Web3 Companies See Increase in VC Funding During Crypto Winter

Venture Capital (VC) funding for Web3 companies has not dried up, according to a senior analyst at data and research firm PitchBook, who revealed that funding for Web3 companies has actually increased during the crypto winter.

According to Robert Le, a senior mergers and acquisitions research analyst at PitchBook, venture capital funding is shifting away from centralised cryptocurrency services and toward decentralised platforms. Le made the remarks during an interview with CoinDesk TV, in which he stated:

Web 3 is one area that investors have deployed a lot more money over the last six months.

The Metaverse, play-to-earn and play-to-own games, and other blockchain-based technologies are included in this category. According to the news outlet, VCs invested an estimated $1.5 billion in Web3 companies during the third quarter of the year.

Web3 is a term coined by Ethereum co-founder Gavin Wood to address a problem identified when the smart contract platform first launched: the Web requires a high level of trust to function. Since then, the term has come to refer to a trustless, more decentralised, permissionless World Wide Web that transfers power from tech behemoths to users in the form of ownership.

According to PtichBook, Web3-based content platforms are expected to generate $39 billion in revenue by 2027, up from $3.4 billion expected by the end of this year.

Le added that VCs have shifted away from centralised services, such as exchanges, custodial wallets, and crypto on-ramps. These investments, he claims, have dropped by about 85%, a sharp but “unsurprising” drop given the failures of several centralised companies this year, including Celsius Network and BlockFi.

According to the analyst, the decline in VC funding for centralised platforms began even before FTX‘s demise. Looking ahead, he predicts a decline in 2023 due to “non-crypto” investors exiting the space.

You know, over the last 18 months everyone was investing in the crypto space, whether it’s crypto-native investors, hedge funds, crossover funds, family offices. You’re gonna see a lot of the non-crypto investors move away from this area.

Despite the fact that venture funding is expected to continue declining through 2023, a PitchBook report suggests that venture investments may begin to increase again in the second half of next year.

The report also predicts an increase in crypto platform disclosures and the possibility of regulatory clarity in the same time frame, which could give crypto investors more confidence in the market.