Editor’s Note: For more Web3 coverage, please visit Crunchbase’s Web3 Tracker, a site to look at startups, investors and funding news concerning all aspects of Web3, cryptocurrencies and blockchain. Powered by Crunchbase’s comprehensive data, this site will be continuously updated as the next iteration of the internet grows. We hope this data and our analysis serve as resources for readers to track and understand the Web3 landscape and all it encompasses.
In the first quarter of the year, funding to VC-backed Web3 startups hit its lowest point since the very early days of the space as deal flow continues to slow.
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Venture funding plummeted 82% year to year, dropping from $9.1 billion in Q1 of 2022 to only $1.7 billion, per Crunchbase data.
The funding number is also a 30% decline from the final quarter of last year, and the lowest total since the fourth quarter of 2020 — which saw only $1.1 billion — when many people had never heard of Web3.
Deal flow also continued its pronounced drop, as only 333 deals were completed in the first quarter — down from 369 in the previous quarter and a sharp drop from the more than 500 announced in Q1 2022.
The total number of deals is the lowest since Q4 2020.
Big deals down
Perhaps nothing illustrates the differences between the first quarter of last year and the first quarter of the current one in terms of funding to Web3 startups more than the dramatic fall of big rounds.
In Q1 2022, VC-backed startups raised 29 rounds of more than $100 million. That included massive raises of $400 million or more by ConsenSys and Polygon Technology, as well as — of course — FTX and its U.S. affiliate FTX US.
The most recently completed quarter saw only two rounds hit the nine-figure mark, as VCs have hit the brakes on spending big in the space.
The biggest rounds of the quarter include:
- Vancouver-based Blockstream, which provides blockchain technology solutions for financial markets, raised $125 million in a convertible note and secured loan financing.
- France-based crypto hardware maker Ledger added another $108 million to its previously announced $380 million Series C at its same $1.4 billion valuation.
- Israel-based Chain Reaction, a semiconductor startup focused on blockchain and privacy technologies, raised a $70 million Series C.
For our purposes here, we define Web3 as startups in either (or both) the crypto or blockchain sectors. Last quarter, both of those sectors individually experienced their lowest ebb in years.
VC-backed crypto startups saw just more than $800 million invested — the lowest total since more than $600 million was invested in Q1 2020.
The story is similar for blockchain startups, which raised about $1.2 billion in Q1 — the lowest total since such startups saw $820 million in Q4 2020.
Get out now?
Of course, the easy conclusion is that Web3 is over and it’s time to cash out of crypto.
However, as pointed out before, venture funding is down in almost every sector. Web3 no doubt has been more affected by the dip since in uncertain times investors seek out industries they know best — such as cybersecurity or SaaS, not the promise of the next iteration of the internet.
There also appear to be small sub sectors that are seeing renewed interest in the space. Instead of pouring big money into the next exchange or lender, VCs seem to be concentrating on blockchain infrastructure players to help build the foundation for Web3. Companies like Chain Reaction, Miami-based QuickNode, Seattle-based EigenLayer and others, all raised significant rounds in the past quarter.
Despite rocky economic times, both bitcoin and ether showed impressive resilience last quarter —up more than 80% and 70% in price, respectively, since the beginning of the year.
Undoubtedly the industry is still reeling from the dramatic collapse of FTX, as well as several other crypto lenders, and even some of the banking issues that rattled the economy in general. However, there are some positive signs.
Whether that’s enough to bring more venture dollars back to the space — only time will tell.
For Web3 funding numbers we analyze investments made into VC-backed startups in both cryptocurrency and blockchain.
Illustration: Dom Guzman
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