Web3 Funding Gains 43% Year To Year But Dips From Q2

It was a mixed bag for Web3 funding last quarter, although investors in the rocky sector the past few years will probably take that.

Web3 startups raised $2 billion in just more than 300 deals last quarter, per Crunchbase data. The dollar number represents a 43% increase from the $1.4 billion raised by such startups in Q3 last year, but a 13% decline from Q2 of this year — which represented the third consecutive quarter of upticks in the sector.

The small amount of deals is actually the lowest total since Q2 2020 — just before investment in the sector exploded. In Q1 2022, investors consummated nearly 1,200 funding deals for Web3, marking the peak of the sector.

Big deals

Perhaps surprisingly, investors went big on several rounds last quarter. In fact, eight rounds of $50 million or more were raised in Q3 — compared to only four in Q2.

• Infinite Reality, a Connecticut-based creator of 3D immersive environments, raised a $350 million round at a $5.1 billion valuation from an undisclosed multifamily office.
• Bellevue, Washington-based Story Protocol, a blockchain technology to protect intellectual property rights for content creators, raised an $80 million Series B led by Andreessen Horowitz that valued the startup at $2.25 billion.
• New York’s Web3 metaverse and L1 blockchain hub ID Planet raised an $80 million Series B funding.

Crypto’s push

Investors in the space see the year-to-year jump in funding being pushed by some changes in the financial market.

“I think it’s driven primarily by the resurging interest as a result of the Bitcoin and Ethereum ETFs, but predominantly the Bitcoin ETF,” said Tomasz Tunguz, founder of Theory Ventures, which invests in early-stage data, AI and Web3/blockchain startups. “In addition, the volume of stablecoin growth is absolutely astronomical.”

In January, SEC Chairman Gary Gensler — who has never been a fan of crypto — gave an allowance to U.S. exchange-traded funds that hold Bitcoin from nearly a dozen asset managers, including behemoths such as BlackRock and Fidelity. The acceptance has proven a game-changer for the sector. Investors have flocked to the funds that allow them to trade digital currencies without actually holding it, and without having to trade it on crypto exchanges that usually have significant transaction fees.

“I would characterize the Web3 ecosystem as picking up from last year pretty significantly,” Tunguz said. “The change in Fed policy should benefit risk assets, especially in public markets, and we’re observing that in some of the tokens, particularly SUI, which has seen tremendous interest recently.”

Looking ahead

However, not all numbers are positive. While some may argue declining deal flow is statistically insignificant, Q3 marked the second consecutive quarter that the number of deals fell.

That means there are fewer startups in the industry getting funded. That in turn means there will be fewer candidates to invest in when these companies go out looking for their next larger round — which could diminish funding dollars.

Of course, investors may be getting more particular about where they put their money when it comes to Web3, or that fewer compelling Web3 companies are being created.

Regardless, dollar figures are pointing to a stabilization — and stability has been a rarity in Web3 investing.

Methodology

For Web3 funding numbers we analyze investments made into VC-backed startups in the cryptocurrency and blockchain industry group.

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Illustration: Dom Guzman