2023 Second Quarter Encryption and Blockchain Venture Capital Report

Main Findings

• The risk investment in the encryption field has not yet bottomed out. The number of transactions slightly increased in the second quarter, but the total investment amount continues to decline.

• Valuations continue to decline. The median pre-investment valuation of cryptocurrency venture capital transactions in the second quarter dropped to $17.93 million, the lowest since the first quarter of 2021.

• Web3 companies dominate in transaction volume, while trading companies have raised the most funds. This continues the trend from the last quarter.

• The United States maintains a leading position in the encryption startup sector. American encryption startups account for over 43% of all transactions and more than 45% of the funds raised.

• The venture capital financing environment remains severe. In the second quarter, only 10 new encryption venture capital funds were established, raising a total of $720 million, the lowest since the third quarter of 2020.

Transaction Volume and Investment Scale

In the second quarter of 2023, the total investment in the encryption and Blockchain industry was $2.32 billion, setting a new cycle low and the lowest level since the fourth quarter of 2020, continuing the downward trend since the peak of $13 billion in the first quarter of 2022. The total funds raised by encryption and Blockchain startups over the past three quarters were lower than in the second quarter of last year.

Although capital investment has not yet bottomed out, trading activity slightly rebounded in the second quarter, with 456 transactions completed, up from 439 in the first quarter. This is mainly attributed to the increase in Series A transactions from 154 to 174.

From the perspective of capital investment, the early stage transactions before the seed and during the seed and Series A account for 73% of the total investment, while later stage transactions account for 27%.

Analyze by Company Establishment Year

The companies established in 2021 and 2022 completed the highest number of venture capital transactions in the second quarter. Unlike the first quarter, companies founded in 2022 raised the most funds, followed closely by those founded in 2021.

Geographic Distribution of Company Headquarters

American companies lead in both the number of transactions and fundraising. In the second quarter, American companies raised 45% of the encryption venture capital, followed by the UK ( 17.7% ), Singapore ( 15.7% ), and South Korea ( 15.4% ).

From completed transactions, American companies accounted for 43% of all cryptocurrency venture capital transactions, followed by Singapore (7.5%), the UK (7.5%), and South Korea (3.1%).

Trading Scale and Valuation

In the second quarter, the median pre-money valuation of cryptocurrency venture capital transactions fell to $17.93 million, the lowest level since the first quarter of 2022. The median transaction size was $3 million.

The decline in the scale and valuation of cryptocurrency venture capital transactions is consistent with the overall venture capital industry.

Segment Analysis

Transaction, investment, and lending startups raised the most venture capital in the second quarter with 14.73 billion dollars, accounting for 20%(. Web3, NFT, gaming, DAO, and metaverse startups ranked second, raising 4.42 billion dollars, accounting for 19%.

LayerZero has completed the largest transaction of the quarter, raising $120 million in Series B funding. Magic Eden completed the largest Web3/NFT transaction, raising $52 million. Auradine completed the largest infrastructure transaction, raising $81 million. River Financial completed the largest exchange transaction, raising $35 million.

In terms of transaction volume, companies in the Web3 gaming, NFT, DAO, and metaverse sectors remain at the forefront, followed by trading, exchange, investment, and lending companies. This trend is consistent with the previous quarter. Notably, the transaction volume of privacy and security product companies saw the largest month-on-month increase of 275%, followed by infrastructure with a 114% increase.

