Startup Funding in Crypto Industry Drops to Q4 2020 Levels
The ongoing bear market in the cryptocurrency industry has caused a decline in startup funding, with levels dropping back to those seen in Q4 2020. According to a report by blockchain analytics firm Messari, crypto startups raised a total of $2.1 billion across 297 deals in Q3 2023. This represents a decrease of 36% from the previous quarter and nearly 70% from Q3 2022.
Shift Towards Early-Stage Projects
The report highlights that seed funding was the largest category, accounting for $488 million raised over 98 deals. The researchers note a significant shift away from later-stage projects towards early-stage projects over the past three years. Less than 1.4% of deals involved companies at the Series B round or later.
Rise of Strategic Financing Rounds
On the other hand, strategic financing rounds have seen a sharp increase, representing over 22% of total deal share as of now, compared to only 0.2% in Q4 2021. The highest private equity round during the quarter was a $200 million investment into UAE-based Islamic Coin by family office Alpha Blue Ocean’s ABO Digital. Messari suggests that harsh market conditions are leading projects to raise short-term bridge rounds or seek acquisition by larger projects.
Investor Trends and Shifting Appetites
Despite regulatory uncertainty, more than half (54%) of all active venture capital investors in the crypto industry are from the U.S., surpassing the rest of the world combined. Investor preferences have also shifted from user-facing applications to blockchain infrastructure, which has consistently outperformed in terms of funding over the past three months. However, researchers caution that this trend may not last, as investors are realizing the importance of successful user-facing crypto applications for generating desired returns.
Hot Take: Crypto Startup Funding Drops Amid Bear Market
The ongoing bear market in the crypto industry has taken a toll on startup funding, with levels falling back to those seen in Q4 2020. Seed funding remains the largest category, while strategic financing rounds have seen a significant rise. Despite regulatory uncertainty, the majority of venture capital investors in the crypto space are from the U.S. However, there is a shift in investor appetite towards blockchain infrastructure, although researchers warn that successful user-facing crypto applications are crucial for generating desired returns.
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