Crypto VC Deals in 2023 Plunged 70% on Funding Constraints

Crypto venture capital (VC) funding dropped 70% in 2023, securing only about $10b in deal value.

That’s a drop from nearly $32b in 2022, which had nearly 90% more deals.

Galaxy Digital published a report Wednesday showing venture deal activity in the crypto sector last year.

It revealed lackluster activity through the fourth quarter, with 359 deals totaling nearly $2b in deal value. VC deal count hit its lowest point in 4Q since 2Q 2020’s 301 deals.

“As capital in the sector is continually constrained, funds are reaching capacity on deployment and later-stage winners are capturing remaining fund value,” Bailey York, data lead at VisionTrack, wrote in the report.

Most VC deals in 2023 were with early-stage companies, a trend that intensified during the year.

Only less than 20% of deals in 3Q and 4Q 2020 involved later-stage firms.

In the fourth quarter of 2023, late-stage venture deals — which occur after early-stage financing — made up just over 14% of total deal counts.

This was the highest percentage of late-stage deals seen in quarterly data categorized by stage, the report found.

Deals in the pre-seed stage accounted for about 9%, marking the lowest level since 1Q 2016.

The report further pointed out that VCs leveraged later-stage deal valuations and provided support to “prized” portfolio companies.

Looking at the top deals of 2023, only eight surpassed the $100m mark in deal value.

Some of the standout deals in the year were Wormhole with $225m, Line Next with $140m, Blockstream with $125m, LayerZero with $120m, and Worldcoin securing $115m. These were predominantly later-stage deals.

Crypto VC fundraising cools as market valuations normalize

In 2023, global VC funding in crypto and blockchain raised $5.75b. This was a substantial drop from 2022’s record of $37.7b, which was spread across 262 funds.

“As the market spent much of 2023 focused on passive/beta single-asset and multi-asset index offerings, crypto venture capital will likely return should crypto-native allocators aim to rotate to venture fund products later in 2024,” York said.

He emphasized the role of venture funds in supporting the blockchain/crypto ecosystem, by serving as the primary source of capital for new companies.

The report didn’t predict 2024’s crypto fundraising landscape. However, it highlighted that Bitcoin’s unique value proposition is underscored by geopolitical uncertainty and banking system turmoil.