The Funding: Why 'VC coins' like BERA are facing backlash

Berachain's  BERA token launch  this week has brought renewed attention to the debate over "VC coins"— tokens with large allocations to early  venture capital   investors .

Critics have questioned how much of BERA's supply is controlled by investors and insiders and what that means for its price over time. Similar concerns recently emerged with other venture-backed blockchain projects like Aptos, Sei Network and Starknet, as crypto communities assess whether these token distribution structures drive long-term growth or primarily benefit early backers.

I spoke with investors to break down why these launches continue to face backlash. Rob Hadick, general partner at Dragonfly, said the level of criticism is "always directly correlated" to whether airdrop recipients and early users profit. He noted that Berachain's BERA token didn't meet expectations for many traders, fueling negative sentiment. "Had the token performed better, you'd likely see a very different sentiment on Twitter," he said.

Now, with several VC-backed tokens underperforming, concerns over their allocations have become more pronounced. Many traders point to such tokens' low float (or small circulating supply) and high fully diluted valuations (FDV) as key issues. Zaheer Ebtikar, founder and CIO of crypto hedge fund Split Capital, said high FDVs are often driven by excess venture capital funding inflating valuations, as funds must deploy capital raised from limited partners. However, he expects this trend to shift as VC funding slows, with their raises becoming smaller, reducing the bid for early-stage projects and leading to a re-evaluation of how valuations are set.

Hadick argued that FDV isn't the best way to assess a crypto project's valuation because future issuance isn't guaranteed, and any new supply can dilute market cap. He also noted that many liquidity providers and funds receive incentives to hold unlocked tokens, but they may not retain them once those incentives run out, adding to potential sell pressure.

Meanwhile, Ed Roman, co-founder and managing partner of Hack VC (an investor in Berachain), said FDV is set by the market, not projects, meaning teams don't control how high their FDV appears — but they do control how much supply is available at launch. He pointed to Berachain's 21% float as higher than other blockchain projects like Starkware (7.28%) and Sui (5%).

Still, Roman acknowledged that web3 projects can improve how they handle long-term incentives. In many web2 companies, employees receive new stock grants after vesting to keep them engaged. Similarly, he said, crypto projects could introduce token-based incentives to have a "higher probability of creating enduring value."

Hyperliquid's recent  HYPE token launch , a non-VC coin, was widely celebrated and has  surged  140% since its November debut. But Hadick said that model isn't easily replicated. Hyperliquid's success came from an "incredibly differentiated product with a religiously committed community" and self-funded development that cost millions of dollars — something most projects can't easily replicate, he said.

Hyperliquid allocated 31% of its total token supply to users through an airdrop, thereby increasing its circulating supply. Boris Revsin, general partner and managing director of Tribe Capital, which manages $1.8 billion in assets and is an investor in Berachain, highlighted that such high circulating supplies aren't feasible for all projects, as they need to reserve treasury funds for ongoing ecosystem growth. He noted that even Ethereum, often considered the fairest Layer 1 launch, allocated 10% of its supply to the team and foundation, with an additional 40% reserved for ecosystem growth and early miners.

Hadick said projects should focus on the long-term health of the protocol, align with the core community, and avoid focusing too much on "gamification or deals that solve nothing for nothing but keeping mercenary capital in the token for a short period of time post-launch."

While some VC-backed tokens fade after the initial hype, others manage to sustain long-term value. The difference often comes down to fundamentals, real adoption and market demand, the investors said.

Roman emphasized that a blockchain's real traction at launch should be seen from its early ecosystem. As for valuations, the market ultimately decides, as investors price in future expectations. "Markets are (short-term) voting machines, and (long-term) weighing machines," he said. "If the team is sufficiently strong, they will likely build a protocol with significant traction and a vibrant ecosystem."

Berachain's pseudonymous co-founder, Smokey the Bera, told me that Berachain's early ecosystem has grown significantly, with projects building on its blockchain collectively raising over $100 million in venture funding to date to build a series of "0 to 1 applications that are both financially novel and culturally excellent."

The apps span across "all varieties of sectors, including major web2 players, such as sports franchises, media conglomerates, and even payment layers (e.g., PayPal's PYUSD deployment on Berachain via BYUSD)," he added.

Ebtikar, however, argued that market demand for tokens often overrides their fundamentals. Some Layer 1 tokens trade at multi-billion-dollar valuations despite little traction, he said, while others with strong adoption struggle to gain support. At the end of the day, it's about "who wants to bid token A versus token B," he said, adding that while product-market fit matters, it's not always the deciding factor for success.