Research by Galaxy Digital indicates that Web3 venture capital investment has fallen to quarterly lows not seen since 2020.
Cryptocurrency startups faced a tougher fundraising environment as the bear market led to an $11 billion drop in venture capital investment.
Crypto mining companies account for the majority of deals
Despite the decrease in investment, the number of closed financing deals increased to 439 in the first quarter of 2023 compared to 366 in the fourth quarter of 2022. Most of the deals were completed by companies established in 2021 and 2022. Most of the capital went towards later-stage funding rounds for companies incorporated in 2021.
Mining companies accounted for the largest proportion of deals directed to companies in the later stages. Most node-hosting and hosting-as-a-service companies have attracted early B2B deals.
In terms of invested capital, the blockchain and portfolio category saw the highest allocation to later-stage companies. Companies operating in the broader Web3 space, including NFTs, DAOs, and games, have seen the least late-stage investment.
Crypto companies headquartered in the United States secured 42.8% ($1.3 billion) of venture capital funding in the first quarter of 2023. The share of French companies was about $500 million.
A similar picture emerges when looking at the number of deals closed, with 42.3% of fundraising deals completed in the U.S.
While the investment at the current price is set to exceed 2018, Galaxy Warn That founders should prioritize revenue and business models. They must also be willing to offer more shares to investors and raise money in smaller rounds.
VC data reflect broader shifts in the real world
The Galaxy Report reflects general macro trends among crypto and venture capital investment firms, at least for now.
BeInCrypto recently reported that the future of the metaverse swing is on a knife edge.
Revenue from Decentraland, one of the leaders in virtual environments, has been dropping sharply lately. Active traders participating in the project have also been steadily declining, with only 20-30 traders trading virtual floor spaces per week.
Entertainment giant Disney announced metaverse-related employee cuts in late March 2023.
Once the poster child for a brave new world of virtual commerce and workplace interactions, Meta has recently been able to reverse its ambitions in favor of artificial intelligence. The company announced layoffs of thousands of employees beginning in early March.
Infrastructure companies attracting the most investments in the early stages makes sense given Ethereum’s imminent upgrade to enable restricted ETH withdrawals.
The developers announced that they will be deploying the Shapella fork of Ethereum on the main blockchain network on April 12. The upgrade will enable the entities that secure the network to withdraw ETH pegged and accrued rewards.
According to Dune Analytics, institutions account for three of the top five entities with the most stakes in ETH, making institutions an attractive investment for VC firms.
While VC investment was dominated by the United States, in the first quarter of 2023, clearer regulations in the regions could see investments shift to France and other European regions as the Markets in Crypto Assets bill nears implementation.
Stablecoin Issuer Circle recently opened a branch in Paris, with its Chief Strategy Officer Dante Disparte Argues France is slowly emerging as the global cryptocurrency leader.
For a recent Be (In) Crypto Bitcoin (BTC) analysis, click here.
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