CoinFund’s Seth Ginns on why the crypto downturn has spared early-stage startups

Crypto token prices have been trending downward for the past year, with BTC and ETH both down over 50% since last September. Yet despite the downturn in cryptocurrency prices, early-stage web3 startups have shown remarkable resilience in their valuations, Seth Ginns, managing partner and head of liquid tokens at digital asset investment firm CoinFund told us on this Tuesday’s episode of Chain Reaction.

Startups haven’t been completely immune to the downturn — late-stage companies have taken the biggest valuation haircuts during the down market, Ginns said. Ginns has a broad insight across different parts of the crypto market as an investor at CoinFund, which deploys capital across private investments such as startups as well as liquid investments such as crypto tokens.

You can listen to the full episode with Ginns here:

“When liquid markets represent the best opportunities, we can lean more into the liquid markets, and when venture markets represent the best opportunity we can lean more into that,” Ginns said of CoinFund’s strategy. While Ginns said he has seen late-stage crypto startups have suffered valuation haircuts in the past few months, the downturn seems to have spared seed-stage companies to some extent, he observed.

“I’d say earlier-stage, you’re just seeing a step down in where valuations are for [startups where] either the team has just come together and are launching that true pre-seed type round, or that next stage right after that, where you’re not sure if they have product-market fit yet, but have a great team and some great early momentum on the BD side, I’d say those initial out-of-the-gate valuations have come down a little bit,” Ginns said.

For early-stage startups, valuations have dropped around 15-30%, Ginns estimated, a drop much less severe than what we’ve seen in token prices and even public tech stocks.

Early-stage crypto startup valuations are “not where traditional tech at that stage was two or three years ago. They’re not where crypto was at that stage two or three years ago, either, and I’m not sure they’re going to get there,” Ginns said, explaining that he does not think valuations for these early-stage companies will drop as low as they have in prior market cycles.

So what’s driving that resilience?

“I think one of the really interesting dynamics in crypto is, in every cycle, we see network valuations for protocols step up by an order of magnitude, I don’t think it will keep being an order of magnitude each cycle, but they take big steps up. And each time you take that step up, you have a validation of this new valuation range, which means you end up having people who are thinking about how to value their early-stage startup referencing the latest mark that you were getting in the last bull market,” Ginns explained.

Chain Reaction comes out every Tuesday and Thursday at 12:00 p.m. PDT, so be sure to subscribe to us on Apple Podcasts, Overcast and Spotify to keep up with the action.

CoinFund’s Seth Ginns on why the crypto downturn has spared early-stage startups by Anita Ramaswamy originally published on TechCrunch

9 strategies that will help you overcome your fear of fundraising

The contracting private tech markets are driving down the pricing and frequency of funding rounds, while inflation cuts into companies’ runways, meaning they are able to build less product and acquire fewer users with the money they raised.

It’s true that VCs are doing more diligence and being more cautious with their decisions. Some want to make sure their existing founders have enough runway to weather this storm so they are prioritizing these companies. At the same time, there are hundreds of millions earmarked for early-stage companies, and firms such as Lightspeed, Collaborative Fund, CoinFund and Menlo Ventures have announced new funds in the last few weeks. Later-stage capital is now being redirected to earlier stages to avoid being exposed to one- to three-year exit timelines due to short-term turbulence and, instead, investors are focusing on exit horizons of over seven years.

In this economic environment, I’ve been asked by many founders how they can raise capital successfully, especially by those who feel demotivated by how long the process is taking. I want to share what is actually happening within VC, myths about raising in this environment, and actionable tips for closing pre-seed to Series B rounds that have also been instrumental in helping me raise $100 million for our fund.

As a founder, how can you navigate this environment and successfully raise a round?

Any change is an opportunity to create leverage, and a downturn is no exception.

Don’t dilute yourself for more than 10%-15% in any given round

If you want to build a big company, you need to keep enough equity for the next rounds and for yourself so that you’re incentivized to continue growing it. Investors often require this in later stages. At the same time, don’t get obsessed with certain valuation mark-ups. If it’s taking ages to close at a higher valuation, raise money on the same valuation or terms as the last round, or in the worst case, a down round to ensure your company’s financial stability.

Optimize for quality of investors over volume

First, create a list of every investor you know who is a good fit for your round. Then, create a second list of founders and advisors who could introduce you to good investors. Rank them as tier 1 and tier 2.

Tier 1 can lead rounds and signal to other investors that they need to get into your company ASAP. Tier 2 are those you’ll prioritize going to after you strike out with tier 1s. As you map out these lists, think about how relevant their funds are to your company.

