VC "Dead"? No, the Industry is Undergoing a Brutal Shakeout

As a former VC investor, how do I view the current "VC is dead" sentiment on CT?

It's a paid question, so I'll answer it seriously. I've had a lot of thoughts about this sentiment myself.

Let's start with the conclusions -

1. It is an undeniable fact that some VCs are dead

2. Overall, VCs will not die; they will continue to live on, driving the industry forward

3. VCs, much like projects and talent, are entering a phase of "liquidation" and "survival of the fittest," somewhat similar to the dot-com bubble in 2000. This is the "debt" from the previous crazy bull run. After spending a few years paying it off, the industry will enter a new phase of healthy growth, but the barriers to entry will be much higher than before.

Let me elaborate on each point.

1. Some VCs Are Dead

Asian VCs have probably been hit the hardest this cycle. Since the beginning of this year, several top firms have shut down or dissolved. The remaining ones may not make a single investment in months, focusing instead on exits for their current portfolio. Raising new funds has also become quite difficult.

Second and third-tier欧美 (Europe/US) VCs were relatively okay in the first half of the year, related to their LP structure and fund size. However, in the second half, especially in the last month or two, they have clearly started to show trends similar to Asian VCs, with decreasing investment frequency. Some have simply stopped investing or pivoted to pure Liquid Funds. Investment managers/partners have started telling me on TG, "It's too hard, exits are difficult." The impact of the 1011 massacre on altcoin liquidity was fatal and is now starting to affect VC confidence.

The top-tier欧美 (Europe/US) firms seem largely unaffected, at least on the surface.

Actually, this "bear market" for VCs is a "delayed effect" from the Luna crash in 2022. The secondary market turned bearish then, but the primary market—both project valuations and the amount of capital VCs raised—wasn't greatly affected. Many new VCs were even established after the Luna crash (e.g., ABCDE). The thinking back then wasn't wrong: star projects from the DeFi Summer like MakerDAO and Uniswap were built during the 18-19 bear market, and the VCs from that 18-19 wave made a killing in the 21 crazy bull market. Be a VC in the bear market, invest in good projects, and profit when the bull market comes!

But the ideal is丰满 (plump), the reality is骨感 (bony). There are three reasons:

First, the 21 narrative combined with money printing was too疯狂 (crazy). The gap between VCs who invested in good vs. bad projects in 18-19 wasn't huge; everything went to the moon, with any project seeing tens or even hundreds of times returns. This created an anchoring effect, keeping valuations and funding amounts in the 22-23 primary market relatively high even during the bear market, not greatly affected by the secondary market. This is the "delayed effect" of the bear market in the primary market I mentioned above.

Second, the four-year cycle has been broken. There was no所谓的 (so-called) "altseason" in 2025. Reasons include macro factors, too many altcoins and insufficient liquidity, disillusionment with narratives and no longer buying into just PPTs and VC endorsements, the AI explosion and the siphoning effect of "real value investing" in US stocks on crypto funds... Anyway, the previous pattern isn't repeating. The dream of replicating the 19-invest, 21-100x-exit is impossible.

Third, even if the four-year cycle repeated, the terms for VCs this round are completely different from the last. Some portfolios we invested in early '23 are, 2-3 years later, still haven't launched their token (TGE). Even after TGE, there's a one-year lockup, followed by a vesting period of another two or three years. A project invested in in '23 might not receive the final token tranche until '28-'29, directly traversing one and a half cycles. In crypto, how many projects can survive traversing cycles and still do well? Very few.

2. VCs as a Whole Will Not Die

This isn't really something to worry about. As long as the industry doesn't die, VCs won't die either. Otherwise, who will provide the resources to realize new ideas, new technologies, new directions? Can't rely solely on ICOs or KOL rounds, right?

ICOs are more for bringing some retail and community on board + creating momentum. KOL rounds are mainly for传播 (propagation). These happen in the mid-to-late stages of a project. In the earliest stage, with just one or two founders and a PPT, only VCs can truly understand and actually provide funding. During my over two years at ABCDE, I talked to 1000+ projects and only invested in 40. Even these carefully selected 40 will probably see 20-30 die. Many projects you see on the market that you think are "垃圾" (trash) are already the relatively "精品" (boutique) ones after many rounds of screening. If all 1000+ projects did ICOs or KOL rounds, could retail investors, even including KOLs, keep up and分辨 (distinguish) them?

