The golden years are over

Tight money, crashing prices, mass layoffs: After years of record growth, a nasty storm is brewing in the tech and crypto market. For many market observers, the signs point to a recession. With fatal consequences: rounds of financing are canceled and start-ups are struggling to survive. “Prepare for the worst,” Y-Combinator, one of the most important US incubators and venture capitalists, recently warned in an open letter to the start-up scene.

As recently as the second quarter, venture capital firms are pumping nearly $10 billion into crypto startups. A record. In 2020 it was just 3.1 billion US dollars – and 25 billion in 2021. Alex von Frankenberg, managing director of the high-tech start-up fund, remembers the euphoria on the market in an interview:

November 2021 was extraordinary. BTC and Nasdaq climbed to their all-time highs just days apart. At the same time, dark clouds appeared on the horizon: economic growth slowed, energy prices and inflation rose. Corona was still blazing, supply chains were disrupted – somehow the boom felt a little surreal.

Alex von Frankenberg

“Crisis will wash the bullshit out of the market”

The hype plays into the hands of the start-ups. You can almost choose your investors. That also makes some founders arrogant, Benjamin Horvath from the Blockrocket investment fund tells:

It can also happen that some founders want an investment directly after 1-2 short interviews. That’s not how we work. If the hype flattens out now, that will be an advantage for us: start-ups have to justify themselves more. I think the crisis will wash out some of the bullshit that we’ve seen over the last few months. This is good for anyone pursuing real innovation.

Benjamin Horvath

DeFi, NFTs, Metaverse: The young markets have been experiencing explosive record growth since 2020, sometimes by several thousand percent. Now the market shares are falling rapidly, search queries on Google are declining. It is now becoming brutal, especially for the young companies that are still in the early stages of their development. “Building successful start-ups is extremely hard. There will be many who will not survive,” says Benjamin Horvath. The crisis sets in motion a downward spiral:

In the early stages of a start-up, it works like this: You set a few milestones with the investors and get money for them, usually for 8-12 months, then the next round of financing is due. But in a crisis, company valuations go down and milestone targets go up. Means: You have to prove greater success under more difficult conditions. Otherwise you will run out of time – and therefore of money.

Benjamin Horvath

From the point of view of investment funds, the next few months will be one thing above all: a test for the truly talented founders. “The wheat separates from the chaff,” says Alex von Frankenberg:

The best companies are often founded in crises. For example Microsoft after the first oil crisis in 1975 or Facebook in early 2004 very close to the bottom of the bursting dot-com bubble. DeFi, NFTs and the Metaverse will not go away. On the contrary: after the cleansing thunderstorm, new champions will emerge.

Alex von Frankenberg

This is probably how one of the most famous major US crypto investors, Andreessen Horowitz, sees it. While most investors are tightening their financial belts, he is now launching a new investment fund for crypto start-ups, with over 5 billion US dollars. Almost two billion of that is for seed investments alone, the earliest phase of a start-up. A record. In the middle of the crisis.