Cointime

Cointime

Download App
iOS & Android

Galaxy: Ongoing Decline in Deal Count, Capital Invested, and Funds Raised Portends a Difficult Year Ahead

Introduction

Venture capitalists invested more than $30bn into crypto and blockchain startups in 2022, nearly matching the $31bn invested in 2021. Most of the investment was made in the first half of the year, with macro and crypto market conditions leading to significant investment drawdowns in Q3 and Q4, with the last quarter seeing the lowest deal count and capital invested in 2 years. The share of capital and deals committed to later stage companies rose, while the share of pre-seed deals continued its multi-year downtrend. The Web3 category again accounted for the most deals, but companies building tools and platforms for Trading and Investment again raised the most money. In Q4, Crypto-focused VC venture firms themselves raised the smallest amount of capital since Q1 2021, although 2022 saw the largest amount ever raised by crypto VCs at more than $33bn.

VC Investing

Deal Count & Capital Invested

2022 was the second largest year for crypto VC by both deal count and capital invested, coming in just shy of 2021, crypto VC’s biggest year ever.

However, 2022 saw declining deal count and capital invested every quarter in 2022. In total, crypto and blockchain companies raised $2.7bn in Q4, down by more than 50% from Q3, when they raised $6bn, across 366 deals.

Deal counts and capital invested were down every quarter after hitting an all-time high at nearly $13bn and almost 1100 deals in Q1 2022. Rising rates, deteriorating macroeconomic conditions, and tumult in asset markets combined to reduce investor risk appetite in the crypto sector. More money was invested in crypto startups in Q4 2018 than in Q4 2022.

VC Money Invested & Bitcoin Price

The venture capital investment trend continued to follow bitcoin’s U.S. dollar exchange rate, which hit multiyear lows in Q4 2022.

VC Investment by Stage

With a significant decline in earlier stage venture investment but steady investment at later stages, the share of capital invested at later stages rose above 40%.

The decline in allocation to the earliest deals is particularly evident when examining deal count by stage. Q4 2022 was the first quarter on record with more later stage deals than pre-seed deals.

Valuation & Deal Size

Median deal sizes and valuations finished 2022 at the lowest levels since Q1 2021, continuing a downtrend witnessed throughout the year.

While crypto company valuations dropped in Q4, valuations across the broader VC market rose slightly, although deal sizes were down across the board.

Investment by Sector

Web3/NFT/DAO/Metaverse/Gaming (“Web3”) continued its deal count dominance in Q4 2022. 31% of all deals completed in Q4 2022 involved Web3 startups, the largest subsector. The Trading/Exchange/Investing/Lending (“Trading”) subsector held the second spot with 13% of deals.

By capital invested, though, Trading startups continued to command the most capital invested. Web3 deals are smaller and earlier stage than Trading deals, which demonstrates the nascency of the emerging subsector and narrative.

By Stage and Category

The earlier stage nature of Web3 investing is evident when we review deals by category and stage. More than 50% of deals in the Web3, Wallet, Privacy/Security, Compliance, and Mining categories involved pre-seed or seed stage companies. Conversely, 60% or more of deals done in the Trading and Data categories involved Series A or later stage companies.

The picture looks a little different when we examine by capital invested. Media/Communications/Education is the category whose investment is mostly comprised of early stage money, while Custody was almost entirely later stage money.

The US continues to dominate crypto VC, with more than 40% of all deals involving a US-headquartered startup.

Crypto VC Fundraising

Fundraising in the current macro environment has been difficult for all venture funds, as allocators rebalance and retract from risk investments. Declining cryptoasset prices along with turmoil in crypto market infrastructure has further compounded the drawdown. Q4 2022 saw the smallest amount of capital allocated to crypto VC funds since Q1 2021.

However, on an annualized basis, 2022 was still the biggest year for crypto VCs ever, with more than $33bn allocated to over 200 funds. This growth represents a significant increase from 2021, which saw $19.4bn raised across 140 venture funds.