When requesting intros, the best way to stand out is by showing alignment with the right partner at a relevant firm. Introductions are about quality, not volume. It’s better to get 20-30 meaningful conversations than sending 200 cold emails that result in nothing. Figure out who from your network can give the warmest intro to an investor. Then create a purpose-drafted pitch for that particular investor to ensure you show alignment in your interests.

Cryptoys banks a16z funding to build NFTs for kids

The past several months haven’t been entirely kind to the NFT market — while transaction volume hasn’t stuttered too significantly, the dollar amount invested in the space has been in free fall as cryptocurrency prices have taken a historic dive. With that as background, it might not seem like the best time to launch an NFT platform, let alone one geared towards children.

And yet, NFT startup Cryptoys is raising tens of millions of dollars with the goal of building a blockchain-based toy company that can expose younger users to the ideas of digital ownership and NFT mechanics. The platform, which will launch widely in the next couple months, features cutesy big-eyed animal characters with hats, sunglasses and cryptographically-ensured uniqueness.

Platforms for trading non-fungible tokens have often proven themselves difficult for even adult users to navigate, so the prospect of building an onboarding for younger users seems quite daunting. Cryptoys will be side-stepping some of this friction by partnering with Dapper Labs and launching their platform on the startup’s Flow blockchain. Flow, which Dapper’s NBA Top Shot runs on, offers a blockchain-lite experience that lets users sidestep some of the hallmark stumbling blocks of NFT land including high gas fees, convoluted wallet onboardings and the inability to transact with payment methods like credit cards.

Even so, making a blockchain easy enough for kids to use is a bit of a moot point at the moment, as users signing up for the platform will be required to be 18 or older, though CEO Will Weinraub says that parent-controlled wallets are on the way that will allow younger users to interact more directly with the platform and learn about NFTs.

“You have to take a step back from all of this web3 maximalism,” Weinraub says. “You’ve got to take baby steps to getting millions and millions of people to these new paradigms.”

Cryptoys is getting some help on this journey. The startup tells TechCrunch it has recently closed a $23 million Series A round led by a16z Crypto with participation with a host of other partners including Mattel, Dapper Labs, Draper & Associates, Acrew Capital, CoinFund, Animoca Brands and Sound Ventures. The startup announced a $7.5 million seed round — also led by a16z Crypto — in October.

Image: OnChain Studios

The funding will give Cryptoys’ parent company OnChain Studios some capital to build out their vision which includes a number of NFT-adjacent opportunities including games where users have the chance to earn NFTs through gameplay. Weinraub notes that the company is also planning to build experiences that won’t require that users interact with NFTs, something that may prove helpful as the startup looks to approach younger users on platforms like iOS which hasn’t been very friendly to the crypto industry — though Weinraub believes that could change.

“Apple is constantly evolving how they think about these things,” he says.

Among the biggest questions raised by an NFT-for-kids platform is why kids would care about their in-app purchases being blockchain-ordained. Weinraub says that kids bouncing from platform to platform means a lot of digital asset value being lost, and that he thinks his own children would be interested in reselling in-game items they’ve bought and grown tired of to fund new digital purchases. Weinraub believes that the phenomenon of parents spending hefty sums on cartoon animal NFTs has left a lot of space for parents to bond with their kids over investments and what digital ownership means.

For those parents that have gotten involved in the NFT space in the past several month, it’s fair to say that many investments haven’t turned out as profitable as anticipated even as many of the companies involved have seen big paydays. Asked whether the startup missed a historic launch window of NFT razzmatazz, Weinraub rebuffs, “it’s a much better time to launch products, a lot of the hype has been driven out of the market.”

Subscribe to TechCrunch’s crypto newsletter “Chain Reaction” for news, funding updates and hot takes on the wild world of web3 — and take a listen to our companion podcast!

a16z, Coatue, USV invest in $725M developer fund for Dapper’s Flow blockchain

The web3 world is continuing to discover that it’s a lot harder to build a developer ecosystem than it is to build a platform.

The Flow blockchain launched by NBA Top Shot creator Dapper Labs is looking to onboard more crypto developers and it’s built up a dedicated ecosystem fund to coax more builders onboard. The fund, which is backed by Dapper’s venture arm and Dapper investors Andreessen Horowitz, Coatue, Union Square Ventures, Coinfund, Digital Currency Group and Cadenza Ventures, among others, is aiming to incentivize more crypto devs to choose Flow as the blockchain they build their projects on with investments, token grants and development support.

