Venture capital deal flow into cryptocurrency startups is going in the same direction as the cryptocurrency market cap: down.
The total crypto market cap has fallen almost 59% from about $2.25 trillion at the beginning of the year to $923 billion at the time of publication, according to CoinMarketCap data.
“Deal activity tracks very closely to the crypto market cap,” Robert Le, fintech analyst at PitchBook, said to TechCrunch. “It’s a little bit of a lag, but if you overlay the crypto market cap to the amount of venture capital going into the space by quarter or month, it tracks closely.”
In the past two quarters, global crypto VC deal activity fell from all-time highs of $10.87 billion in the first quarter to $7.63 billion in the second quarter and $4.44 billion in the third quarter, according to PitchBook data as of October 3. The last time the total deal size was this low was in the first quarter of 2021, when the total was $3.46 billion.
“The deal count went down a lot,” Le said. “What you’re seeing is that the crypto companies that are getting investments are getting a bigger share compared to last year.”
Basically, investors are putting more money into smaller bets and companies or projects they feel “higher conviction” for, Le said.
“You look at check sizes, and they’re larger, especially at earlier stages this year. This means instead of spreading out smaller check sizes across a lot of different projects, they’re concentrating larger checks into a smaller number of projects.”
The top VC funding rounds this year include MoonPay’s $555 million Series A, Fireblocks’ $550 million Series E and FTX’s $500 million Series C round. All of those rounds occurred from January to April of this year, however.
In more recent months, the biggest crypto funding rounds were Mysten Labs’ $300 million Series B and Blockdaemon’s $253 million Series C in August and Aptos Labs’ $200 million Series A in July.
“We’re in a crypto winter and investors are being a lot more cautious,” Le said. “There’s a lot of uncertainty out there as I’m speaking to investors and companies; frankly, they’re having a hard time raising capital as investors slow down and deals aren’t happening as quickly.”
Even though overall activity is down, the total number of deals and dollars invested is edging closer to 2021 levels, with about $23.14 billion across 1,961 deals to date compared to $25.35 billion across 2,349 deals last year, PitchBook data showed.
“Overall, the deal value is going to be about last year’s amount or higher by the end of the year,” Le said.
Looking to next year, it’s hard to predict what will happen.
“Crypto is very cyclical,” Le said. “We have a high conviction that at some point [VC activity] will pick back up, but the timing of when is hard to say. Some say by the end of the year and I’ve heard other folks say the beginning of 2024.”
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