Crypto venture capital (VC) firms are experiencing operational strain and consolidation, even as project-level fundraising gains momentum.
In the first quarter, crypto startups raised $5.85 billion, already accounting for nearly 61% of the capital raised throughout 2024, according to DefiLlama.
Varys Capital head of venture Tom Dunleavy shared that, despite this influx, fewer active funds are deploying capital, and many firms launched during the last market cycle are no longer consistently participating in deals.
He attributed the pullback to dwindling capital reserves and a lack of meaningful returns and described the situation as “massive consolidation coming in crypto VC.”
Dunleavy noted that many funds raised in 2021 and 2022 are “shadow insolvent,” out of capital but still nominally active. He projected that many non-brand-name firms, and even some established names, will be functionally closed by 2026.
Crypto VC funds vs. startups
Galaxy Research data shows that while startup fundraising is recovering, venture capital funds are raising less money to invest in crypto projects.
Additionally, the number of new crypto VC funds peaked in 2022 at more than 300 but has steadily declined yearly. Only around 50 new funds were launched in 2024, and just a fraction of that number entered the market in the first quarter of 2025.
The number of repeat investors has also shrunk. DefiLlama data shows that of all active funds in the past 180 days, only 67 made more than one investment, which is less than half.
Dunleavy cited several causes, including the absence of distributions to paid-in capital (DPI), a lack of headline investment wins to renew attention from capital allocators, and slower inflows from ultra- and high-net-worth individuals.
He added that institutional investors remain hesitant despite recent regulatory progress across jurisdictions.
Contraction in venture capital
The fundraising side does not mirror the contraction seen with venture firms. The increase in the first-quarter fundraising volumes suggests that interest in crypto startups is growing. However, capital flows from a narrower base of repeat participants and larger allocators.
As a result, venture activity is becoming more concentrated. Capital is no longer widely distributed across many generalist funds but is instead focused within a smaller group of active players with sufficient dry powder and differentiated theses.
Dunleavy believes this new landscape is likely a massive positive development for the industry, as venture capital funds are much sharper with whom they deploy capital, resulting in better companies thriving.
The crypto fundraising landscape is entering a bifurcated phase. While startups continue to raise money faster than last year, crypto VC funds struggle to justify their relevance, raise new capital, and remain active in a leaner, more disciplined market.
