According to a recent report by Pitchbook, venture capital (VC) funding for crypto and blockchain startups fell by 80% in the first quarter of 2023 compared to one year ago.
This decline in funding has been described as a ‘dire quarter for startups.’ PitchBook data shows that private funding for crypto startups hit a new low in Q1 2023, marking the lowest level since 2020.
PitchBook indicates that there was an 80% decrease in global VC funding for crypto startups in Q1 2023, with funding dropping to $2.4 billion from its record high of $12.3 billion in the same period in Q1 2022.
Robert Le, a crypto analyst at PitchBook, stated that the decline in VC funding for the crypto industry is not unexpected, as venture investing has decreased across various sectors. Along with the increase in interest rates, the quarter also witnessed the collapse of Silicon Valley Bank, a financial institution that many venture-backed companies depended on, which contributed to the decline in funding.
“There’s still a lot of fear about what’s going to happen since the macro environment is still very uncertain,” Le said.
Le says the collapse and bankruptcy of FTX has led to a slower pace of funding rounds and reinforced the importance of due diligence. Venture capitalists are said to be taking a more cautious approach in their investment decisions opting to conduct thorough research and asking more questions of founders before committing to deals, instead of rushing into them.
Still, Le pointed out that despite the overall decline in global VC funding for crypto startups in Q1, there was a slight increase in funding in February and March 2023 suggesting the worst of the drought may be over.
The analyst maintains that venture investors still have funds available to back crypto startups and there is still interest in investing in infrastructure startups, data analytics firms, and developer platforms.
“We’ll slowly start seeing investors get more comfortable,” Le said.