Crypto Funding Trends: Q3 2023 Insights

In the third quarter of 2023, a recent analysis by the esteemed crypto market intelligence firm Messari brought to light a notable decrease in crypto fundraising, drawing parallels with funding levels observed back in late 2020.

The comprehensive State of Crypto Fundraising report shed light on the downward trend, revealing a dip in both funding amounts and deal counts during the closing quarter. Q3 witnessed a discernible reduction in the overall funding trajectory, slipping beneath the $2.1 billion mark across 297 deals, marking a substantial 36% downturn when compared to the more buoyant Q2 of 2023.

Crypto Funding in Q3 Dropped to Levels Seen in 2020

The researchers at Messari underscored that a significant proportion of the deals in Q3 were predominantly centered around early-stage investment rounds, encompassing pre-seed, seed, and series A investments. Among these, seed funding emerged as the frontrunner, securing an impressive sum of approximately $488 million distributed across 98 rounds.

Delving deeper into the Q3 landscape, early-stage deals laid claim to an impressive 48% deal share, showcasing a substantial uptick from the 37% share observed in the corresponding period of 2020. Conversely, later-stage deals, spanning Series B and analogous rounds, experienced a sharp downturn, plummeting from 8% to a meager 1.4% during this same interval. Messari was keen to point out that this shift indicates a strategic bear market positioning by investors, who are diligently selecting projects that hold promise for substantial profits once the crypto market regains its positive momentum.

Interestingly, a discernible trend has surfaced in recent years, showcasing a shift in investor attention from later-stage projects to the earlier stages, a trend clearly evidenced in the distribution of deals across various stages in Q3.

Moreover, the report highlighted the upswing in strategic funding deals during this bear market, securing substantial financial injections from both corporate and private equity deals. The total funding share for strategic deals surged to an impressive 22% in Q3 2023, making a significant leap from the paltry 0.2% observed in the closing quarter of 2021. This surge is indicative of the adverse market conditions, compelling projects to explore short-term bridge rounds or contemplate acquisition by more substantial entities in the field.

DeFi and Gaming Garnered Significant Funding in Q3

In the realm of sector funding, Q3 witnessed the chain infrastructure, gaming, and decentralized finance (DeFi) sectors emerging as the most favored in terms of funding. The chain infrastructure sector secured the lion's share of capital at an impressive 18%, while DeFi witnessed the highest number of deals, and the gaming sector received a considerable influx of investments totaling around a substantial $250 million.

Notably, Messari emphasized that besides these top sectors, the services sector, encompassing critical auxiliary business functions such as marketing, incubators, security, and legal services, also managed to secure significant funding, boasting an average of over $100 million in the past 12 months. While acknowledging the importance of diverse sectors in fostering the growth of the crypto industry, it remains evident that these four sectors consistently hold the limelight, commanding the lion's share of investor attention as they strategically position themselves for the anticipated forthcoming bull market, diligently seeking projects with the potential to yield substantial profits.

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