The State of Crypto Funding

In a twist of fate worthy of a soap opera, startup funding in the crypto industry has been hit hard, reverting back to levels not seen since the tumultuous days of Q4 2020. As of Q3 2023, crypto startups managed to scrape together a mere $2.1 billion across 297 deals, marking a staggering 36% drop from the previous quarter and nearly 70% decrease compared to Q3 2022. Talk about a nosedive!

Seed Funding Takes the Crown

Seed funding reigns supreme as the largest fundraising category, with an impressive $488 million raised through 98 deals. Seems like investors are more into nurturing fresh ideas rather than betting on seasoned projects. Researchers at Messari noted, “Trends in deal counts show a significant shift away from later-stage projects and into early-stage projects over the last three years.” Less than 1.4% of deals involved companies that had reached Series B funding—yikes!

Strategic Financing: The New Trendsetter

It’s not all doom and gloom, though. Strategic financing rounds have seen a meteoric rise, jumping from a mere 0.2% of total deal share in Q4 2021 to a hefty 22% in Q3 2023. This upward trend indicates a growing acceptance of short-term funding solutions, with the highest-profile deal being a $200 million investment in Islamic Coin, courtesy of family office Alpha Blue Ocean’s ABO Digital.

Market Conditions and Investor Behavior

As harsh market conditions continue to reign, the urgency for projects to secure quick capital has never been more pressing. Per Messari, it’s a survival game out there:

“Harsh market conditions are forcing projects to raise short-term bridge rounds or ultimately get acquired by larger projects.”

A Shift in Focus: From Users to Infrastructure

The geographical focus of funding is worth noting too. Over half (54%) of all active venture capital investors hail from the United States, outpacing the rest of the globe combined. Interestingly, the appetite for investment has shifted dramatically from user-centric applications to the underlying blockchain infrastructure, which has been the golden child of funding metrics for the last few months. However, researchers warn that this trend may not hold:

“Without successful user-facing crypto applications, infrastructure investments are less likely to generate their desired returns.”