In August, crypto startups faced a significant decline in funding, with a total of $819 million raised, marking a 53% year-on-year decrease. While this figure may seem promising at first glance, a closer look reveals that the crypto space still has a long way to go to regain its former glory. Out of the total funding, two startups, Haqqex and BitGo, accounted for 55% of the funds raised, highlighting the concentration of resources. This decline in funding is not solely a result of waning interest in crypto, but rather a shift in investor focus towards startups with proven profitability and attractive economics. Additionally, global economic factors such as inflation have contributed to the conservative approach towards crypto investments. As the crypto ecosystem continues to evolve, it may take on a more hidden role within the broader tech landscape, leveraging technologies like AI and web3.
Crypto startups raised $819 million in August, a 53% year-on-year decline
Crypto startup funding for August
According to data from PitchBook, venture capitalists invested $819 million into crypto funding across 91 companies in August 2023. This figure represents a 51% increase relative to the $542 million raised in July. However, despite the apparent increase, a deeper look reveals that there is still room for improvement. Out of the total $819 million raised, just two startups, Haqqex and BitGo, claimed around 55% of the funds. Without these two rounds, there would have been a significant dip in comparison to the funds raised in July.
Decline in funding
When comparing the numbers to the same period last year, the decline in funding for crypto startups becomes more evident. In August 2022, crypto startups raised $1.74 billion, which is a 53% decline year-on-year. This decline indicates that the crypto space still has a long way to go in order to match or surpass the funding figures it attained during its boom period from 2021 to early 2022. The current funding trend suggests that there is still a lot of work to be done to restore funding levels to their previous heights.
Reasons for decline
The decline in funding for crypto startups is not solely due to a decline in interest in the crypto space. According to Lexi Novitske, a General Partner at Norrsken22 and Founder of Acuity Venture Partners, investors are now looking more inward and focusing on their existing portfolios. They are paying more attention to startups with proof of profitability and attractive economics, which often leaves web3 startups at a disadvantage. Web3 startups typically rely on a future expectation of profitability rather than immediate profitability. Novitske also believes that the decline in funding is an economic impact of global inflation. Cautiousness with cash, decreased crypto investments, and the high cost of living have all played a part in the decline. Additionally, consumer-focused platforms that build “nice to have” or “interesting to have” products are currently out of favor compared to companies that are providing “need to have” products.
Investors looking inward
The decline in funding for crypto startups is partly driven by investors looking inward and focusing on their existing portfolios. They are paying more attention to startups that have already demonstrated profitability and attractive economics. This shift in focus has led to a neglect of web3 startups, which rely on a future expectation of profitability rather than immediate profitability. Investors are becoming increasingly conservative with their cash and have likely been affected by the decrease in their crypto investments. The overall high cost of living and economic uncertainty have also contributed to this inward focus.
Economic impact of inflation
The decline in funding for crypto startups can be attributed, in part, to the economic impact of inflation on investors’ decision-making. Inflation has made investors more cautious with their cash and has resulted in decreased investments in the crypto space. The high cost of living and economic uncertainty have also played a role in shaping investment decisions. As a result, consumer-focused platforms, which offer “nice to have” or “interesting to have” products, are currently out of favor compared to companies that provide essential products or solutions.
Crypto startups fading or evolving?
Opinions on the future of crypto startups vary. According to Lexi Novitske, crypto startups are not fading away but rather evolving into a hidden aspect of technology. She believes that crypto will take a background stage in contrast to more visible roles. Novitske suggests that the focus will shift towards AI companies that leverage web3, AI, and other deeper tech solutions to build efficient solutions that tackle real-world problems. Overall, the industry is likely to undergo an evolution rather than a disappearance.
In conclusion, the decline in funding for crypto startups in August, despite the increase relative to the previous month, indicates that there is still a long way to go for a full recovery. The decline is not solely attributed to a decline in interest in the crypto space, but rather investors looking inward and focusing on profitable startups with attractive economics. The economic impact of inflation has also played a significant role in shaping investment decisions. However, despite the decline, crypto startups are not fading away but rather evolving to become a hidden aspect of technology. The industry is expected to focus on backend technology and leverage solutions like web3 and AI to build more efficient solutions.