Recently, I’ve been pondering a question: in the next ten years of the crypto venture capital scene, will there still be a place for mid-sized funds?

My answer is: no. To be more straightforward, those comprehensive funds with a scale between $100 million and $500 million, and investment logic that’s steady and balanced, are experiencing a structural decline.

Just look at the data from Q1 of this year to understand. The entire venture capital market invested $4.56 billion, which seems pretty good, but a closer breakdown reveals the problem—large financings are consuming the vast majority of the capital, while early-stage projects are struggling. Founders Fund alone raised more than 1.7 times the total of all emerging VC managers in the first half of last year. The established top-tier funds’ fundraising amounts are even eight times those of new funds.

What does this mean? It indicates that the VC industry is polarizing. On one end are platform giants like a16z and Dragonfly; on the other are boutique funds focused on vertical tracks with less than $50 million in scale. The most awkward middle ground is being ruthlessly squeezed out.

Several mid-sized funds I know that raised capital at the peak in 2021 are now in a very tough spot. Their book valuations look decent, but what about actual cash dividends? Almost none. Some funds have invested 60% of their capital, with a book return of about 1.8x, but the actual cash dividends are only 0.15x. Even more painfully, they’ve stopped new investments, and fundraising for second funds is stagnant. Partners are starting to look for other positions.

Why is this happening? I believe there are three core reasons.

First, digital asset listing tools are diverting LP money. In 2025 alone, listed companies and crypto ETFs absorbed $29 billion in institutional capital. LPs want to allocate to crypto assets—why go through venture funds, endure ten-year lock-ups, and pay high management fees? Isn’t buying ETFs more straightforward?

Second, when the market shows signs of turbulence, LPs tend to concentrate on top players. This is a cyclical pattern. When institutions feel uneasy, they don’t exit the space but push their chips toward the safest options. Investing in a16z, even if it’s not perfect, is hard to blame; investing in a mediocre $200 million fund and losing money is a professional risk.

Third, the pitch decks of all mid-sized funds are nearly identical. Stablecoins, RWA, modular public chains, AI crypto, DePIN… Covering up the logos of twelve funds makes it impossible to tell who is who. When investment logic converges completely, the only differentiation left is branding. But funds that entered only in 2021 lack the accumulation and cannot establish a brand.

So why are top-tier funds still so strong? Honestly, their advantages are not easily replicable. A $30 million Series A is routine for a $400 million fund, but for an $80 million fund, it can severely skew the portfolio. Top funds have platform teams of 40-50 people, with founders prioritizing their connections. Even if 60% of the portfolio underperforms, the power-law effect of 80 investments can still generate outsized returns.

Moreover, Paradigm released a study showing the entire industry is reading; a typical $80 million fund might publish a report, but only its own projects are shared, then… nothing further.

But here’s an interesting reversal: because small funds are limited in size, that can actually be an advantage.

A $40 million dedicated fund investing in 8 to 12 projects can cover the entire fund’s costs with just 1-2 successful projects. To achieve a 3x overall return, it only needs to raise $120 million in cash. If it invests in a company valued at $1 billion with a 5-10% stake, that single project hits the target. Meanwhile, a $400 million comprehensive fund would need to raise $1.2 billion to triple, which is exponentially more difficult.

From another perspective, betting on the next Polymarket, a small fund only needs a project to reach a $4 billion valuation to generate overall gains; a large fund would need to wait until $40 billion. The same investment target, but the difficulty for small funds is ten times lower. This is what I call the “Reverse Cambrian Effect”—smaller scale becomes a bonus.

But size alone isn’t enough. Professional small funds must possess four key capabilities.

First, decision speed. A two-partner professional fund can make a payment within six hours; top funds need to go through investment committees, legal, and partner alignment, often taking six weeks. Many quality early-stage projects are snatched up by small funds’ speed.

Second, the courage to overweight against the trend. Investment committees’ layers of screening filter out all non-mainstream, controversial targets. When eight partners reach consensus, the investment logic has long become market consensus, and excess returns diminish. Haseeb from Dragonfly also said their most successful investments were in non-mainstream targets that others dared not touch at the time.

Third, partners have no career concerns. Platform partners betting on niche projects risk their future if they fail; but in small funds, partners are core decision-makers, judged solely on correctness, allowing more rational judgments on non-mainstream targets.

Fourth, transparent and clear track logic that naturally attracts precise entrepreneurs. Broad sector funds can’t attract vertical entrepreneurs; but dedicated funds that openly focus on specific niches—like “Latin American stablecoin distribution channels” or “L2 application chains’ MEV mitigation layers”—will attract entrepreneurs within those tracks.

These four advantages rely not on capital, branding, or seniority, but on operational discipline and decisiveness.

So, what’s the way forward for mid-sized funds? Honestly, there are only two options. Either actively shrink, withdraw uncommitted capital, and focus on 2-3 core tracks; or simply wind down. The most irresponsible approach is passively lying flat, with partners secretly seeking other opportunities, which only causes LPs to endure another 4-6 years of profit-sharing losses.

If you are an LP in such a fund, my advice is to early on leverage the secondary market to dispose of your shares. Don’t wait until 2028 to regret it.

For managers committed to building dedicated small funds, I’ve summarized six practical rules:

First, stick to a single vertical track. Make it as narrow as possible, becoming an authority within 12 months. Don’t just say “stablecoin infrastructure,” be precise—like “Latin American stablecoin distribution channels” or “non-US institutional tokenized private credit.”

Second, maintain high concentration. Invest at most in 8 to 15 projects, with an average of $1-3 million per project. Resist the impulse to “look at one more good project,” as diversification is the biggest killer of small fund returns.

Third, turn your investment logic into a client acquisition weapon. Continuously produce in-depth long articles, investment reviews, and retrospectives on invested and missed opportunities. High-quality content output far exceeds what a forty-person platform team can achieve.

Fourth, make decision-making transparent, openly review missed projects. Write down “Why I missed a project at a $200 million valuation,” which better reflects your investment framework than “Why I invested in this project.”

Fifth, prioritize selecting people over industry analysis. Seventy percent of pre-seed crypto projects go through multiple pivots before launch. Your core bet is whether the founding team can withstand strategic adjustments.

Sixth, treat fundraising as a 24-month marathon. The average closing cycle for first-time funds is 17.5 months, with each commitment facing 5-10 rejections on average.

If my polarization theory is correct, in the next 24 months we should see: 5-10 well-known mid-sized funds pivot or wind down; a batch of niche-focused, logically transparent dedicated small funds emerge as dark horses; LPs develop a new analytical framework, benchmarking fund book value against secondary market quotes.

By mid-2028, if these don’t materialize, I will openly review and admit my mistake. But I firmly believe the core trend will not deviate.

To all in the VC scene, what I want to say is: this isn’t an emotional issue; it’s a structural polarization. Funds stuck in the middle still have time to save themselves—withdraw, focus, accept being small and refined. The survival logic of small funds is harsh, but there is still a path. Mid-sized comprehensive funds face only intractable internal conflicts.

For dedicated small fund managers, the next decade is inherently your era. Top-tier funds will always dominate headlines, but excess alpha returns will ultimately flow to the specialized players.

For LPs, future allocation decisions should be rethought through this polarization framework. Can you stomach a seemingly ordinary $40 million dedicated fund that quietly delivers stunning returns after three years? Most can’t, but those willing to deploy will eventually outperform their peers.

For entrepreneurs, recognize the polarization and choose your funding partners accordingly. Need scale backing? Go to top-tier platforms. Need quick decisions? Find vertical-focused funds.

The industry isn’t dying; it’s self-clearing and re-ranking.