The venture capital financing environment remains highly challenging, but may be improving.

Original Title: Crypto & Blockchain Venture Capital - Q3 2023Original Author: galaxyOriginal Translation: Joyce, Sharon, BlockBeats

TL；DR：

· Cryptocurrency venture capital has not yet bottomed out. In terms of completed transactions and total investment, the third quarter was the lowest quarter since the fourth quarter of 2020.

· Companies in the Web3 category dominate in transaction volume, while companies in the transaction category raise the most capital. The results of the third quarter continue the trend we have seen throughout the year, with a growing interest in artificial intelligence leading to the creation of a new department in our dataset, and a continued interest in the overlap between AI and cryptocurrency.

· The United States continues to lead the cryptocurrency startup field, but other countries are catching up. Although more than 35% of completed transactions in the cryptocurrency startup industry are from the United States, and more than 34% of investment capital comes from venture capital firms, the United States is now losing market share in terms of transactions and capital to countries such as the United Arab Emirates, and Singapore and the United Kingdom have more advanced cryptocurrency regulatory frameworks.

· The venture capital financing environment remains extremely challenging, but may be improving. In the third quarter of 2023, venture funds raised over $1 billion, marking the first increase since the decline that began in the third quarter of 2022. The number of new fund issuances also increased from 12 in the second quarter to 15. The median and average fund sizes have decreased significantly from the peak of the bull market.

Cryptocurrency Venture Capital

按交易数量和投资资本划分

Translation:

Divided by transaction volume and investment capital

The investment amount in the cryptocurrency and blockchain industry in Q3 2023 was $1.975 billion, marking a new cyclical low and the lowest level since Q4 2020, continuing the downward trend that began after the peak of $12 billion in Q1 2022. The total amount of funds raised by cryptocurrency and blockchain startups in the past four quarters is less than the amount raised in Q1 2022 alone. The number of transactions also hit a new low in this cycle, with only 376 transactions.

Most of the transactions completed in Q3 2023 involved early-stage startups in the Series A funding round, with a slight decrease in the number of seed-stage transactions compared to the previous quarter.

In terms of investment scale, early-stage transactions (Pre-Seed, Seed, and Series A) account for the vast majority of investments (83.5%), while late-stage transactions account for only 16.5%. This continues the trend from the previous quarter.

按公司成立年份划分

Translation:

Divided by the year of company establishment

In Q3 2023, companies established in 2021 and 2022 completed the most venture capital transactions.

The amount of funds raised by the company established in 2021 is the highest among all annual groups, and notably, the amount of funds raised by the company established in 2022 is significantly less, which is different from the previous quarter.

按公司总部所在地划分

translates to

Divided by the location of the company's headquarters

Despite the fact that the United States continues to lead in terms of trading volume and investment funds, companies headquartered in jurisdictions with more advanced and clear regulatory frameworks for the cryptocurrency industry saw significant growth in both of these areas in the third quarter of 2023.

The company headquartered in the United States raised 34.5% of all cryptocurrency venture capital funds in the third quarter of 2023, followed by the United Arab Emirates (23.5%), the United Kingdom (9.5%), and Singapore (6.2%).

When it comes to checking the completion status of transactions, the situation is similar. A company based in the United States completed 35% of all cryptocurrency venture capital transactions in the third quarter of 2023, followed by Singapore (10.6%), the United Kingdom (7.9%), and China (4.7%).

Cryptocurrency Venture Capital Trading Scale and Valuation

From the perspective of median, the valuation and trading volume of the entire venture capital industry, including cryptocurrency, are expected to increase in the third quarter of 2023. The growth in trading volume and valuation is partly attributed to the increase in the number of A-round transactions, while the number of seed and pre-seed transactions is decreasing. The median trading volume and valuation of the entire venture capital industry and cryptocurrency venture capital are expected to increase in the third quarter of 2023, although both are still far below the highs of 2021 and 2022.

Cryptocurrency Venture Capital (Categorized)

For the third consecutive quarter, trading, exchanges, investment, and lending startups raised the most venture capital funding (611 million USD, accounting for 32.5% of all venture capital). For the second consecutive quarter, Web3, non-fungible tokens (NFTs), gaming, decentralized autonomous organizations (DAOs), and metaverse startups raised the second most funding (266.5 million USD, accounting for 14.2% of all venture capital in that quarter).

The trading, exchange, investment, and lending industries completed the largest transactions this quarter, with Haqqex, a digital asset exchange promoting "Islamic compatibility," raising $400 million in early financing. In the third quarter of 2023, the custody industry completed the second-largest transaction, with BitGo raising $100 million in Series C financing. Our new artificial intelligence category shows that startups building AI-related products raised over $60 million in funding in the third quarter of 2023, accounting for 3.2% of all venture capital in that quarter.

Calculated by transaction volume, companies that build Web3 games, non-fungible tokens (NFTs), DAOs, and metaverse products maintain their leading position, followed by transaction, exchange, investment, and lending companies. These trends remain unchanged in the first and second quarters of 2023.

In the third quarter, the industry sectors with the highest proportion in the later stage transactions were banks, Layer 1 and Layer 2, while the industry sectors with the highest proportion in seed round transactions were custody, wallets, and venture capital.

As far as the investment scale in the third quarter is concerned, the later stage investment dominated the custody industry, while the media/education sector was mainly dominated by seed round funds.

· The lack of important new venture capital funding will continue to put pressure on entrepreneurs. This year, start-ups supported by venture capital have encountered more difficulties in raising new funds and will face a challenging fundraising environment in the foreseeable future. Many more speculative and ambitious blockchain applications that received funding during the bull market are now facing difficulties in product market fit and investment funding as user and hype from the bull market have weakened. Entrepreneurs must focus on revenue and sustainable business models, and be prepared to raise smaller amounts of funding and give up more equity.

· The United States is still leading, but other jurisdictions are catching up. Historically, the United States has been a hotbed of innovation, including in the field of cryptocurrency. As a matter of fact, cryptocurrency companies headquartered in the United States have dominated in terms of trading volume and investment capital. However, in the third quarter, this lead has significantly narrowed, with more crypto-friendly jurisdictions such as Singapore, the United Kingdom, and the United Arab Emirates gaining more market share. Policymakers in the United States seeking to retain top talent, drive technological and financial modernization, and maintain leadership in the future economy should wisely craft progressive policies that promote growth and innovation.