Dapper Labs CEO Roham Gharegozlou says that more 7,500 people are building on the platform. One of the fund’s major challenges will be ensuring that popular projects choose Flow over more popular alternatives like Ethereum, which have usability shortcomings but offer projects a vast network of crypto rich NFT buyers.

Dapper has been one of the bigger venture successes in the crypto ecosystem, the startup raised $250 million at a $7.6 billion valuation in September.

But Dapper’s fortunes haven’t played out as loudly as other NFT firms in the year since its NBA Top Shot product caught fire. After an initial flood of interest a little over a year ago brought transaction volumes surging on the platform setting a one-day sales record last February of over $45 million, things have grown quieter on the platform. Last month, the platform did $26 million in sales according to tracker Cryptoslam, still a healthy sum but a far cry from the $3.5 billion that OpenSea pulled in during the same period. Flow has brought a number of other projects to its platform from outside developers and Dapper itself, but even the company’s hyped NFL All Day marketplace has struggled to find the reach of Top Shot — last month, the football NFT project recorded around $7.5 million in sales according to Cryptoslam.

Flow’s success largely relies on more novice consumer attention landing in the crypto collectibles space. The Ethereum NFT ecosystem is flush with cash, but offers a number of usability pitfalls that make onboarding a steep challenge for the lightly technical. Flow’s blockchain is built around trade-offs that over-index on reducing friction for users. Among Dapper’s challenges is ensuring that other popular NFT platforms don’t better capitalize on consumer interest and build out their own consumer-grade blockchains — Bored Apes maker Yuga Labs recently hinted that it may build out its own blockchain as it expands its metaverse ambitions.

Subscribe to TechCrunch’s crypto newsletter “Chain Reaction” for news, funding updates and hot takes on the wild world of web3 — and take a listen to our companion podcast!

This Dapper Labs-backed company is turning Dr. Seuss characters into NFT trading cards

Back in 2012, a Brooklyn-based mobile apps development startup was hired to do a job by the 83-year-old trading card company Topps. For that outfit’s president, Erich Wood, a UCLA graduate who’d studied economics and loved trading cards, the opportunity not only sounded fun but would change his trajectory.

At the time, Topps had a licensing agreement with Major League Baseball, the National Football League, and Star Wars, and Wood’s tiny outfit — discovered by Topps’s then head of digital — was brought in to create the first digital trading card platforms for all three.

The cards took off immediately. In fact, things went so well, according to Wood, that he and that digital chief, Michael Bramlage, decided in 2016 to partner on their own digital collectibles company, Quidd.

Fast forward to today and Bramlage is still CEO of Quidd, which was acquired in 2019 by Animoca Brands and now operates as a standalone subsidiary. Meanwhile, Wood has quietly been building a new, 13-person business called Tibles that just raised $3 million in seed funding led by Cadenza Ventures, with participation from earlier backer Dapper Labs (whose “NBA Top Shot” took the world by storm earlier this year).

Interestingly, Tibles seems not so unlike Quidd, though Quidd still stores its collectibles “off chain,” meaning on centralized servers, whereas Tibles is creating an NFT marketplace that runs exclusively on Flow, the blockchain developed by Dapper. (Quidd says on its homepage that it is “coming soon to the blockchain.”)

Tibles is also focusing exclusively on pop culture and entertainment brands, whereas Quidd also sells sports collectibles.

Perhaps most important of all, suggests Wood, unlike Quidd and another digital collectibles marketplaces, Tibles isn’t simply digitizing existing images and turning them into NFTs. The plan instead is to work with brands to create an ecosystem with original licensed art, a trading experience, and community. Its ultimate aim is to make the digital collecting experience as authentic as a physical one, says the company.

Whether it works out as planned remains to be seen, but as a starting point, Tibles just took the wraps off a partnership between itself, Dr. Seuss Enterprises, and Dapper Labs to create “Seussibles,” which invites fans of Theodor Geisel to own NFTs of his characters — including the Lorax, the Grinch, and Horton the Elephant — and to interact with other fans.

As Wood explains it, the NFTs come in blind five-packs that are reminiscent of Pokémon cards; these cards or “stickers” can then be viewed in a “sticker book” where other users can see each others’ collections.

There is also a clubhouse area where fans can socialize, and a trading area where they can swap holdings.

Right now, all the packs are priced the same; none are “limited edition” NFTs, though you can imagine that Tibles will be looking at what people are trading to learn which characters might be more valuable to fans than others.

