Billions of dollars in capital were raised during the bull run. VCs are operating in a bearish market and navigating the aftermath of the FTX collapse.
The founder and general partner of Double Down, Magas Kala, and the general partner of Dragonfly, Tom Schmidt, shared their views on what the future holds for the industry at a conference in Miami on Thursday.
One week before all the FTX goings-on went down, Kala's Double Down closed its fund.
Both say they had already planned to be cautious in their deployment of capital.
There is a number of exchanges in his firm's portfolio. We are taking a break to reexamine what we will do in the next year.
He admitted that he was more concerned about builders not entering the space, builders leaving the space and the lack ofLP appetite going forward.
Kala said she feels lucky to be sitting on dry powder.
She said that many people who raised last year don't want to have to raise again in the future. There will be a higher bar for projects.
The firm's third fund has been slowly deployed, according to the CEO.
He said that he has a reputation for being critical. Technology can be used to create a new set of financial services. We want companies that fit that idea at the same level of diligence.
There was a lack of diligence with regards to the FTX debacle, with many wondering how the exchange was able to raise so much money.
He said that it was so unbelievable when he heard it. We weren't fans. The numbers didn't make sense and this was supposed to be a blue chip company. Nothing made sense if you looked at how much they were making and how much they were spending.
The debacle highlights the need fordecentralization, according to Kala. She's not surprised that investors might have overlooked red flags.
It can be that you see what you want to see. You can be taken by the narrative right now.
The past few years have represented anomaly in the traditional venture process. The investor in some of the meetings with the funds did not have a good idea of what the company was doing.
He believes that regulation was involved in the FTX saga.
Regulation could have made a difference. It was the environment that made them go offshore. I would like to see the U.S. become a leader in this area.
Mala doesn't think anything has changed with regards to the core fundamentals. FTX CEO Sam Bankman-Fried tried to make regulation more like a dog and pony show, she said.
She said that the real change was happening with real players. Slowly, we are having a change of guard who are knowledgeable aboutcryptocurrencies.
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