![2023 Q2 Investment and Financing Report: Total Investment Decreased Month-on-Month, with the United States Dominating])https://img-cdn.gateio.im/webp-social/moments-d4a8f374d10a613f2ced485a337d79f2.webp(

![2023 Q2 Investment and Financing Report: Total Investment Amount Decreases Month-on-Month, the United States Dominates])https://img-cdn.gateio.im/webp-social/moments-90fe2e18da98bd9c24c13330e8c8802a.webp(

![2023 Q2 Investment and Financing Report: Total Investment Amount Decreased Month-on-Month, the United States Dominates])https://img-cdn.gateio.im/webp-social/moments-23c93f145a8bf510fb4777597cfce24c.webp(

![2023 Q2 Investment and Financing Report: Total Investment Decreased Month-on-Month, the United States Dominates])https://img-cdn.gateio.im/webp-social/moments-f5176662379574736c28c9413eb8fd72.webp(

![Q2 2023 Investment and Financing Report: Total Investment Amount Declines Month-on-Month, US Dominates])https://img-cdn.gateio.im/webp-social/moments-950e446b5f66bee208c7a3b5034e7cc7.webp(

Venture Capital Fundraising Status

The number of new funds issued in the second quarter was 110, and the fundraising scale was 1.72 billion US dollars, both of which hit new lows since the third quarter of 2020.

In the first half of 2023, the average size of new funds was $236 million, with a median of $50 million, both significantly down from last year.

![2023 Q2 Investment and Financing Report: Total Investment Amount Decreased Month-on-Month, the United States Dominates])https://img-cdn.gateio.im/webp-social/moments-97b820f9dac58386d9e7fc39c6345953.webp(

![2023 Q2 Investment and Financing Report: Total Investment Amount Decreased Month-on-Month, United States Dominates])https://img-cdn.gateio.im/webp-social/moments-0b1ef361ea3a3462f38e6f3672071074.webp(

Analysis and Conclusion

The encryption venture capital bear market continues. Although the number of transactions remains stable, the total investment amount continues to decline. This trend is consistent with the challenges faced by the broader venture capital industry.

Compared to the previous bear market, current cryptocurrency venture capital activities are still active. The number of transactions and the scale of investment are still about twice that of the bear market period from 2017 to 2020, indicating that the entrepreneurial ecosystem will continue to achieve net growth in the long term.

Venture capital firms are facing a challenging fundraising environment. Rising interest rates have reduced investors' appetite for risk assets. Coupled with the sluggish prices of crypto assets and several venture capital-backed companies facing setbacks in 2022, venture capital firms are struggling to raise funds in 2023.

The lack of new venture capital will continue to put pressure on founders. It is more difficult for venture-backed startups to secure funding this year, and this trend is expected to continue in the foreseeable future. Founders need to focus more on revenue and sustainable business models, and be prepared to accept smaller funding rounds and give up more equity.

The trading activity of seed rounds remains stable in the early stages. Although there is a slight decline compared to the previous quarter, the number of seed round transactions has basically remained unchanged. In the early stages, transactions of ) seed rounds and A rounds ( account for nearly 75% of all transactions, indicating that despite the overall gloomy environment, entrepreneurs are still active, and venture capital remains attentive. As seen in the previous bear market, astute investors may discover treasures among resilient entrepreneurs who thrive in adversity.

The United States continues to dominate the encryption startup ecosystem. Despite a regulatory environment that is not very friendly, U.S. crypto startups still attract the vast majority of venture capital funding. The dominant position of U.S. companies in the encryption ecosystem provides U.S. policymakers with the opportunity to retain top talent by formulating forward-looking policies that promote technological and financial innovation and maintain a leading position in the future economy.

Web3 maintains a leading position in the number of transactions, while trading-related projects still receive the most investment. This multi-quarter trend shows that traditional profit models, such as exchanges and trading tools, have raised the most funds, but emerging companies in the Web3, DAO, metaverse, and gaming sectors have completed the highest number of individual transactions.

![2023 Q2 Investment and Financing Report: Total Investment Amount Decreased Month-on-Month, with the US Dominating])https://img-cdn.gateio.im/webp-social/moments-96a571d98a7b53f9ff7cde75fa9a299c.webp(

![2023 Q2 Investment and Financing Report: Total Investment Amount Decreased Month-on-Month, the United States Dominates])https://img-cdn.gateio.im/webp-social/moments-5249e459e7133edb1a3bbabb1afe7f6e.webp(