Crunchbase Report Says VC Funding Into Web3 Firms Down By 82%

According to Crunchbase data, funding for VC-backed Web3 startups reached its lowest point in the first quarter of the year, with an 82% year-to-year (YoY) decline from $9.1 billion in Q1 2022 to only $1.7 billion. This is a 30% decline from the final quarter of 2022 and the lowest total since Q4 2020. Deal flow also declined, with only 333 deals completed in Q1 compared to over 500 announced in Q1 2022.

The Crunchbase Report — In-Depth

Crunchbase News reported on April 20 that the figure for Q1 2023 is the lowest since Q4 2020, when only $1.1 billion was posted. Despite this bearish start to 2023 for Web3 start-up funding, Crunchbase noted that VC funding has also decreased in almost every sector.

The decline in funding is particularly evident from the drop in big rounds, with only two rounds hitting the nine-figure mark in the most recently completed quarter compared to 29 in Q1 2022. However, some sub-sectors of the Web3 space are experiencing renewed interest, with VCs concentrating on blockchain infrastructure players to help build the foundation for Web3.

Despite the dip in funding, there are positive signs in the resilience of bitcoin and ether prices, which were up more than 80% and 70% in price, respectively, since the beginning of the year. While venture funding is down in almost every sector, Web3 has been more affected due to uncertain times. The industry is still recovering from the collapse of FTX and several other crypto lenders, as well as banking issues that rattled the economy in general.

The report by Crunchbase shows that the total number of deals (deal flow) between VCs and Web3 start-ups has also significantly decreased, with 333 deals recorded in Q1 2023, representing a YoY decline of around 33%. Furthermore, Crunchbase’s report highlights that the number of large Web3 start-up funding rounds exceeding nine figures almost entirely dried up over the past year.

As per Crunchbase, the fall in Web3 funding is mainly due to investors opting for opportunities in industries, such as cybersecurity or SaaS (Software as a Service), rather than the promise of the next iteration of the internet i.e. Web3. The report acknowledges that the industry is still reeling from the dramatic collapse of FTX, as well as some of the bank collapses including Signature Bank and Silvergate Bank.

Another recent report by Galaxy Research, published on April 11, examined the overall amount of venture capital (VC) investment into all crypto firms over the past year. Galaxy Research is the research arm of crypto investment firm Galaxy Digital. The report revealed that the $2.4 billion invested into all crypto companies in Q1 2023 marked a steep 80% decline from the $13 billion recorded in Q1 2022.

While capital investment dropped significantly year-over-year, the report did show that the number of VC crypto deals had increased by approximately 20% in Q1 2023 compared to Q4 2022. Galaxy Digital’s head of research, Alex Thorn, noted that historically, venture activity has closely tracked crypto asset prices, and it will be interesting to see if crypto VC activity can get back on its feet.