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Web3 Startup Funding Plummets 76% in Q2 2023

Venture funding for Web3 startups experiences a sharp decline in Q2 2023, while cryptocurrency prices continue to rise.

Key Points

  • Venture funding for Web3 startups experienced a significant decline of 76% in Q2 2023 compared to the previous year, raising only $1.8 billion across 322 agreements.
  • The first half of 2023 saw a challenging period for Web3 startups, with funding dropping by 78% compared to the same period in 2022, reaching a total of $3.6 billion raised.
  • The decline in Web3 funding can be attributed to a lack of large funding rounds, with only three rounds exceeding $100 million in Q2 2023.

Data from Crunchbase reveals a sharp decline in venture funding for Web3 startups, including cryptocurrency and blockchain businesses, during the second quarter of 2023. With only $1.8 billion raised across 322 agreements, this marks a staggering 76% decrease compared to the same period in the previous year. The figures not only reflect a 51% drop in transaction flow but also a more than three-quarter decline from Q2 2022 when the industry saw a total fundraising of over $7.5 billion.

A Challenging First Half for Web3 Startups

The first half of 2023 proved to be particularly challenging for Web3 startups, as they managed to raise a mere $3.6 billion. This represents a significant 78% plummet from the nearly $16 billion raised during the same period in 2022. In fact, this is the slowest pace of deal flow since the final quarter of 2020, when only 291 deals were announced, totaling $1.1 billion.

Large Funding Rounds Contribute to the Drop

The decline in Web3 funding is largely attributed to the absence of large funding rounds. In Q2 2022, startups secured 15 rounds exceeding $100 million each. In stark contrast, the second quarter of 2023 witnessed only three such rounds:

  • Islamic Coin, a Swiss-based Shariah-compliant crypto asset, raised $200 million from ABO Digital.
  • LayerZero Labs, a Vancouver-based messaging protocol, completed a $120 million Series B funding round involving 33 investors, including a16z crypto and Sequoia Capital. The valuation of the company reached $3 billion.
  • Tools For Humanity, a Worldcoin developer co-founded by OpenAI’s Sam Altman, raised a $115 million Series C led by Blockchain Capital. Other participants included a16z crypto, Bain Capital Crypto, and Distributed Global.

Cryptocurrency Prices Surge despite Venture Capital Downturn

Interestingly, cryptocurrency prices have experienced a surge despite the decline in venture capital investment. Bitcoin, the most prominent cryptocurrency, has witnessed an increase of over 80% this year, while Ethereum has risen by more than 50%. Last month, both also enjoyed substantial growth when Fidelity Investments and BlackRock applied to the U.S. Securities and Exchange Commission to launch the first U.S. exchange-traded fund allowing direct investment in Bitcoin.

Investor Caution in the Digital Asset Sector

The recent failures of major crypto exchanges and increased regulatory interventions in the U.S. have likely deterred some investors from venturing into the digital asset sector. However, smaller investments in firms like Auradine in Santa Clara, California, and Axoni in New York continue to advance the Web3 industry.

End Note

The future trajectory of Web3 funding remains uncertain, as current trends do not indicate a positive turnaround. However, the consistent funding from quarter to quarter in 2023, with Q1 startups raising just under $1.8 billion, suggests that investor interest in Web3 may have reached its lowest point and could potentially stabilize or rebound from here.