Web3 Startups Witness 76% Plunge in Venture Funding in Q2 2023

Data from Crunchbase shows that venture funding for Web3 startups, which includes cryptocurrency and blockchain businesses, has significantly decreased in the second quarter of 2023. Just over $1.8 billion was raised overall over 322 agreements, a 76% decrease in fundraising from the same time previous year. This reflects a 51% decrease in transaction flow and a more than three-quarter dip from Q2 2022, when entrepreneurs in the industry raised over $7.5 billion.

The first half of 2023 has been particularly challenging for Web3 startups. In H1 2023, these startups raised only $3.6 billion, marking a massive 78% drop from nearly $16 billion raised during the same period in 2022. This is the slowest pace of deal flow since the final quarter of 2020, when only 291 deals were announced for a total of $1.1 billion.

Large funding rounds played a significant role in the dramatic year-to-year drop in Web3 funding. In Q2 2022, startups raised 15 rounds of more than $100 million each. In contrast, the second quarter of 2023 saw only three such rounds:

Islamic Coin, a Switzerland-based Shariah-compliant crypto asset, raised $200 million from ABO Digital.

LayerZero Labs, a Vancouver-based messaging protocol, closed a $120 million Series B funding round from 33 investors, including a16z crypto and Sequoia Capital, valuing the company at $3 billion.

Worldcoin developer Tools For Humanity, co-founded by OpenAI’s Sam Altman, raised a $115 million Series C led by Blockchain Capital, with participation from a16z crypto, Bain Capital Crypto, and Distributed Global.

Intriguingly, despite a downturn in venture capital investment, the cryptocurrency prices have surged.

Bitcoin, the most prominent cryptocurrency, has seen an increase of over 80% this year, while Ethereum has risen by more than 50%. Both experienced substantial growth last month when Fidelity Investments and BlackRock applied to the U.S. Securities and Exchange Commission to launch the first U.S. exchange-traded fund that make possible directly invests in Bitcoin.

Even in this downturn, investors continue to put small sums of money into firms like Auradine in Santa Clara, California, and Axoni in New York to advance Web3. However, the recent failures of major crypto exchanges and regulatory interventions in the U.S. have likely discouraged some investors from venturing into the digital asset sector.

The future trajectory of Web3 funding is still unclear, as current trends do not suggest a positive turnaround. Nevertheless, the consistent funding from quarter to quarter in 2023, with Q1 startups raising just under $1.8 billion, could imply that the investor interest in Web3 has reached its lowest point and may stabilize or rebound from here.