By /

Web3 Startups Face Severe Funding Dip

Crunchbase Report

Introduction

Based on the most recent data from Crunchbase, there’s been a significant fall in venture capital funding for Web3 companies. Compared to last year’s same period, the second quarter of 2023 has seen a sharp decline of 76% in funding.

Plunge in Funding for Web3 Companies

Web3 enterprises secured slightly above $1.8 billion in the second quarter of 2023, a stark contrast to the hefty $7.5 billion collected during the identical timeframe the previous year. During the first half of 2023, these startups managed to pool $3.3 billion. However, this amount represents a 78% decrease from the robust $16 billion raised in the first half of 2022.

Newly established crypto venture capital funds did not fare much better. They only managed to accumulate $720 million in the second quarter of the current year. Crunchbase defined the Web3 sector as startups based on cryptocurrency and blockchain technology. This data only reaffirms the challenges these startups have faced since the crypto downturn that shook the industry last year following several major company collapses.

U.S. Startups Garner Most of the Funds

Among the Web3 startups, those based in the United States have outperformed in both the number of finalized deals and funding secured this year. These companies captured 45% of all the crypto venture capital funding in Q2 2023. The UK, Singapore, and South Korea trailed behind with 7.7%, 5.7%, and 5.4%, respectively.

In terms of finalizing deals, U.S.-based companies also came out on top with 43% of the deals, followed by Singapore and the UK, each contributing 7.5%, and South Korea with 3.1%.

Sectors Attracting Most Capital Within Web3

According to the Crunchbase report, certain sectors within the Web3 industry were more successful in attracting venture capital. Trading, exchange, investing, and lending startups that focus on crypto raised the most, totaling $473 million. This represents 20% of the total capital invested.

Meanwhile, startups in the spheres of Web3, NFTs, gaming, DAOs, and metaverse raised $442 million, amounting to 19% of all venture capital invested in Q2. Crypto protocol LayerZero emerged as a frontrunner after raising $120 million, with prominent backers such as Andreessen Horowitz (a16z) and Christie’s, among others.

Venture Capital Shifts Attention to AI Startups

As funding for crypto startups dwindled, venture capital firms seem to have shifted their focus towards artificial intelligence (AI) startups, which continue to see remarkable growth. In the first half of 2023, AI-based startups secured a staggering $25 billion in funding.

OpenAI CEO Sam Altman’s crypto project, Worldcoin, managed to raise $115 million in a Series C funding round in May 2023. Other noteworthy funding achievements include Runway’s $141 million series C funding and Captions’ $25 million series B funding, both AI-enabled creative studio startups.

Conclusion

The dramatic decrease in venture capital funding for Web3 startups points to a shift in investor sentiment within the tech industry. While the crypto market struggles, AI companies have experienced a surge in investor interest and funding. As we move forward, it remains to be seen how these trends will develop and which sectors will gain the upper hand in attracting venture capital investments.

Scroll to Top