Web3 startup funding fell 74% in the fourth quarter

While much of 2021 and the early part of last year was dominated by everything Web3 related, the end of 2022 showed a significant drop in investor interest in the still young spaces.

The softening of the market is not unusual, given the significant downturn in venture capital spending the world has seen and investors are likely to turn to more mature and established industries.

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However, the cryptocurrency winter and digital asset market turmoil has undoubtedly pushed investors in a different direction – something that is likely to be exacerbated by the dramatic collapse of FTX.

The last quarter of last year proved to be the most brutal as funding fell by a staggering 74% compared to the same quarter in 2021, dropping from $9.3 billion to just $2.4 billion, according to Crunchbase. data. The total dollar amount also makes it the lowest quarterly total since only about $1 billion went to startups in the fourth quarter of 2020.

The fourth quarter continued a clear downward trend in investment in the space, with deal-making dropping each quarter from last year. Deal flow also fell quarter after quarter in 2022, with only 327 financing deals announced in the last quarter – compared to a staggering 677 in the first quarter of the year.

in Web3, Amber groupAnd Matter LabsAnd Uniswap And Miniplex The only companies announcing rounds exceeding $100 million were in the last quarter, while the fourth quarter of 2021 saw 20 such rounds.

2021 vs. 2022

The overall numbers for the year paint a slightly better picture of startups that may be looking for funding in the new year.

Funding for Web3’s VC-backed startups has fallen by about a quarter — from a record $29.2 billion in 2021 to about $21.5 billion last year.

The number of deals has remained good, with less than 100 differentials for the year. However, unlike in 2021 at FTX, Niedig And Robinhood In combined rounds of $1 billion or more, 2022 has not seen nearly as big.

The biggest rounds of 2022, per Crunchbase data, were:

Two more startups have also raised $400 million in rounds this year in the sector – FTX and US FTX – The main reasons why Web3 funding is likely to be difficult to recover.

Overall, there were thirty rounds in 2021 worth $200 million or more that went to VC-backed Web3 startups, while last year saw just 25.

The end of Web3?

It’s easy to look at the aggregate numbers, and especially the current downward trend, in Web3 finance and conclude that the “Web3 fad” is over.

However, it is important to look at projects in general. As VC retreats from investment cheques, many are looking for proven industries — not hoping for a new decentralized application or digital asset exchange.

Web3 is relatively new and many investors are not as familiar with it as areas like SaaS, enterprise software, or traditional financial technology. In turbulent times like now, many are more likely to shy away than jump in with both feet.

The crypto winter and the difficulty in this market has undoubtedly played a role. When venture capital was pouring money into the sector, bitcoin was hitting highs of nearly $70,000. Now, the cryptocurrency headlines are being dominated by one of the greatest disasters in startup history – one that everyone will see this year in the courtrooms.

It won’t help fund Web3, but the FTX debacle could start to separate the good from the bad in the crypto sector and start giving investors more confidence in all things decentralized and Web3 as a whole.

Or 2022 could be the beginning of something serious for many Web3 startups.

methodology

For Web3 funding numbers, we analyze investments in VC-backed startups in both cryptocurrency and blockchain.

Illustration: Dom Guzman

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