Fund sizes continued to rise in 2022 after leaping forward in 2021. More than 200 funds raised in 2022 with an average fund size of more than $160m. Fundraises in the first half of 2022 were driven by 2021 narratives, with several prominent, large fundraises driving up the total, such as new raises from a16z, Hivemind, Ribbit Capital, and Haun Ventures.

Key Takeaways

  • 2022 was a massive year for crypto VC, but investment and allocation interest declined throughout the year. 2022 nearly matched the explosive prior year, a sign that 2021’s exuberance carried over despite declining asset prices. Still, the ongoing decline in deal count, capital invested, and funds raised portends a difficult year ahead for all involved.
  • Crypto VC environment has become difficult for founders and investors. Significant disruptions in the cryptoasset markets, both in terms of asset prices and market infrastructure, are contributing to a slowdown in venture investment in the crypto ecosystem. At the same time, macro headwinds and monetary policy uncertainty are dampening allocation to crypto VC funds, with Q4 seeing the smallest VC fundraising in 2 years. Declining allocation to crypto VCs is already leading to declining investment in entrepreneurs. This tightening results in declining valuations and stricter demands from investors, which together make for a more difficult fundraising environment for entrepreneurs. Startups will need to be laser focused on fundamentals, taming operational expenses, and driving revenue in 2023.
  • Pre-seed deals continue their multi-year decline. Q4 2022 was the first time the count of later stage deals exceeded the count of pre-seed deals. The decline in pre-seed deal count highlights the maturation of the crypto industry, but also presages a near-term future with fewer new companies and thus fewer new products.
  • Web3 continues to dominate deal count, while Trading leads capital invested. Web3 continues to lead the way for deal count, accounting for more than 30% of all deals done in Q4 2022. A plethora of early-stage companies are building across Web3, particularly in the NFT subsector, and continue to attract investment. However, the continued dominance of companies building platforms and tools for trading and investing shows both the continued importance and increasing maturity of market infrastructure in the crypto ecosystem.
  • The US still dominates the crypto startup ecosystem. Startups headquartered in the United States accounted for more than 40% of the deals done in Q4 2022, with Canada and Switzerland tied for second at 2.5%. The continued importance of the United States, and its leading position, provide ample reason for US policymakers to clarify and codify rules and regulations for this emerging space.
Galaxy Digital
Comments

All Comments

Recommended for you

  • US Spot Ethereum ETF Sees Net Outflow of $4.93 Million

    On June 13, according to monitoring by Trader T, the US spot Ethereum ETF experienced a net outflow of $4.93 million yesterday.

  • US Spot Bitcoin ETF Sees Net Inflow of $85.82 Million Yesterday

    On June 13, according to monitoring by Trader T, the US spot Bitcoin ETF recorded a net inflow of $85.82 million yesterday.

  • U.S. Bans Foreign Access to Fable 5 and Mythos 5; Anthropic Issues Detailed Rebuttal

    On June 13, Anthropic issued a statement announcing that the U.S. government, citing national security powers, has released an export control directive requiring the suspension of all access to the AI models Fable 5 and Mythos 5 by foreign entities, regardless of whether the individuals are within the U.S., including Anthropic employees who are foreign nationals. The practical effect of this order is that we must immediately disable access to Fable 5 and Mythos 5 for all customers to ensure compliance. Access to all other Anthropic models will not be affected. We received the government's directive at 5:21 PM (Eastern Time) today. The letter did not specify the details of its national security concerns. Our understanding is that the government believes it has become aware of a method to bypass or 'jailbreak' Fable 5. So far, the government has only provided us with verbal evidence suggesting the existence of a potential narrow, non-general jailbreak, essentially by requiring the model to read specific code libraries and fix any software defects. We are complying with the government's legitimate directive and are in the process of removing all users' access to Fable 5 and Mythos 5. However, we disagree with the conclusion that 'a narrow potential jailbreak vulnerability should be the reason to recall commercial models deployed to hundreds of millions of users.' (Jinshi)

  • Iranian Foreign Minister: Iran-U.S. Memorandum of Understanding May Be Signed in Days

