Venture Investment Expected To ‘Reverse’ After 20% Quarterly Drop

It’s been a slow start to the year for crypto businesses seeking fresh capital.

Industry-related firms globally netted $2.42 billion in venture capital over 374 deals throughout Q1, 2023, marking a notable decline in value for the fourth straight quarter.

The year’s first quarterly period witnessed a 20% decrease from the previous quarter in total deal value, from $3 billion to $2.4 billion, data from Pitchbook shows. That translated into roughly 5% less in deal numbers over the same period, from 394 to 374.

Investments have continued to fall following their peak 12 months ago, thanks largely to waning interest in digital assets and a number of scandals that continued to damage crypto’s image.

As it stands, this year’s second quarter is on track to clock a fifth consecutive decline in both deal count and value, standing at 129 and $867 million, respectively. It’s worth noting that there remain roughly 49 days left in Q2, or roughly seven weeks, to break that streak.

Despite the overall decline, there were a few positive developments at the beginning of the year, Pitchbook said in its “Emerging Tech: Crypto Report,” published Thursday.

Layer-2 scaling solutions, which aim to improve the scalability of crypto like bitcoin and ether, continued to attract significant investment.

Native zkEVM Ethereum layer-2, Scroll, which processes transactions off-chain, clinched a $50 million deal on March 6 with a post-money valuation of $1.8 billion.

Bitcoin scaling platform Blockstream also managed to raise $125 million in a late-stage deal on Jan. 24, valuing the company at $2.49 billion, data shows.

That’s still a far cry from 2021 and 2022’s biggest deals, including Fireblocks’ $550 million later-stage VC in January of last year and Blockchain.com’s $490 million deal, three months later.

“We believe late-stage valuations are being skewed upwards, as we suspect that only outsized, up-rounds are being disclosed and down-rounds are being kept private,” Pitchbook said in its report.

“Additionally, Q1 2023’s sample size is small and represents only a single quarter of data. We expect rising seed and late-stage valuations to reverse throughout the year.”

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