2023 Q2 Blockchain and Encryption Venture Capital Analysis Report

Overview

In the second quarter of 2023, venture capital in the encryption sector continued to be sluggish. Although the number of transactions slightly rebounded, the total investment amount continued to decline. Valuations have fallen to their lowest levels in nearly two years, with the United States still dominating the encryption startup field. The financing environment remains challenging, and the number and scale of newly established encryption venture capital funds have hit a new low in nearly three years.

Main Findings

• The total investment continues to decline, dropping to $2.32 billion in the second quarter, the lowest since the fourth quarter of 2020.
• The trading volume slightly rose to 456 transactions, mainly due to an increase in Series A transactions.
• Early stage transactions ( Pre-Seed, Seed stage, and Series A ) account for 73% of the total investment.
• American companies account for 45% of the investment amount and 43% of the transaction volume, far ahead of other countries.
• The median transaction size is $3 million, and the pre-money valuation median has dropped to $17.93 million.
• Web3-type enterprises have the highest number of transactions, and trading enterprises have obtained the most funding.
• The newly established 10 cryptocurrency venture capital funds have only raised $720 million, the lowest in nearly three years.

Trading Scale and Valuation

The median for cryptocurrency venture capital transactions in the second quarter was $3 million, with the median pre-money valuation dropping to $17.93 million, the lowest level since the first quarter of 2021. This trend is consistent with the overall venture capital industry.

Investment Hotspots

• Trading, investment, and lending startups received $473 million in funding, accounting for 20%.
• $444 million was raised in the fields of Web3, NFTs, gaming, DAOs, and the metaverse, accounting for 19%.
• LayerZero completed a $120 million Series B financing round, the largest single transaction.
• The number of transactions for privacy and security product companies increased by 275% month-on-month, while infrastructure-related transactions grew by 114%.

Venture Capital Fundraising

In the second quarter of 2023, 10 new crypto venture capital funds were established, raising a total of $720 million, the lowest level since the third quarter of 2020. The average size of new funds in the first half of 2023 was $236 million, with a median of $50 million, a significant decrease compared to last year.

Analysis and Outlook

• Despite the decline, current investment activity is still about twice that of the bear market period from 2017 to 2020.
• In a high-interest-rate environment, venture capital financing is difficult, and founders face greater pressure.
• Early trading activity remains high, accounting for about 75% of total transactions.
• The United States continues to dominate the cryptocurrency startup ecosystem, and regulatory policies need further clarification.
• The number of transactions in the Web3 field is leading, and transaction-related enterprises have received the most funding, a trend that has continued for multiple quarters.