In 2022, around $30 billion was invested in crypto and Web3 startups; will this be repeated this year?
Despite multiple high-profile meltdowns and the FUD (fear, uncertainty, and doubt) tsunami that followed, 2022 was a big year for crypto venture capital. However, a crypto researcher warns that funds may not flow as freely this year.
According to Galaxy Research, the number of deals and amount invested by venture firms in Web3 and crypto startups in 2022 will be slightly more than $30 billion.
Alex Thorn, Head of Firmwide Research, described it as a “monster year” that would only be surpassed by the $31 billion in VC investments in 2021.
Thorn, on the other hand, stated in a Jan. 5 report that macroeconomic and crypto market conditions caused significant investment drawdowns in Q3 and Q4. This is likely to continue until macroeconomic and crypto market conditions improve in 2023.
Thorn stated that there will be 2,900 venture deals in 2022, but the fourth quarter will have the fewest deals and the least capital invested in two years.
If this trend continues, Thorn predicts that crypto and Web3 firms will struggle to raise funds in 2023.
“The macroeconomic, monetary, and crypto asset environments all point to a difficult year ahead for everyone involved.”
He also stated that falling company valuations and stricter investor demands will make fundraising more difficult for entrepreneurs.
“In 2023, startups will need to be laser-focused on fundamentals, lowering operational expenses, and driving revenue,” he added.
The regulatory environment in the United States will also have an impact, as America continues to dominate the crypto-startup ecosystem.
According to the report, a U.S.-based startup was involved in more than 40% of all crypto venture capital deals last year.
“The United States’ continued importance in these markets, as well as its dominant position, provide ample reason for US policymakers to clarify and codify rules and regulations for the emerging space.”
However, investor dispositions and crypto markets are cyclical.
Last month, Gene Frantz, General Partner at Google and Alphabet’s independent growth fund CapitalG, told Forbes that the year-end outlook and headlines in 2023 will look much better than they do today.
“The current news cycle may be challenging, but perseverance and innovation, combined with a better economic outlook, will restore the optimism that has always defined our [venture capital] industry.”
Crunchbase also hinted at a slower 2023 for venture funding across all sectors in a January 5 report. Global venture funding fell 35% from 2021 to 2022 in 2022, but the crypto sector remained buoyant for the year, offering a ray of hope for the year ahead.
