According to data from Crunchbase, venture capital (VC) funding into Web3 start-ups tanked 82% year-over-year (YoY), declining from $9.1 billion in Q1 2022 to $1.7 billion in Q1 2023.
Crunchbase News highlighted the data in an April 20 report, noting that the $1.7 billion figure for Q1 2023 also marks the lowest amount of Web3 start-up funding since the $1.1 billion posted in Q4 2020 — a time in which “many people had never heard of Web3.”
In this context, Web3 startups are defined as early-stage companies that are either working directly with crypto or blockchain tech (or both).
Deal flow, or the number of total deals between VCs and Web3 startups, also saw a significant drop with the 333 deals recorded in Q1 2023 marking a YoY decline of roughly 33%.
Additionally, the report highlights that the number of big Web3 start-up funding rounds hitting nine figures almost completely dried up over the past year.
“In Q1 2022, VC-backed startups raised 29 rounds of more than $100 million. That included massive raises of $400 million or more by ConsenSys and Polygon Technology, as well as — of course — FTX and its U.S. affiliate FTX US,” the report reads, adding that:
“The most recently completed quarter saw only two rounds hit the nine-figure mark, as VCs have hit the brakes on spending big in the space.”
While the business information platform acknowledged that interest in Web3 start-ups has cooled of late, it also emphasized that “venture funding is down in almost every sector.”
The current state of venture capital in six charts:
Source: Crunchbase pic.twitter.com/r2WwPC8cRD
— Nate O’Brien (@nateobrienn) April 19, 2023
Crunchbase attributed much of the decline in Web3 funding to investors opting for a risk-off approach over the past few months by seeking out opportunities in “industries they know best — such as cybersecurity or SaaS, not the promise of the next iteration of the internet [Web3].”
“Undoubtedly the industry is still reeling from the dramatic collapse of FTX, as well as several other crypto lenders, and even some of the banking issues that rattled the economy in general.”
“Whether that’s enough to bring more venture dollars back to the space — only time will tell,” the report concludes.
In a different report published by Galaxy Research on April 11, the firm looked at the broader amount of VC investment into all crypto companies over the past 12 months.
In a similar vein to the recent trend in Web3 funding, the report indicated that the $2.4 billion invested into all crypto firms in Q1 2023 marked an 80% decline from the $13 billion recorded in Q1 2022.
Notably however, while capital investment plummeted significantly YoY, the report noted showed that the number of VC crypto deals had increased by around 20% in Q1 2023 compared to Q4 2022.
“Historically, venture activity has tracked crypto asset prices pretty closely. Will be interesting to see if crypto VC activity can rebound if prices remain resilient or constructive this year. Lots of macro and monetary headwinds, though,” wrote Alex Thorn, Galaxy’s head of firm-wide research.
CRYPTO VC IN STARES INTO THE ABYSS
Q1 saw the lowest crypto VC activity in 2 years with $2.4bn invested across 439 deals.
investment is down, valuations are down, VC fundraises are down. learn why, view all the data, and learn what the future holds pic.twitter.com/b3JKPjNfzz
— Alex Thorn (@intangiblecoins) April 11, 2023