As for the startup’s road map, hiring is a priority, unsurprisingly. Tibles will also be working closely with Dapper to obtain more licensing agreements so that it can generate more content. (Asked for more specifics, Wood notes the the “licensing roadmap can be a long one” and “filled with with secrecy.”)

On the development side, Wood says the plan is fairly straightforward. Tibles is just “very focused on delivering the user experience [so that] anybody can people can buy stuff as easily as they might any other Apple in-app purchase.” He also wants to make it dead simple for users to participate in the community and share things and organize them and trade them. “We’re focused on making this fun, then reproducing that [success] for a few different publishers and licenses and different experiences.”

Certainly, Wood knows by now from his years in the digital collectibles market that different fan groups tend to appreciate very different things. Dapper’s deal with Dr. Seuss Enterprises is centered around card-like stickers, but future projects for other clients could have “video or animation; they could have interactions.”

The unifying thread it that all will be web objects that are collectible. The rest depends on the property. “We spend a lot of time understanding the IP and the brand and their fans and what they like,” says Wood. “And it’s almost never one thing that works.”

Tibles’s newest round follows an earlier, $1.19 million, seed round of funding that closed earlier this year.

In addition to Dapper Labs, which led that earlier round, CoinFund and Warburg Serres have also participated in both tranches.

Republic may build a secondary exchange for digital securities, fueled by $150 million in new funding

There’s plenty of frustration in the world of startups over when a digital asset does and does not constitute a security in the eyes of the Securities & Exchange Commission.

Where many see regulatory murkiness, the five-year-old, New York-based investing platform Republic sees opportunity. Indeed, while many outfits grapple with whether to distance themselves from certain digital assets, Republic — whose CEO, Kendrick Nguyen, started his career in securities litigation with Goodwin Procter — has focused from the start on establishing itself as a go-to brand for what Nguyen calls “compliant tokenization.”

Now, the company is hinting at big ambitions to expand on what it has already built to create, potentially, a compliance-focused marketplace for straight-up digital securities to be bought and sold, and resold.

As Nguyen told us during a call late last week, “Within the United States, none of these major exchange deal with digital security tokens,” meaning tokens that derive their value from an external, tradable asset like real estate versus utility tokens that offer a right to use a product or service.

For example, it’s because the SEC has made it very plain that it sees XRP, a native cryptocurrency developed by Ripple Labs, as a security, that exchanges like Coinbase don’t list it for sale.

Nguyen said Republic would be willing to “partner right now” with an exchange “that is capable, that delivers good customer service, and that can facilitate secondary active trading of securities and digital securities” in the U.S. But it doesn’t exist, he maintains, and “if in another year, we do not see a solution out there,” he adds, “Republic will look to invest or build directly through an affiliate, a secondary exchange for digital securities.”

It would be the among the most ambitious in a growing list of products that Republic oversees and that have attracted more than one million users — along with some serious financing backing.

Just today, the company is announcing a $150 million Series B round led by Valor Equity Partners, which follows a $36 million Series A round that the company announced in March from Galaxy Interactive, Motley Fool Ventures, HOF Capital, Tribe Capital, and CoinFund. (Those earlier investors just re-upped, by the way, and were joined by new backers Pillar VC, Brevan Howard, GoldenTree, and Atreides.)

Altogether, says Nguyen, Republic, which employs 200 people, had raised more than $50 million in equity financing ahead of this newest round, and more than $20 million in a token sale.

The outfit is certainly busy putting it all to work. Republic already comprises several different business arms, including a popular retail investment platform that invites people to invest with as little as $10; a private capital division with almost $1 billion in assets under management that funnels accredited investors into startups; and a blockchain consultancy arm that provides technical, financing, distribution, and tokenization services.

Republic also right now has two affiliated closed-end investment funds deploying capital into startups and crypto projects, along with a digital investment arm operating as Republic Realm that focuses exclusively on metaverses and NFTs.

Asked how Republic manages it all, Nguyen says “not to think of it as different platforms” but a company that can cater to everyone, no matter their interests or bank account balance. “If you’re a multimillionaire coming to Republic and it’s not worth your time to make a $100 investment but you want to deploy $100,000, we have those to present to you. If you’re 20 years old, and you want to invest $20 in a video game or in real estate or in a female founder, we have those opportunities, too.”

The idea is to cater to the “entire population,” he says, and in addition to the technical capabilities it has built up, one guiding principle helps, he suggests. That’s Republic’s firm belief that “most tokens, including in the DeFi and NFT space, are securities.” As a result, “everything that Republic does, everything we touch, we treat them as securities by and large and fit them under the existing framework of U.S securities law.”

