The flow of venture capital into crypto and web3 startups in August ground to a low point not seen in over two years.
Venture capitalists invested less than half a billion dollars in crypto businesses in August, according to The Block Research data. That marks the fourth consecutive month of declining venture funding volumes in the space — and the lowest monthly volume figure recorded since January 2021.
"I think people mistake the 'napkin math' amount of dry powder out there for a need and desire for VCs to deploy that the same way they did in 2021 - 2022," said Tom Schmidt, managing partner at crypto VC firm Dragonfly.
"VCs are being more judicious and slower in deployment and trying to pick up the few good companies that are rising to the top — many companies that raised massive amounts at crazy valuations that they haven't grown into aren't fundable in 2023 without totally reworking the cap table or adding so much structure to the round that it simply isn't worth it. Pre-seed and seed still seems to be healthy, but that's a relatively small segment of the market," he added.
VC funding down across the board
It’s not only in crypto that startups are having trouble securing venture cash. Except for a few red-hot sectors, such as artificial intelligence, venture funding levels have fallen dramatically this year. A Crunchbase report in April found that total VC investment in the first quarter of the year came in at $76 billion — down from $162 billion in the same period of 2022.
While the environment in crypto is particularly harsh, thanks to a prolonged bear market marked by the collapses of multiple marquee startups in the space over the past year, a few later-stage rounds have bucked the trend this year. The Block reported that BitGo had raised $100 million in August, while Worldcoin developer Tools For Humanity and EigenLayer raised $115 million and $50 million, respectively, earlier in the year.
Still, a recent report from The Block Research projected venture funding levels in the sector falling shy of $2.5 billion in the third quarter of this year, making it the worst since the fourth quarter of 2020. For context, $13.5 billion was invested in crypto startups in the first quarter of 2022.
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