Data from Crunchbase shows significant decrease in Web3 startup funding in Q2 2023
Venture funding for Web3 startups, including cryptocurrency and blockchain businesses, has seen a major decline in the second quarter of 2023. Only $1.8 billion was raised through 322 agreements, reflecting a 76% decrease in fundraising compared to the same period last year. Transaction flow also dropped by 51% and is more than three-quarters lower than Q2 2022, when startups in the industry raised over $7.5 billion.
H1 2023 has been challenging for Web3 startups
The first half of 2023 has been particularly difficult for Web3 startups. They raised only $3.6 billion in H1 2023, a massive 78% drop from the nearly $16 billion raised during the same period in 2022. This represents the slowest pace of deal flow since Q4 2020, when only 291 deals were announced for a total of $1.1 billion.
Large funding rounds contribute to the decline
The significant year-to-year drop in Web3 funding can be attributed to the decrease in large funding rounds. In Q2 2022, startups raised 15 rounds of more than $100 million each. However, in the second quarter of 2023, only three such rounds took place:
- Islamic Coin, a Switzerland-based Shariah-compliant crypto asset, raised $200 million from ABO Digital.
- LayerZero Labs, a Vancouver-based messaging protocol, closed a $120 million Series B funding round from 33 investors, including a16z crypto and Sequoia Capital, valuing the company at $3 billion.
- Worldcoin developer Tools For Humanity, co-founded by OpenAI’s Sam Altman, raised a $115 million Series C led by Blockchain Capital, with participation from a16z crypto, Bain Capital Crypto, and Distributed Global.
Cryptocurrency prices surge despite the downturn
Interestingly, while venture capital investment in Web3 has declined, cryptocurrency prices have experienced a surge. Bitcoin, the most prominent cryptocurrency, has seen an increase of over 80% this year, while Ethereum has risen by more than 50%. This growth was boosted by recent applications by Fidelity Investments and BlackRock to launch the first U.S. exchange-traded fund that allows direct investment in Bitcoin.
Uncertain future for Web3 funding
Despite the downturn, some investors continue to put small sums of money into Web3 firms. However, the recent failures of major crypto exchanges and regulatory interventions in the U.S. may have discouraged some investors from entering the digital asset sector. The future trajectory of Web3 funding remains unclear, but the consistent funding from quarter to quarter in 2023 suggests that investor interest may have reached its lowest point and could stabilize or rebound from here.
Hot Take: The decline in Web3 startup funding highlights the challenges faced by the industry. However, the surge in cryptocurrency prices indicates continued interest and potential for growth in the market.
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