If other investment platforms want to push back on the SEC, that’s certainly their prerogative. In the meantime, Nguyen says that at Republic, “We’re not looking for new rules and regulations to do what we do. What we do is based on existing law, on firm legal foundation.”

Magic lands $27M Series A for its ‘plug and play’ passwordless tech

Magic, a San Francisco-based startup that builds “plug and play” passwordless authentication technology, has raised $27 million in Series A funding.

The round, led by Northzone and with participation from Tiger Global, Volt Capital, Digital Currency Group and CoinFund, comes just over a year after Magic launched from stealth, rebranding from its previous name Formatic. 

The company, like many others, is on a mission to end traditional password-based authentication. Magic’s flagship SDK, which launched in April 2020, enables developers to implement a variety of passwordless authentication methods with just a few lines of code and integrates with a number of modern frameworks and infrastructures.

Not only does the SDK make it easier for companies and developers to implement passwordless auth methods in their applications, but it could also help to mitigate the expensive fallout that many have to deal with as a result of data breaches.

“This is why the password is so dangerous,” Sean Li, Magic co-founder and CEO tells TechCrunch. “It’s like a Jenga tower right now — a hacker breaching your system can download an entire database of encrypted passwords, and then easily crack them. It’s a huge central point of failure.”

The company recently built out its SDK to add support for WebAuthn, which means it can support hardware-based authentication keys like Yubico, as well as biometric-based Face ID and fingerprint logins on mobile devices. 

“It’s less mainstream right now, but we’re making it super simple for developers,” says Li. “This way we can help promote new technologies, and that’s really good for user security and privacy.” 

It’s a bet that seems to be working: Magic has recorded a 13% month-over-month increase in developer signups, and the number of identities secured is growing at a rate of 6% weekly, according to Magic. It’s also secured a number of big-name customers, from crypto news publisher Decrypt to fundraising platform Fairmint.

Wendy Xiao Schadeck, a partner at Northzone said: “We couldn’t be more excited to support Sean and the Magic team as they redefine authentication for the internet from the bottom up, solving a core pain point for developers, users, and companies. 

“It was clear to us that they’re absolutely loved by their customers because the team is so obsessed with serving every single part of the developer journey across several communities. What’s potentially even more exciting is what they will be able to do to empower users and decentralize the identity layer of the web.”

The company now plans to continue to scale its platform and expand its team to meet what Magic describes as “soaring” demand. The startup, which currently has 30 employees that work remotely on a full-time basis, expects to at least double its headcount across all core functions, including product, engineering, design, marketing, finance, people, and operations.

It’s also planning to hope to build out the SDK even further; Li says he wants to be able to plug into more kinds of technology, from low-code applications to workflow automations. 

“The vision is much bigger than that. We want to be the passport of the internet,” Li adds. 

Dr. Seuss comes to the blockchain thanks to the maker of Cryptokitties

From CryptoKitties to the NBA,

Dapper Labs has paved the way

for blockchain popularity

beyond speculation that’s purely monetary

and now with Dr. Seuss Enterprises

another collectible application arises.

Featuring the Lorax, Thing One and Thing Two

The Cat in the Hat and Horton too,

fans of Dr. Seuss can collect

characters who in retrospect

may prove to be more valuable

than almost any other collectible.

“As the world moves increasingly online, so has consumers’ desire for discovering and collecting digital memorabilia that brings them one step closer to their favorite athletes, musicians and iconic characters,” said Roham Gharegozlou, the chief executive and founder of Dapper Labs, in a statement. “With our new Dr. Seuss digital decal experience, we are marrying the best of both worlds – allowing fans to interact and discover something entirely new, while tapping into our collective nostalgia for the characters that mean so much from our childhood. We are thrilled to be working alongside Dr. Seuss Enterprises to launch this first of its kind endeavour that is bound to bring joy to Dr. Seuss fans around the globe.”

In September, Dapper Labs raised $11 million in financing from a slew of investors including Andreessen Horowitz’s crypto fund, with participation from investors including Accomplice, AppWorks, Autonomous Partners, Fenbushi Digital and Warner Music Group.

Those investors followed on a slew of other venture firms like Union Square Ventures, Venrock, Digital Currency Group, Animoca Brands, SV Angel, Version One, and CoinFund, among others.

That who’s who of investors are buying in to the underlying platform Dapper developed called “Flow”, a specialized blockchain designed for the entertainment industry, according to Gharegozlou.