Fundraising is one of the best indicators for assessing the level of attractiveness of a sector, its need for funding and its stage of maturity. Furthermore, they are necessary for the development of companies in the sector. 2022 has been a banner year for cryptocurrency fundraising. However, behind these brilliant annual results hides a worrying trend: a sharp decline in fundraising quarter after quarter… In early January, it is an opportunity to take stock of the fundraising of cryptocurrency companies, a top 10 of the major increases and an analysis of the trends that emerge.
2022, an exceptional year for fundraising for crypto companies
2022 has been a record year for venture capital in the cryptocurrency sector. According to a January 5, 2023 report by Galaxy Research, VCs (venture capital funds) have invested more than $30 billion in 2022 in startups in the crypto ecosystem. 2022 is therefore the second most important year for venture capital in the cryptocurrency sector, lagging behind 2021, both in terms of the number of collections and the total amounts collected. Alex Thorn, head of Galaxy Research, believes 2022 has been a “exceptional year” surpassed only by $31 billion in 2021 investments.
A brilliant result that hides the drop in fundraising during the year
However, this balance mask significant disparities between the different neighborhoods. Last year, each quarter saw a decline in the number of deals and capital raised compared to the previous one. After reaching an all-time high of nearly $13 billion for 1,100 deals in the first quarter of 2022, total amounts raised were $9 billion in the second quarter, $6 billion for 366 deals in the third quarter, compared to just $2.7 billion in the fourth quarter. The amounts collected in Q4 2022 are even lower than in Q4 2018!
Why this fall?
These colossal discrepancies can be explained by what happened in 2022 at the macroeconomic level and in the cryptocurrency sector. The prices of bitcoin (BTC) and ether (ETH) for example fell by 50% during the year 2022. The situation was then aggravated by the collapse of Terra (the LUNA cryptocurrency backed by the algorithmic stablecoin UST) in the second quarter of 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 during the year. Finally, the unexpected failure of the FTX fraud, worth $30 billion at the beginning of 2022, has dealt another hammer blow to the market in the fourth quarter of 2022.
The correlation between the price of bitcoin and fundraising
Furthermore, it is very interesting to see that the trend of venture capital investments in crypto companies continues to follow the price of bitcoin against the dollar. We almost deal with a perfect correlation between bitcoins and collected amounts !
Crypto Fundraising Analysis 2022 by Verticals
The “Web3, NFT, DAO, Metaverse & Gaming” categories are the most represented in terms of number of deals in Q3 2022 (41%) and Q4 2022 (31%). This position is explained by young people in this category, and therefore a large number of start-ups that raise seed funds. The offers in the “Web3, NFT, DAO, Metaverse & Gaming” category are certainly more numerous, but “ initial phase “ and lower. In terms of sums collected, in fact, the “Trading, Exchange, Investments and Loans” category is the first. It represents 25% of the total harvested in the third quarter of 2022 and 30% in the fourth quarter.
The US largely dominates the crypto startup ecosystem. In the fourth quarter of 2022, 40% of funding rounds were made for an American startup. By way of comparison, Switzerland and Canada are in second place, accounting for 2.5% of the total number of transactions.
Top 10 fundraisers
According to the DeFiLlama website, here are the top 10 fundraisers of the past year in terms of amount.
- polygon $450 million in a funding round led by Sequoia Capital India. Polygon is a layer 2 (second level solution) dedicated to the Ethereum blockchain.
- ConsensSys $450 million and a valuation of up to $7 billion during a funding round led by ParaFi Capital. ConsenSys is a publisher of applications on the Ethereum blockchain, including MetaMask.
- The Yuga laboratories – $450 million and a valuation on the order of $4 billion during a seed round led by a16z in March 2022. The firm designs and markets popular Bored Ate Yacht Club and CryptoPunk NFTs. The company is also behind ApeCoin (APE), its governance token. This uplift at the center of the NFT bubble must undoubtedly bring some regret to investors who had undoubtedly overvalued the company at the time.
- Circle $400 million in April 2022 in a funding round led by BlackRock. The company publishes the largest stablecoin in the world by capitalization: the USDC.
- Secret network – $400 million in January 2022. Secret Network is developing a blockchain that aims to be “the data privacy hub for Web3”.
- FTP extension – $400 million for a valuation of about $8 billion in January 2022. Ten months later, investors realized their mistake and said goodbye to their investment. Note that FTX.US also raised $400 million at a valuation in excess of $32 million during the same period.
- Quasi-protocol – $350 million in April 2022 in a funding round led by Tiger Global. Quasi-protocol
- Offshore – $300 million and a $13.3 billion valuation in January 2022 during a Paradigm-led funding round. OpenSea is the most used and famous NFT marketplace.
- Mysten Lab – $300 million in November 2022. The company founded by Meta alumni is developing a new blockchain called Sui.
- Amber – $300 million in a financing round led by Fenbushi Capital in December 2022. The Hong Kong-based cryptocurrency financial services provider was then in financial trouble due to falling prices and the bankruptcy of FTX, on which it had “less than 10% of its trading capital”. Amber had already raised $200 million in February 2022 for an estimated $3.5 billion valuation.
Thus, 2022 has been a year of major fundraising events for the cryptocurrency industry. However, the number of fundraisers and the total raised are in free-fall quarter after quarter. Under these conditions, should we consider pessimistic forecasts for fundraising in 2023? Will it be more difficult to raise funds this year? What then would be the consequences for the sector? What should cryptocurrency 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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Student who worked in a tech unicorn and investment funds. I am passionate about entrepreneurship and business. My articles deal with cryptocurrencies and associated technologies with an eye. Indeed, I am convinced that cryptocurrencies, the blockchain, NFTs and the metaverse are revolutionizing many sectors and offering unprecedented opportunities.