Tag: Digital

CoinDCX was valued at $1.1 billion in a funding round to raise $90 million, surprising many as it came amid huge regulatory risks and the government’ stiff opposition to cryptocurrencies.

However, experts say many such deals would be cracked as larger players from venture capital, private equity and pension funds are outplaying smaller boutique firms and family offices from participating in the latest innovations around crypto.

boutique investment firms and family offices are being elbowed out by big venture capitalists, private equity funds, and even some pension funds. He noted that smaller venture capital firms are unhappy about this trend.

“Let’s say they’re looking at a deal and they believe it’s worth $10 million, and you’re seeing large VCs come in and put a bid in for a higher valuation. This is happening a lot with very early-stage companies, say, $5 million to $20 million — the prices are being inflated, says Henri Arslanian, Crypto Leader at professional accounting and financial services firm PWC.

Valuations rocket

According to the State of Crypto M&A 2021 report, even though deal activity in 2020 increased only 10% from the previous year, total deal value doubled to $1.7 billion. This was primarily due to a handful of large acquisitions in the crypto exchange space, including the $400 million acquisition of Coinmarketcap by Binance and FTX-Blockfolio transaction for $125 million. This trend has continued this year, with Galaxy Digital acquiring Bitgo for $1.2 billion.

In July, derivatives exchange FTX’s valuation rose to $18 billion after the company raised $900 million from investors. In addition, the Digital asset platform Fireblocks raised $310 million to achieve a value of $2 billion.

Pricing challenges

There are some challenges in pricing cryptocurrency startups. They include how to discount for regulatory risk in such a nascent industry and how to assess the valuation of businesses. There is also an issue of the lack of companies to invest in since most firms in the crypto space are still small and not well developed yet.

“If the minimum ticket size of an investor is around $50 million, there aren’t that many companies that have that status yet. If you’re a large pension fund and you decided to make a crypto allocation, there are no more than two dozen companies around the world that are investable, looking for capital and could absorb $100 million,” Arslanian said.

According to Delhi-based data intelligence platform VCC Edge, VC firms poured in more than $176.9 million via 13 deals in the sector. This is a significant jump from $44 million in 10 deals that were cracked by VC firms in the previous year.

The investment accounts for 50% of all deals pertaining to crypto firms this year but industry insiders say more such deals are expected as per reports.