Has the Bull Market Made VC Lost in the Temptation of Valuation? Is the Primary Market Showing Signs of Reaching Its Peak?

Has the Bull Market Made VC Lost in the Temptation of Valuation? Is the Primary Market Showing Signs of Reaching Its Peak?

Has the Bull Market Made VC Lost in the Temptation of Valuation? Is the Primary Market Showing Signs of Reaching Its Peak?

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Bull Market Confuses Venture Capitalists
Market Top Signals
Momir Amidzic pointed out that during a bull market, some newly issued tokens can achieve valuations of billions of dollars before the product is even fully developed. This has led investors and new projects to set their own valuations based on these high fully diluted valuations (FDVs). Venture capital firms have also begun to place more emphasis on the project’s FDV, even if their investment cannot exit within three years.
In a bull market, adopting a fast-paced mindset may be helpful for short-term liquidity bets. However, this approach may not necessarily bring successful returns in the primary market. Applying the trading mindset of the secondary market to venture capital transactions is a dangerous mistake.
Momir Amidzic further pointed out that many tokens in the current market will eventually experience a drop of over 90%. The only question is when and what will trigger this decline. In the previous cycle, many tokens with valuations exceeding $2 billion have now disappeared or have a market value of only around $10 million.
At the same time, a bull market is not the best time for venture capital investments. While throwing money into the market during a bull market may bring short-term “paper wealth,” it may not necessarily lead to real returns in the long run. The failures of large funds in the previous cycle, which invested during the peak periods of projects like OpenSea, Axie, and FTX, serve as the best examples. Despite the strong temptation for venture capitalists in a bull market, which not only allows them to have high “paper returns” but also helps them raise more funds from LPs, Momir Amidzic still believes that maintaining caution during the market’s heated phase and not being driven by FOMO are the keys to avoiding impulsive decisions and achieving long-term success.
Regarding Momir Amidzic’s perspective, Arthur, the founder of DeFiance Capital, agrees and emphasizes that venture capitalists have lost discipline in project valuations. The mindset of investors and venture capitalists (VCs) has become “I don’t care about valuations as long as we can achieve a 10x return on that investment.”
Furthermore, Arthur also points out that the loss of discipline in valuations by venture capitalists is an important signal of a market top. This is because when the market widely accepts inflated valuations and invests based on extremely optimistic future expectations, it often indicates an overheated market that may be approaching a turning point. Historically, such market sentiments have often foreshadowed the formation of bubbles, which ultimately lead to market adjustments or collapses, causing losses for investors in overvalued projects.
(This article is authorized and reproduced from GT Radar)
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