Crypto Companies Experience Sharp Decline in Venture Funding in Q1 2023
Global venture funding for crypto companies in Q1 2023 experienced a sharp year-on-year decline of 78%, reaching the lowest level since Q4 2020, while certain sectors like layer-2 scaling solutions and crypto custodial services showed resilience and continued to attract investments.
Introduction
According to data analysis firm PitchBook, the first quarter of 2023 witnessed a dramatic year-on-year decrease in venture funding for crypto companies. The firm's quarterly report reveals that global venture capital investments in the crypto sector amounted to $2.6 billion in Q1 2023, marking a significant 78% decrease compared to the first quarter of the previous year. This funding decline represents the lowest amount invested in the sector since the fourth quarter of 2020. Additionally, the report highlights a 64.4% decrease in the number of deals closed by crypto companies during this period.
Decrease in Venture Funding
PitchBook's analysis indicates an 11% decrease in the value of deals and a 12.2% decline in the number of deals on a quarter-over-quarter basis. These figures illustrate the substantial decline in venture funding for crypto companies during the first quarter of 2023. While this downturn in funding is a cause for concern, there are some notable "bright spots" identified by PitchBook that offer optimism for the industry.
Promising Sectors
Despite the overall decrease in venture funding, PitchBook highlights certain sectors within the crypto industry that continue to attract investment. Layer-2 scaling solutions, which aim to address scalability challenges faced by blockchain networks, have shown resilience and received ongoing venture funding. PitchBook cites examples such as Blockstream, a Bitcoin scaling platform that raised $125.0 million in a convertible note and debt round during Q1 2023. The funds will be utilized to develop Bitcoin mining infrastructure. Notably, Blockstream had previously secured $163.1 million in a Series B funding round in August 2022.
Another promising project mentioned is Scroll, a company working on a zero-knowledge Ethereum Virtual Machine (zkEVM) scaling solution. Scroll managed to raise $50.0 million in a late-stage venture capital round during the first quarter of 2023. Additionally, custodial services in the crypto space attracted significant investments, with Ledger raising a substantial $493.0 million in a Series C funding round and Taurus securing $65.0 million in a Series B round.
