We explore the role of regulation in promoting venture capital investment into young and innovative firms. The development of the crypto sector offers a unique setting due to the absence of incumbents, the lack of pre-existing rules and the fact that governments regulated the sector holistically. We construct a comprehensive measure of regulatory activity at the state-month level for the United States based on state laws affecting the crypto sector and find a positive association between regulation and venture capital funding in financial hubs. A detailed analysis of the New York’s BitLicense sheds light on the mechanism: regulation reduced information asymmetries, enhancing funding for start-ups. Overall, our results highlight how regulation can address market failures and encourage the development of new firms.