2023 Q2 Encryption and Blockchain Venture Capital Report

Recent data shows that venture capital in the encryption sector has not yet hit bottom. Although the number of transactions slightly increased in the second quarter, the total investment in cryptocurrency and Blockchain startups continued to decline quarter-on-quarter. Valuations are also continuously decreasing, with the median pre-investment valuation for crypto venture capital transactions in the second quarter of 2023 dropping to $17.93 million, the lowest level in nearly two years.

In terms of investment categories, the broad Web3 category still dominates the number of transactions, while companies in the trading category have raised the most total capital. This continues the trend from the previous quarter. In terms of regional distribution, the United States continues to maintain its leading position in the cryptocurrency startup sector. U.S. cryptocurrency startups account for over 43% of all completed transactions, and the funds raised account for over 45% of the total venture capital.

It is worth noting that the current venture capital financing environment is still facing severe challenges. In the second quarter of 2023, only 10 new crypto venture capital funds were established, raising a total of $720 million, marking a new low in nearly three years.

Specific data shows that the total investment in the cryptocurrency and Blockchain industry in the second quarter of 2023 was $2.32 billion, marking a recent low and the lowest level since the fourth quarter of 2020. This continues the downward trend that began after the peak of $13 billion in the first quarter of 2022. It is noteworthy that, although capital investment has not yet bottomed out, trading activity slightly increased in the second quarter, with 456 transactions completed, compared to 439 transactions in the first quarter of 2023. This slight growth mainly comes from an increase in Series A transactions.

From the investment stage perspective, early-stage transactions such as ( Pre-Seed, Seed, and Series A ) account for the vast majority of investments, ( 73% ), while later-stage transactions account for 27%. Analyzing by the year of company establishment, companies established in 2021 and 2022 completed the most venture capital transactions in the second quarter of 2023. Unlike the first quarter, companies established in 2022 raised the most funds among all years, followed closely by companies established in 2021.

From a regional distribution perspective, companies headquartered in the United States dominate in terms of completed transactions and funds raised. In the second quarter of 2023, U.S. companies raised 45% of the encryption venture capital funds, followed by the United Kingdom (7.7%), Singapore (5.7%), and South Korea (5.4%). In terms of completed transactions, U.S. companies accounted for 43% of all encryption venture capital transactions, followed by Singapore (7.5%), the United Kingdom (7.5%), and South Korea (3.1%).

In terms of trading scale and valuation, the valuation of the entire venture capital sector continued to decline in the second quarter of 2023, and cryptocurrency is no exception. The pre-investment median valuation of cryptocurrency or Blockchain venture capital transactions dropped to $17.93 million, the lowest level in nearly two years. The median for cryptocurrency venture capital transactions in the second quarter of 2023 was $3 million.

According to investment categories, trading, investment, and lending startups raised the most venture capital in the second quarter of 2023, totaling 4.73 billion dollars, accounting for 20% of capital deployed. Web3, NFT, gaming, DAO, and metaverse startups raised the second most funds, reaching 442 million dollars, representing 19% of all venture capital deployed in the second quarter of 2023. The Layer 2/interoperability sector witnessed the largest single transaction of the quarter, with a cross-chain protocol raising 120 million dollars in Series B funding.

In terms of transaction volume, companies developing products in the fields of Web3 games, NFTs, DAOs, and the metaverse maintain the top position, followed by trading, exchange, investment, and lending companies. These trends have not changed compared to the first quarter of 2023. Notably, the number of transactions from companies building privacy and security products saw the largest month-on-month increase of 275%, followed by infrastructure with a 114% increase.

In terms of the financing situation of venture capital funds themselves, the number of new funds issued in the second quarter of 2023 was 10, with allocated funds amounting to $720 million, both hitting new lows in nearly three years. Combining the data from the first half of 2023, the average scale of new funds is currently $236 million, with a median of $50 million, both significantly lower than last year.

Overall, the bear market for crypto venture capital is still ongoing. Although the number of transactions remains stable, the total capital allocated to crypto startups is still declining month-on-month. This trend is not unique to cryptocurrencies; the broader venture capital industry is also facing pressure in an environment of rising interest rates. Nevertheless, compared to the previous bear market from 2017 to 2020, the current crypto venture capital activity remains relatively strong, with the number of transactions and investment capital still about twice that of that period, indicating that the entrepreneurial ecosystem will continue to achieve net growth over a longer time frame.