2023 Q2 Blockchain and Encryption Venture Capital Report

This report analyzes data based on a certain data platform. Due to the lag in venture capital transaction data, there may be revisions to the data for the second quarter of 2023 in the future.

Main Findings

• Venture capital in the encryption field has not yet bottomed out. The number of transactions slightly increased in the second quarter, but the total investment in cryptocurrency and blockchain startups continued to decline on a quarter-on-quarter basis.

• Valuations continue to decline. In the second quarter of 2023, the median pre-money valuation of cryptocurrency venture capital transactions dropped to $17.93 million, the lowest in nearly two years, while the median transaction size saw a slight quarter-on-quarter increase.

• Web3 companies dominate in the number of transactions, and trading companies have raised the most capital. This continues the trend from the previous quarter.

• The United States maintains a leading position in the encryption startup sector. U.S. encryption startups account for over 43% of all transactions and raise more than 45% of the funds.

• The venture capital financing environment remains severe. In the second quarter of 2023, only 10 new encryption venture capital funds were established, with a total fundraising of $720 million, marking the lowest level in nearly three years.

Cryptocurrency Venture Capital Overview

In the second quarter of 2023, the investment in the encryption and Blockchain industry amounted to $2.32 billion, reaching a new cycle low and the lowest level since the fourth quarter of 2020. This continues the downward trend following the peak of $13 billion in the first quarter of 2022. The total financing over the past three quarters has been lower than the same period last year.

Although the total investment amount has declined, the number of transactions in the second quarter has slightly rebounded, completing 456 transactions, higher than the 439 transactions in the first quarter. This is mainly due to Series A transactions increasing from 154 to 174.

From the perspective of capital investment, early stage transactions including ( Pre-Seed, Seed Stage, and Series A account for 73%, while late stage transactions account for 27%.

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Company Establishment Year Analysis

The companies established in 2021 and 2022 completed the most venture capital deals in this quarter. Unlike the first quarter, companies founded in 2022 raised the highest total amount of funds, followed closely by those established in 2021.

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Encryption Venture Capital Company Regional Distribution

US companies continue to lead in both transaction volume and fundraising amounts. This quarter, US companies raised 45% of the encryption venture capital, followed by the UK 17.7%, Singapore 15.7%, and South Korea 15.4%.

From completed transactions, American companies account for 43%, followed by Singapore and the UK at 7.5% each and South Korea at 13.1%.

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Transaction Scale and Valuation

In the second quarter of 2023, the median pre-investment valuation of cryptocurrency venture capital transactions fell to $17.93 million, the lowest in nearly two years. The median deal size was $3 million, with a median pre-investment valuation of $17.93 million. This declining trend is consistent with the overall venture capital market.

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Subfield Analysis

Trading, investment, and lending startups raised the most funding this quarter, reaching $473 million, accounting for 20% of total investments. Web3, NFTs, gaming, DAOs, and the metaverse followed closely with $442 million raised, representing 19%.

LayerZero completed the largest transaction of the quarter, raising $120 million in Series B funding. Magic Eden, Auradine, and River Financial have each completed significant financing in their respective fields.

In terms of transaction volume, companies in the Web3 gaming, NFT, DAO, and metaverse sectors lead, followed by trading, exchange, investment, and lending companies. Notably, privacy and security product companies had the largest month-over-month increase in transaction volume at 275%, followed by infrastructure at 114%.

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Encryption Venture Capital Fundraising

The number of new crypto venture capital funds established in the second quarter of 2023 was 110 and the scale was 17.2 billion USD, both hitting a three-year low. The average scale of new funds in the first half of this year was 236 million USD, with a median of 50 million USD, significantly down from last year.

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Analysis and Conclusion

• The encryption venture capital bear market continues. Although the trading volume remains stable, the total investment amount continues to decline. This trend is consistent with the pressures faced by the overall venture capital market.

• Compared to previous bear markets, the current encryption venture capital activity remains at a high level. The number of transactions and investment amounts are about twice that of the bear market period from 2017 to 2020, indicating that the entrepreneurial ecosystem is still experiencing long-term growth.

• Venture capital funds are facing a severe fundraising environment. Rising interest rates have reduced investors' risk appetite, coupled with the sluggish prices of cryptocurrency assets and the collapse of multiple projects supported by venture capital last year, leading to difficulties in fundraising.

• The lack of new venture capital will continue to put pressure on founders. Startups are finding it harder to raise funds this year, and this trend is unlikely to change in the short term. Founders need to focus more on revenue and sustainable business models, and be prepared to accept smaller-scale financing and give up more equity.

• The trading activity of seeds in the early stage remains high. In the early stage, the trading of ) seeds, seeds, and A-round ( accounts for nearly 75%, indicating that entrepreneurs' enthusiasm remains strong and investors are still paying attention. Savvy investors may find opportunities in teams that are starting up in challenging environments.

• The United States continues to dominate the cryptocurrency startup ecosystem. Despite the unfriendly regulatory environment, American companies still attract the majority of venture capital. U.S. policymakers should consider formulating policies that are more favorable to innovation to maintain their leading position.

• Web3 maintains a leading position in the number of transactions, with trading-related projects receiving the most investment. This trend has continued for several quarters, with traditional profit models such as exchanges and trading tools raising the most funds, while the number of projects in the emerging fields of Web3, DAOs, metaverse, and gaming is the highest.

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