The Bear Market’s Grip on Crypto Fundraising
Recent research by the crypto market intelligence firm, Messari, has unveiled a significant drop in crypto fundraising during the third quarter of 2023. This decline mirrors figures last observed in the final quarter of 2020. The State of Crypto Fundraising report highlighted that the past quarter saw new lows in both funding amounts and deal counts. Specifically, the total funding for Q3 was just under $2.1 billion, spread across 297 deals. This represents a 36% decrease in both areas compared to Q2 2023.
A Closer Look at the Funding Dynamics
Messari’s analysis showed that a significant portion of the deals in Q3 were focused on early-stage rounds, including pre-seed, seed, and series A investments. Seed funding emerged as the dominant stage, amassing approximately $488 million from 98 rounds. The proportion of early-stage deals surged to 48% in Q3 2023, up from 37% in Q4 2020. In contrast, later-stage deals, such as Series B and other rounds, plummeted to 1.4% from 8% within the same timeframe. This trend suggests a calculated move by investors, positioning themselves in a bear market to back projects that promise higher returns when the crypto market swings upwards.
From my point of view, the shift from later-stage to early-stage projects over the past three years is a clear indication of investors’ evolving strategies. This is further evidenced by the rise in strategic funding deals, even amidst the bear market. Such deals, often involving corporate and private equity funding, have grown substantially. The share of strategic deals escalated to 22% in Q3 2023 from a mere 0.2% in Q4 2021. This implies that challenging market conditions are pushing projects to either seek short-term bridge rounds or merge with larger initiatives.
Sectoral Insights: Who’s Leading the Funding Race?
When it comes to sector-specific funding, chain infrastructure, gaming, and decentralized finance (DeFi) stood out as the frontrunners in Q3. Chain infrastructure attracted the lion’s share of capital, securing 18%. Meanwhile, DeFi led in terms of deal count, and the gaming sector garnered roughly $250 million in investments. As I see it, while other sectors play a crucial role in expanding the crypto industry, these three sectors continue to magnetize the bulk of investor interest.
In conclusion, the bear market’s influence on crypto fundraising is undeniable, with Q3 figures echoing those of 2020. However, the strategic shifts in investment patterns and the sectors drawing attention provide a glimpse into the evolving landscape of the crypto world. Only time will tell if these strategies will pay off in the long run, but for now, investors seem to be playing a calculated game, readying themselves for the next bull market wave.
