In Q2, $2.34 billion in capital was closed in 382 blockchain and crypto deals
Funding for crypto startups continues to dwindle. Venture capital flowing into the industry fell for the fifth straight quarter from the first quarter of 2022 to $2.34 billion globally as investors hold onto their checkbooks fearing risks from tight regulation and an uncertain economy.
The $2.34 billion total in the second quarter was raised by 382 deals, according to PitchBook, but that’s a sharp decline from the industry’s peak of $12.14 billion in the first quarter of 2022. The biggest lift in the second quarter of 2023 were LayerZero’s $120 million Series B round and $115 million Series C round of WorldCoin.
“It’s a numbers game,” said Lyia Chiu, vice president of business development at Ava Labs. In general, investors are seeing lower valuations, so they’re writing “smaller checks,” she told Root Devices+.
This decline in capital deployment could be attributed to regulatory headaches in the US, which in the second quarter saw many crypto-related deal flows tend to be structured as traditional venture structures such as equity raising, as opposed to token investments or simple agreements for future tokens (SAFTs), Chiu said.
The Tiger Globals and Softbanks of the world will stop investing in everything. Lasse Clausen, founding partner, 1kx
The regulations have certainly dampened optimism in the industry, but there are a number of other factors at play as well. Several popular crypto companies filed for Chapter 11 bankruptcy protection last year, eroding confidence in the industry, and some traditional companies and entrepreneurs left the US ecosystem altogether as the market turned. It also didn’t help when investors suddenly took a much more cautious approach that valued profit over growth.
According to Chiu, industry valuations fell by a whopping 50% from the first half of 2022 to the second half of 2022. Since then, crypto startup valuations have fallen by a further 15% through the first half of 2023, for a total of almost 70%. year after year..
This is a serious decline – startups that raised money in January 2022, for example, would find it difficult to raise capital again today without significantly lowering their prices.
However, not everything is doom and gloom, and crypto-domestic founders and investors are not giving up hope just yet. “This trend is not necessarily going to reverse, but it may slow or be less severe in the third quarter,” Chiu said.
In fact, there is still “a lot of money being deployed,” said Lasse Clausen, founding partner of early-stage crypto investment firm 1kx. “[Funding] it looks like it’s down, and it absolutely is, but compared to the all-time highs, it didn’t even make any sense.”
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