These days, crypto startups can’t catch a break.
The recent collapses of Signature Bank, Silvergate Bank, and Silicon Valley Bank dealt a blow to the broader startup ecosystem, and in particular, to crypto startups who have been contending with the challenges of finding a new, crypto-friendly banking partner. But they are also now facing a more hostile environment in the U.S. towards crypto following recent moves by the SEC and other regulators.
There’s “never a dull moment,” David Pakman, managing partner at crypto-focused VC firm CoinFund, told me with a laugh last Friday.
The first recent knock on the industry followed the collapse of SVB and pro-crypto Signature Bank last month, as Pakman says he and other VCs have had to “spring into action” to provide their crypto portfolio companies with lists of bank options that are willing to work with crypto companies. “This is the part that is super scary,” he says, adding separately that while there are certainly options, “we have heard firsthand of a number of banks…that will not bank a company having anything to do with crypto.” The second punch came when the SEC sent stalwart crypto exchange Coinbase a Wells Notice on March 22, indicating the firm will face imminent legal action and alleging that it may be listing unregistered securities—one of a slew of regulatory actions in recent months, including a CFTC lawsuit against Binance, to crack down on the digital asset class and its players.
The implications of the heightened U.S. regulatory environment could be significant, and are being felt. “It's already having an effect on the U.S. crypto tech market,” Pakman says. He laments that the latest regulatory maneuvers are pushing opportunities and developers outside the U.S., and says these recent developments are “absolutely” prompting CoinFund to look beyond the U.S. more than they would have a few months ago. (As it happens, Pakman was in Switzerland when we chatted last week.)
“Is it disappointing to see so many setbacks happen over a short amount of time? Yeah, it is. But…they're not technological setbacks” for crypto, Pakman says. Indeed, he is surprisingly bullish: “This [is] the absolute best time to invest,” Pakman says. That’s “because it's tricky, and because it scares a lot of people away, and because it's uncertain, and because there's less capital going in,” all of which mean it could be good timing because he believes it will build enterprise value long term.
He says that hard times like these fuel entrepreneurs who are “attracted to hard problems.” And from a venture standpoint, investors can get better deal terms and there’s less competition. When I asked about pacing and how many term sheets they’ve written in recent weeks, Pakman said they don’t “pre-announce” deals but that they’re “as busy and focused as we've ever been.” He told me over text yesterday that they have “several deals working through our pipeline.”
You’ve got to hand it to the crypto community—despite the myriad blows to the industry over the last 12 months or so, from the implosion of FTX to now increased SEC scrutiny and banking troubles, they always seem to get back up to fight another day. At least for now.
What escalating China-U.S. tensions could mean for tech: Consumer Technology Association (CTA) president and CEO Gary Shapiro recently spoke with Fortune’s Michal Lev-Ram for the Fortune Global Tech Forum about the current state of the tech industry in North America in light of the economic slowdown and the Silicon Valley Bank fallout, plus how geopolitical tensions could impact global manufacturing and innovation going forward. You can watch the interview here.
A little note from me: I will be on vacation next week (thankfully somewhere warm and sunny: Spain!), and therefore won’t be checking email. Unless you have a can’t-miss tapas recommendation, please reach out to Jessica and, as always, please send deals to the wonderful Jackson Fordyce.
Have a great weekend,
Anne Sraders
Twitter: @AnneSraders
Email: anne.sraders@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.
