Crypto VC Funds Face Massive Consolidation Despite Startup Fundraising Surge
1min read Crypto venture capital (VC) firms are currently facing significant challenges, with many experiencing operational strain and consolidation. This is occurring despite a resurgence in project-level fundraising, which has seen crypto startups raise $5.85 billion in the first quarter of 2025. This amount already accounts for nearly 61% of the capital raised throughout 2024, indicating a strong rebound in startup fundraising.
However, the situation for VC funds is starkly different. Tom Dunleavy, head of venture at Varys Capital, noted that fewer active funds are deploying capital, and many firms launched during the last market cycle are no longer consistently participating in deals. He attributed this pullback to dwindling capital reserves and a lack of meaningful returns, describing the situation as “massive consolidation coming in crypto VC.”
Dunleavy projected that many funds raised in 2021 and 2022 are “shadow insolvent,” meaning they are out of capital but still nominally active. He further predicted that many non-brand-name firms, and even some established names, will be functionally closed by 2026. This consolidation is driven by several factors, 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.
Institutional investors remain hesitant despite recent regulatory progress across jurisdictions, further complicating the fundraising environment for crypto VC funds. Galaxy Research data shows that while startup fundraising is recovering, venture capital funds are raising less money to invest in crypto projects. The number of new crypto VC funds peaked in 2022 at more than 300 but has steadily declined yearly, with only around 50 new funds launched in 2024 and just a fraction of that number entering 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. This contraction in venture capital activity is leading to a more concentrated landscape, where 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, where startups continue to raise money faster than last year, while crypto VC funds struggle to justify their relevance, raise new capital, and remain active in a leaner, more disciplined market.
