Crypto venture capital is pulling back to later-stage deals, with proven companies taking 57% of last quarter's capital, according to a new analysis. The author, Varun Datta of Truth Ventures, argues that this retreat is a consensus trade dressed as discipline, not a genuine strategy, and that the founding-stage gap is where the returns actually are.
The later-stage pullback
The numbers are stark. More than half of all crypto VC capital in the last quarter went to companies that have already proven their model. That's a shift from earlier years when early-stage deals were the norm. Datta sees this as a herd mentality. Everyone is chasing the same safe bets, which drives up valuations and compresses returns.
He calls it a consensus trade. That's not a compliment. In his view, it's a way for investors to avoid criticism rather than to find the best opportunities. The discipline is real, but it's the wrong kind of discipline.
Why early-stage is undervalued
Datta's argument is that the real returns are in the early-stage gap. Startups that haven't yet proven themselves are riskier, but that risk is already priced in. The current market, he says, is ignoring that. Instead, it's piling into later-stage deals where the upside is smaller.
He's not saying early-stage is easy. It's not. But the opportunity is there for investors willing to do the work. The founding-stage gap is where the market is inefficient, and that's where the alpha is.
Three things to look for
Datta's analysis includes three specific criteria for evaluating early-stage investments. The details aren't in the summary, but the implication is clear: the signals that matter are often overlooked by investors who are too focused on later-stage metrics like revenue and traction.
He argues that these three factors can help identify startups that are undervalued by the consensus. It's a contrarian approach, but one that he believes will pay off.
For early-stage founders, this means a tougher fundraising environment, but Datta suggests that those who do secure funding will face less competition for capital. The next wave of returns, he says, will come from the deals that are being ignored today.
