Accel’s fintech partner welcomes VC market slowdown after frantic year

Venture capital backing for crypto and fintech firms has been tougher to come by in recent months — and Accel partner Andrei Brasoveanu, for one, is relieved.

The investor, who has written checks for several billion-dollar crypto companies including Sorare and Sky Mavis, welcomes a return to a more patient kind of deal-making.

“Last year was a bit of an exception in terms of things moving so fast. You’re always in catch up mode, you have a gun to your head in terms of deciding quickly,” says Brasoveanu, in an interview with The Block. He adds that in 2021, the market became “overly transactional,” with investors getting just a few days to decide on hefty commitments.

“I think it’s great that right now we can just go back to what venture used to be, in terms of having the time to build quality relationships, asking all the tough questions before you do the deal, and having more sound partnerships,” says Brasoveanu.

The venture capital market for crypto and fintech ran amok last year, netting $210 billion in total — 68% more than the previous year, according to a KPMG report. But those heady days appear to be over with prominent venture firms advising their portfolio companies to conserve cash and down rounds becoming more common, amid a generally bleak macro environment.

The shift in sentiment has been coming for a while. Investors such as Tiger Global — which has sustained big losses during the tech sell-off — has refocused its efforts on smaller, earlier-stage deals. Accel is playing the same game.

“The supply of great people starting businesses is not very correlated to the cycle,” says Brasoveanu. “There is some correlation — some folks are more prone to take risks in good markets rather than bad markets — but we’re still seeing some very high-quality people. So we’re doubling down on our early stage core in this period.”

Which is not to say that the company has no interest in more mature startups. Indeed, only this week it announced a new $4 billion fund for investing in later-stage deals. But opportunities to deploy some of that capital may be harder to come by for the foreseeable future.

“I think you don’t want to have to raise in this environment, particularly as a later stage, higher burn company,” says Brasoveanu.

Crypto concerns

More severe than the slowdown in venture investment has been the meltdown in crypto markets over the past few months. The price of bitcoin — a bellwether for the health of the market — is down from nearly $50,000 at the start of the year to around $21,000 today.

The crash was triggered by successive catastrophes that, besides tanking token markets, have also cast serious doubt on the sustainability of once prevalent business models.

The drama began in May with the collapse of the Terra blockchain and TerraUSD, the network's algorithmic stablecoin, known by its ticker UST. The fallout has since imperilled crypto lender Celsius — which is reportedly considering bankruptcy — and hedge fund Three Arrows Capital, among others.

Such market ructions are even working their way through to the lighter segments of the crypto industry, such as Axie Infinity, the play-to-earn crypto game developed by Accel portfolio firm Sky Mavis. 

The game hit headlines last year with reports that some players were able to earn a living through the game by reaping token rewards — even though they faced an entry price of up to $1,000.  

Over the course of 2022, however, the game has faced major setbacks. The price of its tokens — AXS and Smooth Love Potion — have plummeted; user numbers have fallen significantly; and to top it all off, Sky Mavis’s sidechain Ronin suffered a $600 million hack.

Yet Brasoveanu remains optimistic about Sky Mavis, Axie Infinity’s developer. “They’ve had several challenges to face,” he says. “What attracted us to them is that it was never just about token inflation, tokenomics, but also not always just about the gaming side.”

He highlights the impending launch of a free-to-play game called Axie Infinity: Origin; the advent of third-party publishers building on the Ronin sidechain; and the Sky Mavis “distribution hub,” which can be used by other game developers.

All of which leads Brasoveanu to admit that the startup can't rely solely on the play-to-earn model going forwards.

“The whole point around having these inflationary tokenomics is that you can bootstrap a community and bootstrap your audience,” he says. “The question is: what do you build for this audience? What do you offer that’s enduring versus just unsustainable short-term yield?”