Crypto And Web3 Firms Might Struggle To Raise Funds In 2023 – Research
2022 was a challenging year for the crypto community. Meanwhile, crypto venture capital firms still invested immensely in several projects despite the high rate of FUD and crypto meltdowns.
However, recent research has suggested that 2023 may not witness massive cash flows like 2022.
A Tough Year Ahead For Crypto – Galaxy
In a new study, Galaxy Research revealed that the amount invested into crypto and Web3 startups by venture firms in 2022 was about $30 billion. Moreover, there were many crypto and Web3-based deals last year despite the crypto winter.
Alex Thorn, the leader of firmwide research at Galaxy, described 2022 as a “monster year”, which 2021 marginally surpassed with a VC investment of $31 billion. Meanwhile, in a January 5th report, Thorn revealed that the crypto market and macroeconomic conditions caused a rapid decline in investments last year in Q3 and Q4.
The Galaxy employee believes this scenario will continue this year. However, things could change if crypto and macro market conditions improve.
According to Thorn, the total number of venture capital deals in 2022 was 2,900. Unfortunately, Q4 witnessed fewer deals and the smallest capital investments in the past two years.
Thus, Thorn predicted it would be difficult for crypto and Web3 companies to raise capital in 2023 if this pattern continues. “The crypto asset, monetary, and macro environment signals a tough year ahead,” he added.
He said that the climate for entrepreneurs seeking funding would become more challenging due to falling firm values and more stringent requirements placed on investors.
40% Of Crypto VC Deals In 2022 Involved US-Based Startups
Thorn argued that startups must be hyper-focused on fundamentals, reducing operating expenditures and growing revenue in 2023.
Furthermore, the regulatory environment in the US will also affect the VCs as the country dominates a large part of the crypto-startup ecosystem. Besides, Galaxy Research stated that over 40% of crypto VC deals in 2022 involved US-based startups.
“The US is critical to these markets. As a result, US policymakers must enact and clarify regulations to guide the emerging space,” the study added. However, investor preferences and cryptocurrency markets often follow cyclical patterns.
Last month, a general partner at CapitalG (a venture capital firm), Gene Frantz, stated in a Forbes interview that 2023 would be better than 2022’s year-end outlook. Frantz acknowledged that 2022 was tough. Still, he believed innovation and persistence, coupled with an improved economic outlook, would bring back optimism.
Global venture funding last year dropped by about 35% compared to 2021. Still, the crypto sector holds more promises for startups depending on the outcome of market conditions.
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