    On June 13, Iranian media reported that Iranian Foreign Minister Amir-Abdollahian stated that once the final stage of negotiations between Iran and the U.S. is completed, the memorandum of understanding will be signed and announced immediately. The first phase will be signed electronically from a distance, "which may happen in the coming days." (Xinhua News Agency)

  • U.S. Officials: U.S. and Iran Close to Agreement, Signing Expected in Coming Days

    On June 13, Reuters reported that a senior U.S. official stated on Friday local time that the U.S. and Iran have not yet truly reached the finish line, but are very close to finalizing an agreement to resolve their conflicts. Washington expects to sign the agreement in the coming days. 'The negotiating team has put us in a very favorable position, but we still need to see, we haven't really reached the finish line, but we are very close,' the U.S. official said. The official noted that the agreed terms achieve a core goal of Trump. The memorandum of understanding includes the reopening of the Strait of Hormuz and the lifting of U.S. blockades on Iranian ports. Iran's highly enriched uranium will also be destroyed on-site and subsequently removed from the country. 'Iran will not gain anything from signing the memorandum or from the negotiations themselves,' the official said. 'They will receive economic rewards for fulfilling the obligations set forth in the agreement. Therefore, if they commit to handing over nuclear materials, they will gain something. If they dismantle their nuclear program or facilities, they will receive additional benefits.'

  • Iran's Foreign Ministry: Iran is Reviewing Draft Memorandum of Understanding

    On June 13, local time on the 12th, Iranian Foreign Ministry spokesperson Baghaei stated that Iran and the United States have reached an understanding on most issues, and Iran is currently in the final stages of compiling the text of the memorandum of understanding. Therefore, the previous statement by Iranian Foreign Minister Amir-Abdollahian that 'the two sides are very close to reaching an understanding' is accurate and noteworthy. Meetings of relevant decision-making bodies are ongoing, and this is a process that is being continuously advanced. To achieve a final and decisive outcome, consensus must be formed among decision-making bodies and relevant departments. Baghaei also mentioned that various speculations regarding the content of the agreement text have not been confirmed. Although specific details of the diplomatic process cannot be publicly discussed at this time, this does not mean that the public does not have the right to be informed. (CCTV News)

  • SpaceX Opens at $150 on First Day of Trading, IPO Price Set at $135

    On June 12, SpaceX opened at $150 on its first day of trading, with an IPO price set at $135.

  • Iranian Foreign Minister Claims Iran and US 'Have Never Been Closer' to Memorandum of Understanding

    On June 12, Iranian Foreign Minister Amir-Abdollahian stated on social media that Iran and the US 'have never been closer' to reaching a memorandum of understanding. He urged the media to refrain from speculating on its contents before finalization. The Iranian side will disclose all details in due course. (CCTV News)

  • BTC Surpasses $64,000

    Market data shows that BTC has surpassed $64,000, currently priced at $64,107.99, with a 24-hour increase of 2.18%. The market is experiencing significant volatility, so please ensure proper risk management.

  • ARM Soars Nearly 10%, Bank of America Predicts Server CPU Market to Quadruple by 2030

    On June 12, ARM surged nearly 10%, reaching $376.18. According to a recent forecast by Vivek Arya, an analyst at Bank of America Global Research, the total addressable market (TAM) for server CPUs is expected to skyrocket from $35 billion in 2025 to over $170 billion by 2030. This significantly exceeds the bank's previous prediction of a $125 billion market size for server CPUs by 2030. Arya stated in the report, 'We believe the rise of agent-based AI is a powerful demand accelerator that not only expands the market opportunities for CPUs but also benefits Intel, AMD, and challengers based on Arm architecture.'

Daily Must-Read

Popular Activities

RaveDAO at Terra Solis by Tomorrowland: A Female-Led Techno Night Where Web3 Culture Converges

RaveDAO at Terra Solis by Tomorrowland: A Female-Led Techno Night Where Web3 Culture Converges

April 30 - April 30
Dubai

Popular Tags

Cointime
News
Contents
RSS
Company