Crypto Venture Capital Funding Plummets 70% in 2023
Crypto venture capital (VC) funding dropped 70% in 2023, securing only about $10b in deal value. That’s a drop from nearly $32b in 2022, which had nearly 90% more deals. According to a report published by Galaxy Digital, venture deal activity in the crypto sector last year was lackluster. The fourth quarter saw 359 deals totaling nearly $2b in deal value, hitting its lowest point since 2Q 2020. Bailey York, data lead at VisionTrack, wrote in the report that as capital in the sector is continually constrained, funds are reaching capacity on deployment and later-stage winners are capturing remaining fund value.
Shift Towards Early-Stage Companies in Crypto VC Deals
Most VC deals in 2023 were with early-stage companies, a trend that intensified during the year. Only less than 20% of deals in 3Q and 4Q 2020 involved later-stage firms. Late-stage venture deals made up just over 14% of total deal counts in the fourth quarter of 2023, the highest percentage seen in quarterly data categorized by stage. The trend towards early-stage companies highlights the challenges faced by startups in securing funding in the crypto industry.
Top Deals of 2023 in Crypto VC Funding
Looking at the top deals of 2023, only eight surpassed the $100m mark in deal value. Some of the standout deals in the year were Wormhole with $225m, Line Next with $140m, Blockstream with $125m, LayerZero with $120m, and Worldcoin securing $115m. These were predominantly later-stage deals, indicating that investors are still willing to invest significant amounts in established companies.
Crypto VC Fundraising Declines as Market Valuations Stabilize
In 2023, global VC funding in crypto and blockchain raised $5.75b, a substantial drop from the previous year’s record of $37.7b. According to the report, the decline in fundraising can be attributed to the market’s focus on passive and index offerings. However, the report suggests that as the market stabilizes, crypto venture capital is likely to return as investors aim to rotate to venture fund products. VC funds play a crucial role in supporting the blockchain/crypto ecosystem, serving as the primary source of capital for new companies.
The Future of Crypto VC Funding
While the report did not predict the crypto fundraising landscape for 2024, it highlighted the unique value proposition of Bitcoin. Despite the decline in funding, Bitcoin continues to be underscored by geopolitical uncertainty and banking system turmoil. This suggests that crypto venture capital funding may see a resurgence in the near future as investors seek safe-haven assets and alternative investment opportunities in the face of global financial uncertainties.
Analyst comment
Positive
As an analyst, it is expected that the crypto venture capital market will experience a period of decline in the near future due to the significant drop in funding in 2023. However, there is potential for a resurgence in funding as the market stabilizes and investors seek safe-haven assets and alternative investment opportunities in the face of global financial uncertainties. This could lead to a shift towards early-stage companies and a return of venture capital in the crypto industry.