The venture capital industry is experiencing a 'weeding out' phase as investor sentiment becomes more cautious due to a prolonged downturn in the crypto market. A former VC investor highlights that while some firms have failed, the sector is undergoing a cleansing process reminiscent of the 2000 dot-com crash. This phase is influenced by the lingering effects of the 2022 Luna collapse, a disrupted four-year crypto cycle, and extended token vesting periods. Despite these challenges, venture capital remains crucial for early-stage innovation. Projects like Hyperliquid and Polymarket are demonstrating real user growth and revenue, underscoring the continued importance of VCs in fostering new developments in the crypto space.