert warns

One of the managing partners at Hash3xyz says that in today’s market, incorrectly assessing the valuation of crypto startups can lead to wasted time and negative fundraising results.

Crypto venture capital sentiment has reached its lowest point since late 2022, amid falling valuations and investor caution due to funding depletion, poor public performance, and a perceived lack of innovation.

In a recent discussion on X, Hootie Rashidifard, managing partner at hash3xyz, emphasized that determining a startup’s valuation before meeting with potential investors can be dangerous, warning that setting valuation expectations too high in today’s environment can lead to significant wasted time and resources.

12/ If you set your valuation expectation too high, you will waste a lot of time only to find out that the market clearing price is lower than your expectation, lose a lot of VC bids in the process, and probably end up with a lower price and worse partners.

— Hootie Rashidifard (@Hootie_R) September 5, 2024

Founders who overestimate their startup’s valuation may be forced to lower their expectations, Rashidifard says, which could result in poor terms and less favorable partnerships.

He added that many venture capitalists are more likely to reject a deal when approached with a revised, lower valuation, saying that a valuation that is too low indicates that “everyone has already looked at it and rejected it for whatever reason.”

13/ Returning to desired partners at lower valuations is a losing strategy

95% of VCs will automatically pass when you come back at a lower valuation because 1) the signal means everyone has already looked at it and passed for some reason and 2) they have moved on to the next opportunity.

— Hootie Rashidifard (@Hootie_R) September 5, 2024

Instead, Rashidifard advocates a more flexible approach, suggesting that founders should “either set a valuation that is lower than they want to be valued at or let the market set it for them.”

“[…] “Once you start building momentum, the price can always go up. Oddly enough, those who are determined feel better about paying more because they ‘won’ the deal.”

Hootie Rashidifard, managing partner at hash3xyz

Rashidifard also addressed the tendency of some founders to wait for a more favorable fundraising environment, arguing that this strategy could be counterproductive because market conditions may not improve for months or even years.

Venture capitalists under scrutiny over crypto prices

Meanwhile, VC-backed tokens appear to be struggling in the long term, with significant price declines seen over the past few months, triggering a debate in the industry about the underlying causes.

In a May X post, a crypto researcher on SwissBorg with the alias @tradetheflow_ explained that 80% of tokens listed on Binance since the beginning of 2024 have lost value since their listing. The analyst noted that many of these tokens that have seen declines are backed by major venture capital firms such as Coinbase Ventures, Pantera Capital, Paradigm, and Dragonfly.

Dragonfly Capital’s Haseeb Qureshi addressed these concerns, arguing that the token price declines were related to broader market dynamics rather than VC dumping. Qureshi argued that the stability of these tokens lasted until a broader market decline in April, which was influenced by geopolitical tensions. He also challenged theories of VC manipulation, noting that most VCs have long vesting periods and are still hanging on to their investments.