The Funding: Why crypto-AI startups are hot with VCs

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Crypto-AI startups are having their moment. This year, some of the largest fundraises in the crypto space have been driven by ventures with a strong AI connection. Such startups are raking in mega rounds, with some even achieving billion-dollar valuations, all while still in their early stages.Take PIP Labs, for example. They're the minds behind Story Protocol, a Layer 1 blockchain designed to tokenize intellectual property, ensuring original creators are rewarded in the AI era. Their recent $80 million Series B round, led by a16z crypto, reportedly rocketed their valuation to an impressive $2.25 billion. Then there's Sahara Labs, a crypto-AI startup developing the decentralized platform Sahara AI, which pulled in $37 million in a strategic round co-led by Pantera Capital and Polychain Capital with a promise to fairly compensate AI contributors. And let's not forget Sentient, co-founded by Polygon's Sandeep Nailwal, which grabbed headlines last month with an $85 million mega seed round. Clearly, VCs are placing big bets on the future of crypto-AI.But what's fueling this surge in interest? To get a clearer picture, I reached out to VCs who have invested in several crypto-AI startups."AI is a once-in-a-generation, zero-to-one innovation, especially with the advent of large language models (LLMs)," Jed Breed, founder and general partner of Breed VC, told me. He sees the current excitement around crypto-AI startups as part of a "standard hype cycle," where early enthusiasm and capital flow quickly, even if the actual innovations are still on the horizon.Rajiv Patel-O'Connor, principal at Framework Ventures, said both AI and crypto are "really big stories" and that combining these two "very optimistic narratives" is driving much of the excitement.People are waking up to some of the downsides of relying on centralized, closed-source companies to provide AI models, and there's a belief that these downsides could be remedied by decentralized tools, according to Tom Schmidt, general partner at Dragonfly Capital. "We think there's an opportunity for decentralized compute networks to ensure permissionless, ungated access to these models, much in the same way that Bitcoin created the first permissionless, ungated currency," Schmidt told me.AI isn't just a passing trend; its long-term value is undeniable, according to Erick Zhang, managing partner at Nomad Capital and...

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