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Crypto fundraising trends

Crypto fundraising trends

Investors are no longer asking why but how to enter crypto. Nearly 9 in 10 investors surveyed by Fidelity Digital Assets said they found digital assets appealing, while “only” 52% currently hold them in their portfolio. There are presently many gateways into crypto available for the remaining 48%. New ones pop out now and then—the latest, the brand new Bitcoin futures ETF available for US investors.

There are broadly three ways for institutional investors to approach crypto: direct purchase of cryptoassets investment in crypto-related funds or products, and last but not least, investing in crypto startup fundraising rounds.

Venture Capital is one of the strongest signals of optimism in the ecosystem. While other types of investment might seek fast returns, venture capital is, by definition long-term focused, and motivated by trust. VC investors hand money to builders who they believe can bring future profits.

In first three quarters of 2021, venture capitalists poured a record $21.4 billion into cryptocurrency and blockchain-related companies, in 1,196 deals, according to Pitchbook, a market data provider. That is more than five times as much money compared to last year. How Venture Capitalists Think Crypto Will Reshape Commerce (NYTimes)

5x. That’s how much more trust VCs have poured into the system.

According to Pitchbook, too...

...a larger and larger percentage of total global venture funding is finding its way into the blockchain/ cryptocurrency ecosystem, with that number rising from 1.6% in 1Q20 to 4.7% in 3Q21. Strong Crypto Fundraising Trends Set to Continue (GSR.io)

Fundraising monitoring company Dovemetrics recently published their Q3 report, where they break down the investments into categories:

  • CeFi. It stands for Centralized Finance and includes companies offering crypto-based financial services, such as exchanges, loans, etc. Coinbase or Binance are examples of CeFi companies.
  • DeFi is for organizations building Decentralized Finance protocols, like Uniswap, Curve, or Balancer, where users interact with the platform without an intermediary.
  • Web3 is currently a miscellaneous category that encompasses projects building blockchain or crypto versions of more traditional services. Decentralized social media, software frameworks, blockchain analytics fit within this category. Research firm Messari, which provides data dashboards, intelligence reports, and real-time coverage of assets, was one of the Web 3 funding round recipients lately.
  • The infrastructure category includes projects setting the technical foundations for other projects to work, such as Layer 1 and Layer 2 protocols or mining companies. For example, smart contracts platform Avalanche or mining company Genesis Digital Assets have raised rounds of over $200M this quarter.
  • NFTs include every company in the orbit of this new asset: marketplaces, gaming companies, or metaverse builders.

According to Dovemetrics, Q3 brought $8.2B to the ecosystem, a 47% increase over Q2. While the most significant slice of the pie belongs to Centralized Finance, which attracted half the funds ($4.1B), the most outstanding growth comes from the NFT sphere, with a 249% increase in funding and more than $1B. DeFi, on the other hand, was a little underwhelming.

Interestingly enough, while funding has significantly increased in capital raised, the number of rounds has not grown proportionally. Instead, Q3 has seen larger rounds, led by the likes of FTX’s $900m round in July, Revolut’s %800M, or Sorare’s $680M.

Maybe an even stronger signal of optimism comes from the fundraising activity of venture capital firms themselves. Andreessen Horowitz leads the way: after their $2.2B fund launched mid-year, the firm is putting together an even bigger fund, probably going up to $6.5B.

Besides the breathtaking numbers of A16Z, there are dozens of VCs raising funds. Even Sequoia is planning a structural change to make the firm better positioned to invest in crypto.

“The history of crypto shows that asset prices may fluctuate, but innovation continues to increase through each cycle.” Andreessen Horowitz dixit.