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Venture capital funding into Web3 start-ups has significant decline of 82% year-over-year

Venture capital funding into Web3 start-ups has significant decline of 82% year-over-year

VC investment in Web3 startups has decreased 82% year over year: Crunchbase
While 2023 has not been good for Web3 start-up investment, Crunchbase stated that “venture funding is down in almost every sector.”

In the first quarter of 2023, venture capital (VC) funding for Web3 start-ups dropped 82% year over year (YoY), from $9.1 billion in the first quarter of 2022 to $1.7 billion.

In a piece published on April 20, Crunchbase News highlighted the statistics and noted that the $1.7 billion figure for Q1 2023 also represents the lowest amount of start-up investment for Web3 since the $1.1 billion reported in Q4 2020, when “many people had never heard of Web3.”

Early-stage businesses that are either working directly with cryptocurrency or blockchain technology (or both) are referred to in this context as Web3 startups.

Deal flow, or the total number of transactions between venture capitalists and Web3 firms, also experienced a considerable reduction, with 333 transactions recorded in Q1 2023 representing a YoY decline of about 33%.

The report also emphasizes that over the previous year, the number of significant Web3 start-up fundraising rounds totaling nine figures virtually disappeared.

“VC-backed startups raised 29 rounds totaling more than $100 million in Q1 2022. ConsenSys, Polygon Technology, and — of course — FTX and its U.S. partner FTX US all made significant raises of $400 million or more, the paper states, adding that:

Only two rounds reached the nine-figure mark in the most recent completed quarter because venture capitalists have stopped making large investments in the sector.
The business information platform admitted that there has been a decline in recent months in interest in Web3 start-ups, but it also stressed that “venture funding is down in almost every sector.”

Most of the fall in Web3 investment, according to Crunchbase, may be ascribed to investors choosing a risk-off strategy over the past six months by looking for chances in “industries they know best — such as cybersecurity or SaaS, not the promise of the next iteration of the internet [Web3].”
Unquestionably, the sector is still in shock as a result of the abrupt failure of FTX, as well as a number of other crypto lenders, and even some of the banking problems that shook the economy as a whole.
The article said, “However, there are some positive signs,” pointing out the considerable price increases of Bitcoin ($27,396) and Ether ($1,865) since the year’s beginning.

Based on the report’s conclusion, “Only time will tell whether that’s enough to bring more venture dollars back to the space.”

On April 11, Galaxy Research released a different analysis that examined the total amount of venture capital invested in all crypto firms over the previous 12 months.

All crypto companies received $2.4 billion in investment in Q1 2023, down from $13 billion in Q1 2022, in a manner comparable to the recent pattern in Web3 fundraising.

However, despite a large YoY decline in capital investment, the research pointed out that the quantity of VC crypto deals had grown by almost 20% in Q1 2023 compared to Q4 2022.

“In the past, venture activity and cryptocurrency asset values have generally correlated closely. It will be fascinating to see if cryptocurrency venture capital activity can pick up if values remain stable or rising this year. But there are a lot of macroeconomic and financial challenges,” stated Alex Thorn, Galaxy’s director of corporate research.

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About MahKa

MahKa loves exploring the decentralized world. She writes about NFTs, the metaverse, Web3 and similar topics.

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