Just think about the phenomenal projects from the last cycle to this one. Except for极个别 (very rare) cases like Hyperliquid, which one didn't have VCs behind it? Whether it's Uniswap, AAVE, Solana, Opensea, PolyMarket, Ethena... No matter how much Anti-VC sentiment there is emotionally, this industry still needs to be pushed forward by the combined efforts of Founders and VCs.

A few days ago, I talked to a prediction market project, completely different from most Polymarket/Kalshi copycats,极其差异化 (extremely differentiated). I recommended it to some VCs and KOLs recently, and the feedback was that it's very interesting, wanting to schedule chats. See, good projects won't die, and good VCs won't either.

3. The Bar for VCs, Projects, and Talent Will Rise, Trending Towards Web2

VCs - Reputation, capital, and professionalism are clearly entering a stage where the strong get stronger.

A VC's reputation and brand aren't最重要的是 (most importantly) about how famous you are among retail, but about whether Developers, or rather Founders, are willing to take your money, and why they take your money over another VC's. This is the real moat for a VC. This cycle, VCs, similar to CEXs, are明显 (clearly) transitioning from a pyramid structure to a thumbtack structure.

Projects - We've transitioned from looking at narratives and whitepapers in the cycle before last (or not even looking at whitepapers, like when Li Xiaolai raised hundreds of millions with just an idea in '17), to looking at TVL, VC backing, narrative, transaction volume in the last cycle... to looking at real user numbers, protocol revenue in this cycle... It feels like we're finally gradually moving closer to the direction of the US stock market.

Jeff from Hyperliquid once said in an interview that the only business model for the vast majority of crypto projects is selling tokens because at TGE they have nothing—just a mainnet, no ecosystem, no users, no revenue... so they can only sell tokens. Imagine a company going public on the US stock market with just a corporate entity and a bunch of employees, maybe some factories and workshops, but no customers, no revenue. There's no way they'd let you list on Nasdaq! Why can we in Web3 just do a TGE or Listing directly?!

This cycle, Polymarket and Hyperliquid set the best examples. One spent years first achieving massive real users and revenue, even propping up a new sector, before considering a token. The other indeed used token airdrop expectations as incentives to attract early users, but their product is无敌 (invincible); people kept using it after the token launch. The project itself is a cash cow, with 99% of its revenue used to buy back tokens. When a project has non-farmer real users + real revenue, then we can talk about TGE, then talk about Listing. That's when our circle will truly be on the right track.

Talent - A big reason I've always been confident in Web3 is because this industry gathers some of the smartest people in the world. As I've written before, of the 1000+ projects I've talked to, close to half had founders and core teams graduating from Ivy League schools. Domestic founders are almost exclusively from Tsinghua and Peking University, occasionally seeing a few other 985s like Zhejiang University, Shanghai Jiao Tong University, Xiamen University.

This isn't about唯学历论 (solely judging by academic credentials); I didn't graduate from a famous school myself. But不可否认 (it's undeniable) that from a statistical perspective, with so many high-IQ talents gathered here, even if it's because of the wealth effect, they will definitely折腾出 (stir up) some useful/fun things.

So, as I said before, even though the market is bearish, the entrepreneurial directions this cycle are actually quite clear: stablecoins, Perps, everything on-chain, prediction markets, Agent Economy are all directions with definite PMF. Good Founders + good VCs will definitely be able to build truly good stuff. Polymarket and Hyperliquid have set the best examples. I believe we will see more star products emerge in the next year or two.

For ordinary people, Web3 is still the most promising place to go from a nobody to a somebody—of course, this "most promising" is compared to the炼狱难度 (hellish difficulty) of the incredibly卷 (competitive) Web2 side. Compared to the cycle before last or the last one, the difficulty has already changed from Easy to Hard. I remember reading a tweet from a Web3 VC partner a couple of days ago saying he received over 500 resumes in a few days for a junior intern position, many from名校毕业 (prestigious school graduates), which scared him into直接关了 (directly closing) the job ad.

So, in the end, it's still that saying - The pessimist is always right; the optimist is always moving forward.