Venture capital investments in crypto startups hit a 2-year low in the fourth quarter of 2022, capping a year that witnessed a dramatic shift from start to finish.
According to a new report from Galaxy Digital, investments into crypto startups totaled less than $3 billion on fewer than 400 deals in the fourth quarter of last year, the lowest for both measures since the fourth quarter of 2020.
This decline capped a year that began with a record number of deals and capital flooding the space in the first quarter of the year, with nearly $13 billion raised by startups.
Raises in the first half of the year were driven by major players with freshly raised funds from 2021, including major players such as Andreessen Horowitz, Ribbit Capital and Haun Ventures.
Coinbase Ventures, Animoca Brands, Jump Crypto, and GSR Capital, as well as the now bankrupt Alameda Research, were among the most active venture investors by deal count.
"Startups will need to be laser focused on fundamentals, taming operational expenses, and driving revenue in 2023," said Alex Thorn, head of research for Galaxy Digital.
U.S.-based crypto startups continued to dominate venture investments for the space, taking more than 40% of all deals for the year.
According to a 2023 outlook on digital assets by The Block Research collected from a spreadsheet shared with the Financial Times, Alameda invested $3.2 billion in equity and token investments in startups.
Despite a year-on-year decline in overall venture capital deal sizes, valuations across the broader VC market rose slightly in the fourth quarter while crypto prices dropped.
The report also found startups focused on crypto trading took the bulk of venture dollars, while so-called "web3" companies, which can range from NFTs and the metaverse to blockchain gaming, made up the largest portion of funding by deal count in the second half of the year, taking 41% and 31% of deals in Q3 and Q4, respectively.
In a separate end of year report, crypto data platform Messari also noted that in addition to VC investments in early stage crypto companies slowing in the second half of the year, "there's less dry powder for later stage crypto deals."
"The companies that raised in 2021 and 2022 should have lengthy runways — if they’re smart… but I’m not confident that many up only founders will make the adjustments necessary to survive beyond then," said Ryan Selkis, Messari co-founder and CEO.
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