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.
Even with crypto prices slowly creeping up, any kind of dealmaking involving blockchain and crypto startups has been slow.
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While funding is way down — plummeting 82% year to year, to only $1.7 billion in the first quarter — M&A deals through the early part of the year seem to be lacking punch, per Crunchbase data.
Although M&A deal numbers in the Web3 space are on a similar pace to the past two years, big deals seem to be at a premium.
So far this year, only 16 startups in the space saw an M&A transaction — compared to 44 for all of last year. However, the only deal with a notable announced price tag happened last week, when San Francisco-based Ripple made its first acquisition, buying Switzerland-based Metaco for $250 million in cash and equity.
Where are the big deals?
That deal was the only one to break $100 million this year, whereas previous years have seen a handful of such acquisitions.
For instance, last October About Capital Management bought China-based blockchain asset financial services provider Huobi for a reported $1 billion. About a year before that, India-based Polygon bought scalable cryptocurrency protocol Mir Protocol for $400 million in December 2021.
In the previous two years, there were nine total M&A deals of $100 million or more — including those by large crypto and fintech companies like La Jolla, California-based Silvergate Capital, Vancouver-based WonderFi and Montreal-based Nuvei.
Declining valuations
The drop in big money deals undoubtedly has a lot to do with declining valuations. While every industry has been hit by the slump, it stands to reason Web3 startups in crypto and blockchain were even more significantly affected.
Web3 started to fall out of favor with investors quickly as last year progressed, with over-inflated valuations in a slowing venture market leading many VCs to seek out other, better defined industries and sectors.
Crypto’s instability did not help matters, and when the catastrophic collapse of FTX happened, many predicted doom for all things blockchain and crypto.
However, crypto prices have picked up significantly since the start of this year — with Ether and Bitcoin both up more than 50%. While Web3 applications are still struggling — along with the crypto lending space that led to tumbling digital asset prices last year — investors do seem to have a renewed interest in the “picks and shovels” as they look to build out the Web3 infrastructure layer.
The Ripple deal also is promising for the M&A world. The startup is a large payment provider that uses blockchain — certainly a financial area that will continue to be built out with further crypto adoption.
The value of the deal also could mean some investors see valuations leveling off. This could bring more buyers off the sidelines who were waiting for the market to hit a low.
A strong M&A market is necessary for any sector to thrive — or even survive. If Web3 is going to be a thing the market will need to see an uptick so investors can see future exits on the horizon.
Methodology
For Web3 funding numbers we analyze investments made into VC-backed startups in both cryptocurrency and blockchain.
Further reading:
Illustration: Dom Guzman
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