Introduction
The cryptocurrency fundraising sector experienced a negative trend in Q3 2023, with a decrease in investment volumes and only a few significant deals. This report by the CryptoRank team examines the key trends, narratives, and statistics of the crypto fundraising sector during this period.
Key Highlights:
– In Q3 2023, crypto startups raised $1.61 billion in 222 deals, marking a 31.5% decrease from Q2 and a 75.8% decrease from Q3 2022.
– Blockchain services were the most popular category for investors in Q3, with $515 million raised in 73 deals.
– Binance Labs and Coinbase Ventures were the most active Tier 1 investors in Q3, focusing on investing in the DeFi sector.
– Investors showed a preference for early-stage projects in Q3.
Q3 Fundraising Landscape in Numbers
During Q3 2023, crypto startups raised $1.61 billion in 222 deals, representing a decline of 31.5% compared to Q2 and a significant drop of 75.8% compared to Q3 2022. These figures clearly indicate the downward trend that crypto fundraising has been experiencing this year. The stagnation of the market and regulatory uncertainty have contributed to this decrease in funding for crypto companies.
Blockchain services emerged as the most attractive category for investors in Q3 2023. Startups developing various services and blockchain tools received $515 million in funding through 73 deals during this period. Surprisingly, CeFi projects (centralized finance) became the second most popular category, raising $300 million. This was followed by GameFi ($215 million) and DeFi ($178 million).
Quarterly Focus: Notable Funding Rounds
Despite the overall decline in crypto fundraising, there are still interesting projects receiving funding from leading crypto VC firms. Let’s take a closer look at the top three startups that received investment from Tier 1 crypto funds in Q3 2023.
1. Flashbots: This research and development organization raised $60 million in a Series B round led by Paradigm. Flashbots aims to mitigate the negative externalities posed by Maximal Extractable Value (MEV) and enable a permissionless, transparent, and sustainable ecosystem for MEV.
2. Futureverse: This company specializes in revolutionary AI and metaverse technologies that enable open, scalable, and interoperable apps, games, and experiences. They raised $54 million in a Series A round with participation from Ripple.
3. RISC Zero: This crypto startup is dedicated to building a developer-friendly, scalable blockchain based on zero-knowledge proofs. They raised $40 million in a Series A round led by Blockchain Capital.
Another notable project that received significant investment in Q3 2023 is BitGo, which raised $100 million from undisclosed investors. BitGo is known as the custodian of WBTC and has stood out in the uncertain legal landscape for digital assets due to its focus on being licensed and regulated.
Investors Movements: Key Highlights
Binance Labs and Coinbase Ventures emerged as the most active Tier 1 investors in Q3, with both funds focusing on investing in DeFi projects. Binance Labs participated in five deals, while Coinbase Ventures participated in three deals. Balaji Srinivasan, the former CTO of Coinbase, was also among the most active investors in Q3, particularly favoring social projects.
Investors still show a preference for supporting early-stage projects, with VC firms participating in 75 seed rounds and investing $405.6 million in Q3. Overall, seed rounds account for 33% of the total number of deals since the beginning of the year.
Most Popular Jurisdictions for Fundraising
Despite regulatory pressure, the US remains the most active crypto venture hub, with US-based crypto startups raising $743.1 million in Q3, accounting for 46% of the total amount raised during this period. India surprisingly became the second most popular jurisdiction for crypto investment, with companies based in the country raising $76.1 million. Hong Kong, known for its crypto-friendly policies, came in third with $35 million in investment. France emerged as the most popular jurisdiction among EU countries, with over $30 million invested in crypto projects.
Closing Thoughts
The crypto fundraising sector faced challenges in 2023, and the negative trend continued in Q3. However, the improvement of market conditions and the anticipated “bull run” could potentially change the situation and boost crypto fundraising.
Investment funds are actively supporting projects that develop blockchain-related services and tools to improve and scale the crypto industry’s backbone: blockchains. Early-stage investments can be profitable for venture capital firms if these projects successfully develop their products and enter the market. However, investing in early-stage crypto startups also carries risks due to the rapidly changing crypto landscape.
The US remains the largest venture hub for crypto startups despite regulatory uncertainty. However, if regulatory challenges persist, new emerging crypto hubs like Hong Kong may surpass the US in terms of popularity.
Hot Take: The Future of Crypto Fundraising
The negative trend in crypto fundraising persisted throughout Q3 2023, with decreasing investment volumes and only a few significant deals taking place. This decline can be attributed to investor concerns and uncertainty surrounding the market. However, there is still hope for a turnaround as market conditions improve and a potential “bull run” takes place.
Investors are actively supporting projects that focus on blockchain services and tools to enhance the overall functionality of blockchains. Early-stage investments can be highly profitable but also come with risks due to the rapidly evolving nature of the crypto industry.
Despite regulatory pressure, the US remains a prominent hub for crypto startups, but emerging hubs like Hong Kong are gaining popularity. The future of crypto fundraising will depend on various factors, including market conditions, regulatory developments, and the success of projects in delivering innovative solutions.
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