Web3 Venture Funding Bounces Back Slightly From Last Year’s Lows

Editor’s note: For more Web3 coverage, visit Crunchbase’s Web3 Tracker, where we track startups, investors and funding news in the Web3, cryptocurrency and blockchain space, powered by Crunchbase’s live, comprehensive data.

Web3, once the buzziest of all buzz words in the venture landscape, saw its funding slightly increase in the first quarter of the year compared to last year’s fourth quarter — the first uptick Web3 funding has realized since the fourth quarter of 2021.

However, venture dollars are still down year to year and well off the highs seen in 2021-22.

Startups related to Web3 — defined as those in the crypto and blockchain sectors — raised just less than $1.9 billion in 346 deals in Q1, per Crunchbase data.

That dollar figure is a 58% increase from last year’s Q4, when startups in the sector raised nearly $1.2 billion in 263 deals. However, this year’s Q1 venture dollar number still is a 17% decrease from the same quarter in 2023, when startups raised $2.3 billion in an eye-catching 670 deals.

The deal count number represents a 48% drop year to year.

Web3’s bumpy road

It wasn’t that long ago that Web3 and the thought of a decentralized internet was the darling of the private market, with new unicorns being minted seemingly every week and big rounds being handed out like candy.

However, the venture pullback that started in 2022 hit the Web3 sector harder than most, as investors fled to better defined — and more profitable — industries and cryptocurrencies entered its difficult winter. FTX founder Sam Bankman-Fried’s fraud and crypto lenders going bankrupt also didn’t help.

However, Q1 2024 represents the first increase Web3 venture funding has seen since Q4 2021. That though, was a very different time. That quarter-over-quarter increase was from about $8 billion to an almost unfathomable $10.5 billion.

Big rounds remained difficult to come by, as the three biggest rounds last quarter totaled less than $300 million:

London-based Exohood Labs, which is undertaking an AI project that uses quantum computing and blockchain, raised a massive $112 million seed round that valued it at $1.4 billion;
Seattle-based EigenLabs, the creator of EigenLayer for staking Ethereum, raised a $100 million Series B from a16z crypto; and
Hong Kong-based Freechat, super applications based on Web3 social networks, locked up an $80 million Series A.

Valuations seem to be on the rise in the industry, however, as Web3 saw a handful of new unicorns minted. That follows a Q4 lull in which only Cayman Islands-based blockchain messaging tool Wormhole joined the herd.

In the most recent first quarter, Berachain, an Ethereum-compatible blockchain for financial applications, Io.net, a blockchain service to sell excess GPUs, and Web3 infrastructure startup Polyhedra Network all were minted unicorns.

On the rise?

The next few quarters could be very telling for the future of Web3. While investors say they expect investment to eventually bounce back as a decentralized internet becomes more built out, that may not happen for another year as venture continues to stabilize after the go-go days of 2021.

Can Web3 startups continue to survive at the current level of funding?

Many startups in the industry raised big rounds a few years ago, so they may have financial runway. Deal count also increased in the first quarter, so more money is being spread around.

There also is the boon crypto is seeing. The price of Bitcoin is up nearly 60% in 2024, while Ether has increased nearly 50%. With the approval earlier this year for U.S. exchange-traded funds that hold Bitcoin from nearly a dozen asset managers — including giants such as BlackRock and Fidelity — and the Bitcoin halving event, crypto could have even more upside and that could bring in new venture investment.

Just last week, New York-based Monad Labs locked up the biggest Web3 funding round of the year thus far, collecting a $225 million funding round led by Paradigm. Monad is a layer-1 blockchain that is compatible with the Ethereum Virtual Machine but can process transactions using the same set of rules faster. The round is reminiscent of the 2021-22 era when layer-1 protocols like Aptos Labs raised big.

Perhaps that is a harbinger of more big-money funding to come. The first quarter did show that interest from investors still exists.