It hasn’t been a kind year for blockchain-based startup activity. In addition to an asset-price correction during a general venture capital slowdown, web3-focused tech upstarts have also had to deal with a series of intra-industry crises that have, at times, dominated technology headlines.
The Terra/Luna mess comes to mind. As does the meltdown of Three Arrows Capital. That’s not to mention the rapid fall of FTX and its related entities.
The Exchange explores startups, markets and money.
Read it every morning on TechCrunch+ or get The Exchange newsletter every Saturday.
Amid all of the above, many folks building or investing in blockchain-based assets and protocols have kept their chins up. Evidence of that abounds — startups are still being founded and scaled in the web3 space and venture investors are still writing checks. Business as usual then, right?
Crypto VC deployment still slow as investors wait for even lower valuations
Perhaps.
It’s worth recalling that in 2022, the pace at which venture capital dollars were disbursed into web3-focused companies — a broad term; I am not trying to weigh in on the crypto-versus-bitcoin argument — has declined this year. Crunchbase data examined by my alma mater Crunchbase News noted recently, for example, that after a Q4 2021 peak, capital raised by companies dealing with cryptocurrency or blockchains fell in each successive quarter through Q3 2022.
This got us curious: What is happening more recently, and is there any indication that the FTX mess is causing any sort of slowdown in new deal-making? It’s too early to tell, by our read of the resulting data pulls. But even more, there’s modestly good news to be had if you remain a blockchain believer.
Down, but not out
It’s always too early to vet venture capital data because it is a dataset that improves with time. So when we decided to check and see whether there were early signs of the FTX collapse reverberating in the crypto venture market, we weren’t worried about checking too soon. In other words, why not?
Per Crunchbase News, here’s the rundown of capital raised by blockchain and cryptocurrency companies since Q4 2021, measured on a quarterly basis:
- Q4 2021: $9.3 billion, 615 deals
- Q1 2022: $8.3 billion, 637 deals
- Q2 2022: $6.0 billion, 513 deals
- Q3 2022: $3.3 billion, 408 deals
We duplicated the Crunchbase search as closely as we could and found that with an extra month or so of filling in more data, the third quarter of 2022, per the company’s dataset, is now worth $4.04 billion across 451 deals. A bit better than previously known but still a clear decline from recent totals.
For fun, I ran a similar search on PitchBook and found $4.74 billion worth of cryptocurrency and blockchain-related venture capital activity across 585 deals in the third quarter. Because every venture data source out there has slightly different methods and criteria, we weren’t looking for a perfect match. Instead, we wanted to confirm that the Crunchbase perspective was near to what another provider has on file. It is.
Recall that Sam Bankman-Fried, the former CEO of FTX, stepped down just a few weeks ago. That means that Q4 venture capital figures will include a few weeks of data from after the FTX meltdown. Enough time for a change to show up in the numbers? Perhaps, perhaps not. But instead of bad news, we have nearly the opposite.
According to our two venture databases, using the same search criteria as before but with the time frame shifted, here’s how Q4 2022 is coming together:
- Q4 2022 (Crunchbase): $1.86 billion, 219 deals
- Q4 2022 (PitchBook): $2.15 billion, 225 deals
Those numbers are better than I expected. Given that we are still in the second month of the fourth quarter and venture capital data lags reality, you could forecast a $3 billion crypto-venture Q4 if you wanted. You could aim a little bit higher if you expect the data that we collect in the opening months of 2023 will bring a few more notable rounds to add to our roster.
Why do we have a positive view on what is shaping up to be yet another sequential decline in the amount of capital invested in crypto-focused startups? Because the pace of decline has slowed in percentage terms, it appears.
Naturally, tracking a downturn and praising a flattening slope is not what crypto fans will want to see, but it’s too soon to say that the crypto venture market is doomed, that FTX poisoned the punch bowl or anything of the sort. That declines in crypto venture are slowing as the overall venture capital market itself resets is perhaps the best we could expect to find at this juncture.
It’s hard to feel bad that a sector that can invent its own money raised just a few billion fiat dollars in recent quarters. Surely it’s enough capital to keep the most healthy startups afloat? We’d guess so.
Comment