Truth Ventures CEO Varun Datta has urged crypto investors not to demand recurring revenue from seed-stage companies, as RootData has listed 99 crypto projects that closed, entered bankruptcy, or became inactive in 2026.
Summary
- RootData listed 99 crypto projects as closed, bankrupt, or inactive by late July.
- Galaxy recorded $4 billion across 355 crypto venture deals in the first quarter.
- Datta said seed startups should be assessed through founder knowledge and their path to a viable business.
- US-based companies received 70.2% of crypto venture capital during the first quarter.
RootData listed 99 crypto projects that had announced closures, entered bankruptcy, or remained unavailable for long periods by late July, according to a recent crypto.news report. The database includes several types of inactivity, meaning its total should not be presented as 99 insolvencies.
As companies disappear from several parts of the market, investors are examining whether crypto products can retain users and support operating costs without depending on rising token prices. Datta told crypto.news that such tests may be suitable for established businesses but could produce the wrong assessment when applied to companies at the start of their development.
“The market shakeout is evident, but the lessons we are learning primarily apply to established companies. It is unfair to expect a new team to show recurring revenue. They are simply too early in their journey for those metrics.”
His comments draw a distinction between accepting an unworkable business and recognising that a new company may not have had enough time to build recurring income. Applying revenue standards designed for a later funding round to a pre-seed company, he said, could prevent investors from examining the qualities that matter at its current stage.
Crypto investors are putting more money into mature companies
Galaxy Research reported that venture firms invested about $4 billion across 355 crypto and blockchain deals during the first quarter of 2026. Funding declined 50% from the previous quarter, while the number of deals fell 16%.
According to Galaxy, the difference between the two declines resulted mainly from a reduction in large, later-stage financings after a strong fourth quarter. Smaller seed and early-stage deals continued, although later-stage companies received 57% of invested capital, leaving 43% for younger businesses.
Pre-seed rounds accounted for 19% of completed deals, while later-stage transactions rose to one-quarter of the total. Galaxy said the increase in the later-stage share indicated that parts of the crypto industry were maturing, even as new projects continued to secure funding.
Available capital is also concentrated in a small number of business categories. Trading, exchange, investing, and lending companies collected about $2.6 billion, close to three-fifths of all crypto VC money deployed during the quarter.
Infrastructure companies completed 56 deals, the second-highest total by category. Web3, NFT, decentralized autonomous organization, metaverse, and gaming companies followed with 39 transactions, while payment and rewards businesses recorded 33.
April data offered another example of capital concentration. As fundraising figures showed, centralized finance companies raised about $606 million of the approximately $860 million disclosed across 55 crypto funding events that month. Infrastructure companies secured $105 million across 14 deals, while DeFi businesses raised $90 million across 19.
Seed startups require a different investment test
For Datta, early-stage investors should begin with the founder’s knowledge of the problem rather than revenue figures that may not exist. Product design and the value delivered to users, he said, provide more suitable evidence when a company has only recently begun operating.
“At the seed stage, the real indicator of success has never been revenue. It stems from the founder’s profound understanding of the problem at hand.”
Products must solve a genuine problem instead of using a token as the main fundraising tool, according to the venture capitalist. He attributed the failure of many crypto projects to attempts to replace a working commercial model with speculation around their tokens.
Datta described such failures as problems of vision rather than proof that early-stage investing itself is defective. In his view, protecting seed companies from unsuitable revenue tests does not require investors to overlook weak products or teams.
“This isn’t about protecting weak businesses,” he said. “It reminds investors not to use growth-stage criteria for brand-new startups.”
Under the approach outlined by Datta, investors would examine how a product could gain users before its available capital runs out. They would also assess whether the founders have identified a route from initial product development to a company capable of supporting itself.
Reviewing an existing revenue statement would be easier, he said, but venture firms backing new companies must evaluate an unproven plan with limited operating data. Datta described the process as an essential part of early-stage venture investing.
Crypto venture funds are competing for limited allocations
Galaxy also found that crypto-focused venture firms raised about $1.1 billion across eight new funds during the first quarter. The number of newly raised funds was the lowest recorded since the third quarter of 2020.
Fundraising conditions remained difficult because AI companies, spot crypto exchange-traded products, and digital asset treasury businesses competed for institutional allocations, according to the research firm. If the first-quarter pace continued for a full year, crypto venture funds would raise about $4 billion in 2026, below the $8.75 billion raised in 2025.
Competition for capital has not removed investor interest in companies serving a specific commercial market. In a separate interview, Moon Pursuit Capital founder Utkarsh Ahuja said investors should separate scientific progress from a business model that customers will pay to use. The infrastructure funding discussion covered security, cryptography, and quantum-readiness companies, but Ahuja said such businesses still require an adoption plan that does not depend on a rapid technical breakthrough.
Galaxy found that the median crypto deal exceeded $4.5 million in the first quarter, its highest recorded level. However, the research firm cautioned that valuation information was available for only 12% of completed deals and leaned heavily toward later-stage companies.
US crypto startups captured 70% of invested capital
US-headquartered companies received 70.2% of all crypto venture capital deployed during the first quarter, according to Galaxy. American companies also accounted for 43.5% of completed deals, followed by the United Kingdom at 5.3% and Singapore at 4.5%.
The US figures indicate that decisions over seed-stage requirements could have a particularly large effect on American crypto founders seeking institutional backing. Galaxy’s data does not show which individual screening standards investors applied, but it establishes that most capital flowed to companies based in the United States.
Datta said early investors should focus on companies building toward sustainable models across Web3 and AI. Truth Ventures invests from pre-seed through later Series rounds, according to the CEO, with an emphasis on founders developing products around identifiable problems.
The firm’s stated investment focus includes Web3 infrastructure, decentralized applications, and digital financial systems. Datta said Truth Ventures is accepting pitches from infrastructure founders while working with companies from their initial ideas through subsequent growth rounds.
