By: Jan Strandberg
Why do I think this is the perfect time for TradFi to buy crypto companies? And why do I think the Layer 1 grants should be used for M&A activity instead of just building the same copy-paste sh**?
Last year, we all saw massive sums of money pouring into the Tech space. Devs and innovators were building left and right, raising money like crazy, and we had the most extensive bull run we had seen so far. Right?
Layer 1s gave huge grants ( Avalanche, Near Inc, Algorand, Solana Foundation ), and everyone was competing to get the most TVL and as many wallet holders to their ecosystem as possible. People were forking #olympusdao, AMM, and Dexes. Everything you can imagine was being forked and built as fast as possible to get the infrastructure in place.
More TradFi businesses are getting excited about Web3 and crypto companies than before. And we witnessed major Tradfi companies coming in with massive firepower. We also saw the biggest amounts of M&A activity in the crypto space ever. With over 1,703 Crypto/Blockchain venture deals totalling $6 billion in volume. But despite all of this, we are still super early on.
Because of last year’s ape valuations and cheap money, many TradFi companies were still sitting on the sidelines, waiting for the valuations to go down. According to sources, the volume would have been even 30-40% higher if the valuations had been in tune with the traditional valuation models. This half-baked valuation led many TradFi companies and VCs to stall and not act. Now, this is changing.
“Cryptocurrency deal-making clocked in record volumes after a frenzied year for merger and acquisitions, with approximately $6.1 billion in M&A volume driven by crypto-native, finance, and technology companies.” Source
The downturn and Luna crash have led many existing companies to be either low on cash or to acquire an appetite to exit after a delicious bull run has fulfilled the founder’s needs, and are now looking to exit. This brings precisely the opportunity that many TradFi industry people have waited for; lower multipliers and realistic valuations. Not to mention, right now is the ideal time for web 2.0 companies to make their move into web 3.0. Now is the perfect time to act.
Second, we need to address Layer 1 grants. Last year it was pretty much painless to get a grant. The average minimum ticket was $50k, and you, as a founder or a developer, could fill out a 10-minute grant application. The success rate of your application was almost 80%, if not 100% (as long as you had a slight clue what you were doing or building, you would be OK ). Unfortunately, this meant that Layer 1 grants were throwing money frivolously, and the amount of crap built was, for the most part, garbage (I am not saying everything is or that all the grant projects are garbage).
Being an entrepreneur and having built crypto innovation myself, I support R&D and know how much money and time it takes to pull your product to the next level. But we know what the traditional tech grants mean; either to R&D something, incorporate it into your existing ecosystem, or sell the R&D.
I predict that very soon, Layer 1s will start to wake up and learn the value of traditional M&A or selling Tech to other Layer 1s.
There is a lot of existing Tech that has enormous potential and can easily be transformed into helpful and profitable products. This Tech is necessary in the long run to propel innovation to the next level in other ecosystems (s). Unfortunately, because our industry is very young and the valuation methods we tend to use are outdated, it is hard to build an M&A ecosystem. We need more data.
We need the grant money to be used to buy out companies that want to exit. The industry is ready for a change. I am ready for a change.