Amid crypto winter, Hemant Mohapatra, Partner at Lightspeed said crypto does have a habit of getting ahead of itself because of the way crypto is designed, it’s easy to get the hockey stick growth curve in the beginning. 

“Incentives are easy to provide: you can create money out of code. Those incentive structures do make crypto very susceptible to rapid growth and rapid shrinkage. We have got to be aware of that,” he added.

Talking about Lightspeed’s investment thesis in crypto, Mohapatra said that the firm is focused on making access to crypto as seamless, as fast, as cheap, as scalable and as stable as possible. This thesis makes Lightspeed lean towards certain kinds of investments more than others. For example, what makes a blockchain run faster, could be the core L1 (layer 1) blockchain, could be an L2 (layer 2) on top or even hardware technologies that make running a blockchain much faster. 

The firm is also interested in the developer tools layer. Mohapatra believes that a lot of the code building, testing, and scaling infrastructure in Web3 is where web2 software was in the 1990s. So Lightspeed is looking to invest in companies taking that friction away. At the usability layer, Lightspeed will invest in companies making on-ramp, off-ramp, wallets and dApps (decentralised applications) easier to use. 

Fund slowdown

Further, commenting on the impact of the funding slowdown on Lightspeed’s investment strategy, he said “the firm was slower than the market last year and now they are faster than the market because the market itself has slowed down. In conclusion, Lightspeed’s investment pace hasn’t really changed in the funding winter.”

However, he noted that the deal flow has slowed down, and fewer people are reaching out to raise follow-on capital. In July, Lightspeed raised $500 million for a new India/Southeast Asia fund but has not started deploying that fund yet. Similar to Lightspeed, many other VC firms have raised large funds in the last year or early this year. Even though there is dry powder, India startups are facing an intense funding crunch.

Hemant believes this trend has to do with the fact that valuations have gone down significantly in the past few months. “A lot of companies that raise growth rounds at valuations that are pretty north of where business was at. Meanwhile, public markets have come down significantly, so if these private companies come back to raise again, they will have to have grown into their valuations,” he added.

For, a lot of top public market companies in SaaS (software-as-a-service) have come down by 60 per cent and they have seen revenue multiples come down from 20-25x forward revenue to 7-10x, Mohapatra noted. Further, the average price of pre-seed rounds to seed rounds has also come down. Last year, companies were raising $15-20 million in seed round cheques, that trend has stopped now.

In a full fund cycle, Lightspeed invests in around 30 to 40 companies and a typical deployment cycle is three years.  The fund’s India portfolio includes unicorns like Udaan, Byju’s, and Sharechat, among others. Mohapatra noted that Lightspeed is a generalist firm, which invests in any sector that they see generating venture returns for its limited partners.

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