In 2022, capital is being deployed in crypto month after month at a less remarkable pace, but in the grand scheme of things, levels are significantly higher than last year, showing that the space has matured significantly and the bar is now much higher.
According to Dove Metrics data, total venture capital funding in the crypto space fell 38% from $6.829 billion in April to $4.219 billion in May. While the amount of capital invested in crypto has declined in the near term, it is significantly higher than a year ago: the amount of capital invested in the space increased 89% last month from $2.233 billion in May 2021.
Funding may have declined over the month due to the widening gap between private and public market valuations for equities and decentralized networks, Will Nuelle, an investor at Galaxy Digital Principal Investments, told Marketingwithanoy. †[It] has resulted in venture capitalists being stricter on valuations and has led to ever-widening spreads between founders’ requests and investors’ bids.”
According to Stan Miroshnik, partner and co-founder of 10T Holdings, there is definitely a valuation reset going on right now.
“For investors like us, it’s time to buy,” Miroshnik told Marketingwithanoy. “Valuations have come in and great companies are now available at a more reasonable price.”
“In general, there is a big difference between people who are on the surface to understand this space – those funds can take a back seat – but true crypto-native funds will continue to invest heavily with conviction,” Saurabh Sharma, head of investment at Jump Crypto, told Marketingwithanoy. “This time we find the best long-term-minded entrepreneurs.”
In terms of where the funding is going, blockchain infrastructure sees the most capital at 21%, followed by decentralized finance, centralized finance, NFTs and other web3 categories, Dove Metrics data showed. Decentralized autonomous organizations (DAOs) had the least investment at 2%, it said.
A shift towards an investor-friendly market
“Private and public market valuations are both taking a hit,” Gabe Frank, CEO and co-founder of Arcade, told Marketingwithanoy. “Crypto is an asset class with risk and funding can dry up quickly.”
The market has been founder-friendly for the past two years, but is now shifting to an investor-friendly market, Frank said.
“Financing for smaller projects that rely on token grants and early liquidity events is beginning to decline. VC capital is mostly on the sidelines, but will remain committed to tier-1 projects with clear market opportunities and solid foundations.”