The ravages of Crypto Winter have been most notable in the investment community, where 80% and sometimes more of crypto valuations have been lost during the long crypto bear market of 2018. The market is still searching for an absolute bottom, while the industry licks its wounds and pushes ahead with development efforts. These efforts have also felt the consequences of the price meltdown and have had to adapt as best they could. Coindesk recently surveyed 66 crypto startups to assess this damage. The comments from 45 responders paint a picture of adjustment and renewed internal focus.
None of the participants cares for current market conditions, but founders are positive about future prospects and are not willing to throw in the towel just yet. Fundraising and hiring may present new challenges, but these issues can be dealt with. Staying the course with their roadmaps is all-important, but expense management in the right areas has and will be required. Lastly, failed efforts and consolidation are to be accepted as part of the process, both healthy and necessary for the industry to mature and prosper.
Funding and Cash Management
Brayton Williams, a co-founder of Boost VC, a firm that has invested in 100 crypto companies, echoed the sentiments of the community with Coindesk:
The investment money is returning back to the norm of difficult to obtain. I think the ‘winter’ is greatly exaggerated. We are just back to normal behaviors.
Doug Petkanics of Livepeer, a decentralized video transcoding project, reiterated that the market is now a bit more discriminating:
The market drop affects the general ecosystem and sentiment around the space that we’re working within. Projects don’t get a free ride in terms of blockchain tech being seen as cool or disruptive amongst the general public.
There is, however, one key cash management issue that pervades the crypto development space. The vast majority of ICOs chose to expand upon Ethereum’s general network theme and raised its funds through an exchange with “ETH” tokens. The general counsel for startups in any market sector is to raise enough funds in your first round to allow enough time to develop key deliverables that the market will recognize and reward when the next funding round is needed.
In that regard, Ricky Li, founder of Altonomy, a trading firm and advisory, directed his ICO clients to reserve “at least two years of runway”. For those that listened, they converted ETH to fiat when values were high and stored it away for a later date or hedged their positions with options. For those that did neither, the road has gotten tougher, as funds on hand dissolved at a rapid pace.
Despite funding challenges that lay ahead, Meltem Demirors, chief strategy officer at CoinShares, was positive:
In this environment, most companies with a reasonable business model, some proven traction, and a reasonable valuation should be able to find support in various forms.
Hiring, Expenses, and Consolidation
With funding equations in question and cash reserves dropping, startups have had to consider staffing and expense cutbacks, as well as the possibility of consolidating efforts with another entity. There are those that have accepted the focus that was necessary and moved on. Trevor Koverko of security token firm Polymath wrote:
Our technical roadmap has been accelerated. We view the bear market as a blessing for quiet, heads-down, development-focused projects.
A recent study noted that 1,000 startups have failed in the past year, thereby freeing up talent in the hiring pool. Many have recognized this benefit, but have also seen that candidates are now more skeptical of the crypto sector. Josh Fraser of Origin Protocol noted in his email:
We view this as a great time to pick up talent and build great technology, much like Google and Amazon got their head start during a bear market.
Expense cutbacks, however, have been necessary. Fat trimming began with items like travel and press releases, but internal departments and outside contractors that were not deemed critical to the mission were jettisoned, as well. Consolidation is next on the table, something that several global consulting firms have predicted for 2019. Demirors also suggested that, “I do hope more companies decide to merge and join forces, especially if competing for the same wallet share, to build more cohesive user experiences and increase the chances of success.”
At the end of the day, veterans of the crypto ecosphere see a lot to be thankful for. Williams, the co-founder of Boost VC, confidently stated: “This ‘winter’ is 100X better than 2014/15. People don’t think crypto is going to die. They are all just trying to time for when it comes back. In 2014/15, the conversation was all about if crypto survives at all.”