Shalini Nagarajan

Crypto had a messy 2022. But if the venture capital (VC) scene is anything to go by, things may be looking up.



Crypto deal activity improved last quarter, per Galaxy Digital, with 439 deals compared to just 366 in the fourth quarter of 2022. The 20% jump was largely driven by pre-seed deal activity, which more than doubled from the previous period.



But a higher number of deals didn’t convert to more capital. The crypto and blockchain sectors saw lower venture capital funding in the first quarter, altogether hitting $2.4 billion — the lowest amount since Q4 2020.



“In Q1 2023, crypto and blockchain startups raised less than half the amount raised just two quarters ago,” Alex Thorn, head of firmware research at Galaxy, wrote in the report.



Companies involved in Web3, NFTs, DAOs, metaverse and the gaming subsector scored the most deals. Meanwhile, companies tied to trading, exchange, investing and lending raised the majority of venture funding ($538 million).&nbsp;



Wallet-based startups were a close second at $519 million.&nbsp;



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="2367" height="1134" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/04/vcdeals.jpg?w=1024&amp;h=1024" alt="" class="wp-image-51720" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/04/vcdeals.jpg?w=2367 2367w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/vcdeals.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/vcdeals.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/vcdeals.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/vcdeals.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/vcdeals.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/vcdeals.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/vcdeals.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/vcdeals.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/vcdeals.jpg?w=80 80w" sizes="(max-width: 2367px) 100vw, 2367px" /><figcaption class="wp-element-caption">Crypto venture funding fell four quarters in a row (image source: Galaxy Research)</figcaption></figure>



Capital raises were dominated by US-based companies, followed by France. And it was mostly younger companies, established in 2021 and 2022, that raised venture deals.



Thorn wrote that if VC activity continues at this rate, 2023 would be a hot year for the industry.



“Despite significant drawdowns from the all-time highs in venture activity seen in 2021 and 2022, crypto VC activity remains elevated when looking back to the crippling previous crypto winter, even despite the rising rate environment stifling allocator interest,” he said.&nbsp;



“If the current pace holds exactly, albeit an unlikely scenario, 2023 will see more money invested than 2018, the biggest year for crypto VC prior to the last bull market.&#8221;



Mirva Anttila, director of digital assets research at WisdomTree, agreed that the crypto industry currently faces a positive trajectory.



“We believe we could be on the cusp of the fourth major bull market in crypto, although the exact timing is uncertain,” she said in a recent <a href="https://www.wisdomtree.eu/nl-be/blog/2023-03-31/digital-assets-outlook-2023" target="_blank" rel="noreferrer noopener">note</a>.&nbsp;



“Our belief is that the next bull market will be enabled by advancements in speed and scalability of the blockchain networks, more intuitive user interfaces, and innovations in blockchain wallets, as well as developments in digital identity, which will pave the way for Web3 applications.”



Venture funding aside, crypto markets are enjoying a healthy bear market reprieve. Bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>) is up by over 80% this year, while ether (<a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">ETH</a>) is up 60%, as some <a href="https://www.reuters.com/business/finance/svb-collapse-may-prompt-fed-go-slow-rate-hikes-2023-03-13/" target="_blank" rel="noreferrer noopener">forecast</a> that recent bank failures could inspire the Federal Reserve to taper its aggressive monetary tightening.



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Crypto Saw 20% More VC Deals In First Quarter: Galaxy

Bessie Liu

<div id="highlights-block_631f1a3df8a2b" class="highlights">
 <ul>
 <li>Blockchain gaming and metaverse raises dominated funding discourse last week</li>
 <li>Animoca Brands raised $100 million while Mysten Labs netted $300 million</li>
 </ul>
 
</div>



As traders <a href="https://cms.blockworks.co/the-flippening-will-ether-flip-bitcoin-in-the-next-year/" target="_blank" rel="noreferrer noopener">debate</a> whether Ethereum’s Merge represents a “buy the rumor, sell the news” event, metaverse and Web3 gaming projects continue to draw major funding.



