Fundraising is one of the best indicators to assess the degree of attractiveness of an industry, its need for financing and its maturity. In addition, they are necessary for companies in the sector to develop. 2022 was a bumper year for crypto fundraising. But behind these glowing annual results hides a worrying trend: a sharp drop in fundraising quarter after quarter… At the beginning of January, it is an opportunity to take stock of fundraising of crypto companies, a top 10 of the biggest lifts and a analysis of the trends that emerge.
2022, an exceptional year for crypto company fundraising
2022 was a record year for venture capital in the cryptocurrency sector. According to a report by Galaxy Research on January 5, 2023, VCs (venture capital funds) have invested more than 30 billion dollars by 2022 in startups in the crypto ecosystem. 2022 is thus the second most important year for venture capital in the crypto sector, after 2021, both in terms of number of collections and total amounts collected. Alex Thorn, head of Galaxy Research, believes that 2022 was a “extraordinary year” exceeded only by $31 billion in 2021 investment.
A brilliant result that hides the drop in fundraising over the year
However, this balance mask large differences between the different quarters. Last year, each quarter saw a decrease in the number of deals and capital raised compared to the previous one. After hitting an all-time high of nearly $13 billion for 1,100 deals in Q1 2022, totals raised were $9 billion in Q2, $6 billion for 366 deals in Q3 compared to just 2.7 billion USD in the 4th quarter. The amounts raised in Q4 2022 are even lower than in Q4 2018!
Why this decline?
These colossal discrepancies are explained by what happened in 2022 macroeconomically and in the cryptocurrency sector. For example, the prices of bitcoin (BTC) and ether (ETH) fell by 50% during the year 2022. The situation was then worsened by the collapse of Terra (the LUNA cryptocurrency backed by the algorithmic stablecoin UST ) in Q2 2022, which had a snowball effect in the industry. Major industry players such as Three Arrows Capital, Celsius Network and Voyager Digital were forced to file for bankruptcy later this year. Finally, the unexpected bankruptcy of the FTX scam, which was valued at $30 billion in early 2022, dealt another hammer blow to the market in Q4 2022.
The correlation between the price of bitcoin and fundraising
It is also very interesting to see that the trend of venture capital investment in crypto companies continues to follow the price of bitcoin against the dollar. We are almost dealing with a perfect correlation between bitcoin and amount raised !
2022 Crypto Fundraising Analysis by Verticals
The “Web3, NFT, DAO, Metaverse & Gaming” categories are the most represented in terms of number of trades in Q3 2022 (41%) and in Q4 2022 (31%). This position is explained by the youth of this category, and therefore a large number of start-ups that raise seed funds. Offers in the “Web3, NFT, DAO, Metaverse & Gaming” category are certainly more, but ” early stage” and lower. In fact, the category “Trading, exchanges, investment and lending” comes out on top in terms of amounts raised. It represents 25% of total travel in Q3 2022 and 30% in Q4.
The US largely dominates the ecosystem of crypto startups. In Q4 2022, 40% of funding rounds were made to a US startup. In comparison, Switzerland and Canada are in second place, representing 2.5% of the total number of agreements.
Top 10 fundraisers
According to the DeFiLlama website, here are the top 10 fundraisers of the past year by amount.
- polygon – $450 million in a funding round led by Sequoia Capital India. Polygon is a layer 2 (second layer solution) dedicated to the Ethereum blockchain.
- ConsenSys – $450 million and a valuation of up to $7 billion in a funding round led by ParaFi Capital. ConsenSys is an application publisher on the Ethereum blockchain, including MetaMask.
- Yuga Labs – $450 million and a $4 billion valuation during a seed round led by a16z in March 2022. The company designs and markets the famous Bored Ate Yacht Club NFTs and CryptoPunks. The company is also behind ApeCoin (APE), its governance token. This promise at the heart of the NFT bubble must undoubtedly bring some regret to investors who undoubtedly overvalued the company at the time.
- Circle – $400 million in April 2022 in a funding round led by BlackRock. The company issues the largest stablecoin in the world in terms of capitalization: USDC.
- secret network – $400 million by January 2022. Secret Network is developing a blockchain that aims to be “the privacy hub for Web3”.
- FTX – $400 million for a valuation of around $8 billion in January 2022. Ten months later, the investors realized their mistake and said goodbye to their investment. Note that during the same period, FTX.US also raised $400 million for a valuation over $32 million.
- Near-Protocol – $350 million in April 2022 in a funding round led by Tiger Global. Near-Protocol
- OpenSea – $300 million and a valuation of $13.3 billion in January 2022 in a funding round led by Paradigm. OpenSea is the most used and famous NFT marketplace.
- MystenLab – $300 million by November 2022. The company founded by Meta alumni is developing a new blockchain called Sui.
- Amber – $300 million in a funding round led by Fenbushi Capital in December 2022. The Hong Kong provider of crypto-financial services was then in financial difficulties due to falling prices and the bankruptcy of FTX, which she had “less than 10% of its trading capital”. Amber had already raised $200 million by February 2022 for an estimated valuation of $3.5 billion.
2022 was thus a year marked by major fundraising events for the cryptocurrency sector. However, the number of fundraisings and the total amount collected is in free fall quarter after quarter. Under these circumstances, should we consider pessimistic forecasts for fundraising in 2023? Will it be more complicated to raise funds this year? What would the consequences be for the industry? What will crypto companies do to convince investment funds in 2023? Several reports on 2023 fundraising forecasts have been released and this will be the subject of a future article.
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Students who worked in a tech unicorn and investment funds. I am passionate about entrepreneurship and business. My papers deal with cryptocurrencies and related technologies with a business eye. Indeed, I am convinced that cryptocurrencies, blockchain, NFTs and the metaverse are revolutionizing many sectors and presenting unprecedented opportunities.