Crypto Venture Funding Sees Lowest Level Of Activity Since 2020

Some $2 billion was invested in blockchain-related companies in Q3'2023 across 414 funding deals, highlighting a 38% decline in VC funding, the lowest level in ten quarters since Q4'20. Deal activity was also down, decreasing nearly 25%, from 554 deals in Q2 to 414 in Q3, which was the fewest number of funding rounds since Q1'21.

The lack of Mid and Later-Stage funding this year has been two of the primary catalysts for the drop off in venture funding figures. Mid-stage funding deals were down nearly 63%, from eight deals in Q2 to just three in Q3. By dollar amount, the fall was larger, as it was down approximately 88% Q/Q, from roughly $551 million to just $68 million in Q3.

Later-stage deals were also down 75% Q/Q with its funding in dollar terms reducing 41% from $176 million to $100 million.

Popular Categories

Crypto Financial Services and Decentralized Finance (DeFi) were the only categories that had a Q/Q increase in venture funding. Crypto Financial Services had an increase in investment of nearly 10% from $319 million in Q2 to $350 million in Q3. Before this increase, funding for this category had declined for two consecutive quarters.

Investments in DeFi increased by nearly 8% from $192 million to $208 million. Before this rise in funding, DeFi investment had dropped for five consecutive quarters.

Mergers & Acquisitions

M&A transactions were down roughly 35% Q/Q and have now fallen for a second consecutive quarter. Additionally, M&A transactions were at their lowest amount in ten quarters, since Q4'20, similar to venture funding. The largest M&A transaction involved the enterprise blockchain firm nChain, in which Ayre Group acquired a controlling interest in the firm, investing up to $500 million Swiss Francs.

Future Outlook

With one quarter remaining, blockchain investment in 2023 is currently on pace for $10.8 billion across 1,935 funding deals. Venture funding is expected to fall approximately 67% Y/Y and its number of deals is predicted to be down 27%.

Although 2023’s totals will be remarkably lower than what has occurred in the past two years, it is worth noting that investment is still significantly outpacing what ensued in earlier bear markets. In 2019 and 2020, roughly $6.4 billion, or $3.2 billion per year was allocated to crypto businesses, which together equates to less than what will be invested this year.

Seed financing is still occurring at a healthy rate relative to the overall market, and considerable investor interest in certain segments of the sector has remained.

For more on private markets and M&A activity, take a look at a new report from our Research Analyst, John Dantoni, with a trial subscription to The Block Pro.