Last week, the Hong Kong-headquartered Animoca Brands <a href="https://cms.blockworks.co/singapores-temasek-aims-100m-at-metaverse-giant-animoca/" target="_blank" rel="noreferrer noopener">secured</a> $100 million in a strategic funding round led by Singapore state-owned Temasek the likes of Boyu Capital and GGV Capital. Previous backers Mirae Asset Management and True Global Ventures (TGV) also participated, among others.



“Animoca Brands has grown significantly as a company in the last year, and our new investors will contribute strategic advice and perspective as we build the world’s leading company furthering digital property rights in the Web3 industry,” Yat Siu, co-founder and executive chairman of Animoca Brands said in a statement.



The blockchain gaming giant — the largest in Asia — appears quick to put that money to use. Word broke last week that Animoca had backed San Fransisco-based ​​Revolving Games in its <a href="https://cms.blockworks.co/animoca-brands-among-backers-in-13m-raise-for-revolving-games/" target="_blank" rel="noreferrer noopener">latest $13 million seed raise</a> alongside Pantera Capital, Polygon and Rockstar Games co-founder Dan Houser.



Revolving Games previously raised $12 million in pre-seed funding from backers including NBA TopShots’ Dapper Labs, Permanens Capital Partners, Kenetic, Saramayacar and DWeb3 Capital earlier this year.&nbsp;



Companies building new blockchains to underpin video games are also garnering interest.



Mysten Labs, another San Franciscan Web3 startup, in a Series B netted <a href="https://cms.blockworks.co/mysten-labs-300m-fundraise-values-business-at-more-than-2b/" target="_blank" rel="noreferrer noopener">$300 million</a> funding from investors to scale its fledgling blockchain, Sui. FTX Ventures led the round, with prominent investors from a16z, Jump Crypto and Apollo joining in.



Although a launch date has not yet been set, Mysten Labs envisions Sui as a low-cost creator-owned network, geared specifically for games.



“We believe that Sui’s novel architecture will meaningfully improve scalability and lower transaction costs, unleashing new web3 applications and experiences for a broader audience,” Arianna Simpson, a general partner at a16z said in a statement.



Meanwhile, the NEAR Foundation — the Swiss firm behind upstart layer-1 network NEAR — has just debuted a $100 million venture capital fund in partnership with newly-launched Caerus Ventures.



The fund, which initially closed with $50 million in capital, will focus on seed to Series A investments across Web3 culture and entertainment projects.



Separate from gaming, Seattle-based Web3 startup SpiceAI, which wants to make blockchain data more accessible, received <a href="https://cms.blockworks.co/web3-startup-spiceai-cooks-up-13-5m-raise-to-make-data-more-accessible/" target="_blank" rel="noreferrer noopener">$13.5 million</a> from Madrona Venture Group. Australian venture capital firm Blackbird Ventures and many angel investors also took part in the round.&nbsp;



In its current state, SpiceAI platform is a query interface integrated with GitHub and gives developers access to data from various protocols.



Other noteworthy raises last week include:



<ul class="wp-block-list"><li>Web3 UX startup Slide <a href="https://www.businesswire.com/news/home/20220908005232/en/Web3-UX-Startup-Slide-Raises-12.3M-Seed-Round-Co-Led-by-Polychain-Capital-Framework-Ventures" target="_blank" rel="noreferrer noopener">secures</a> a $12.5 million seed from Framework Ventures.</li><li>Software development and decentralized data storage startup Community Labs raises a $30 million Series A led by Lightspeed Venture Partners.</li><li>Gameplay Galaxy secures a $12.8 million seed from Blockchain Capital.</li><li>Synquote, a decentralized trading platform for cryptocurrency options, closed a $2.8M seed round.</li><li>Trystack.io received $2.7 million from Madrona to build crypto education trading platform.</li></ul>



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.

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