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Funding to Web3 startups certainly isn’t taking off, but perhaps it is stabilizing — which is important after a few quarters where it looked certain to crater.
Web3 startups locked up just more than $2 billion in the just completed second quarter — per Crunchbase data — a very slight uptick from the $1.8 billion raised in Q1. However, it is an 18% drop from Q2 last year when such startups raised $2.2 billion.
It also represents the second straight quarter where funding to Web3 startups has increased — after eight consecutive quarters of decline.
First-half funding, which totaled $3.7 billion, was down 18% from H1 2023, but up a big 42% from the second half of last year when funding to blockchain and crypto startups plummeted.
Big money
While funding was higher than in the past three quarters, there was a dearth of big rounds, as only seven hit $50 million or more.
The numbers were greatly helped out by New York-based Monad Labs locking up the biggest Web3 round of the year thus far, collecting $225 million in a funding led by Paradigm. Monad is a layer-1 blockchain compatible with the Ethereum Virtual Machine but can process transactions using the same set of rules faster. The round is reminiscent of the 2021-22 era when layer-1 protocols like Aptos Labs raised big.
Other big Web3 rounds of Q2 include:
- Los Angeles-based Farcaster, a decentralized social network built on Ethereum, raised a $150 million Series A led by crypto investor Paradigm that values the company at $1 billion.
- Berachain, an Ethereum-compatible blockchain for financial applications, locked up a $100 million round led by BH Digital and Framework Ventures that values the company at $1.5 billion.
- Santa Clara, California-based Auradine, a provider of bitcoin mining and AI hardware, raised an $80 million round from a handful of investors including Mayfield Fund 1 and Celesta Capital.
In addition, Humanity Protocol, a blockchain unique-identity platform using biometrics, raised a $30 million seed funding led by Kingsway Capital that minted the company a unicorn despite it being less than a year old.
What’s next?
The obvious question is — are we at an inflection point for Web3?
It seems possible the industry is through the worst of investors pulling back on the sector, with funding dropping to a low of $1.2 billion in Q4 of last year.
This year’s second quarter marked the second consecutive increase in funding — although just moderately — and there seems to be significant underlying trends to believe the industry is seeing renewed investment attention.
The Monad round, along with others, seems to show investors are back to being interested in building up the infrastructure of the sector — something necessary if companies are to build a successful application layer.
In addition, while crypto is not the be-all and end-all of Web3, it is closely tied. Therefore its resilience needs to be mentioned. Bitcoin is up 69% in the past six months, while Ether has increased nearly 49%.
Bitcoin’s run has continued even after its much talked about halving event occurred several months ago. In fact, the digital asset seems to only gain more popularity as more financial institutions look to add U.S. exchange-traded funds that hold Bitcoin.
However, not all numbers are positive. Deal flow shrank by about a quarter in Q2, with only 292 rounds announced. That means fewer companies are getting funded. Perhaps that’s just investors getting more particular about what they are investing in when it comes to Web3. Or perhaps it shows thatvfewer compelling companies are in the market and/or investors are placing fewer bets on startups.
The next few quarters should be telling as to the future of Web3 funding.
Methodology
For Web3 funding numbers we analyze investments made into VC-backed startups in both cryptocurrency and blockchain.
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