VC funding for crypto projects fell in May, but many investors remain bullish

In 2022, capital is being deployed into crypto at a less noteworthy pace month over month, 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.

Total venture capital funding in the crypto space fell 38% from $6.829 billion in April to $4.219 billion in May, according to Dove Metrics data. Even though the amount of capital deployed into crypto is down in the short term, it’s significantly higher than levels from a year ago: The amount of capital invested in the space last month increased 89% from $2.233 billion in May 2021.

Funding may have dropped on the month due to the growing chasm between private and public market valuations for equities and decentralized networks, Will Nuelle, an investor at Galaxy Digital Principal Investments, said to TechCrunch. “[It] has caused venture investors to be tighter on valuations and has caused increasingly wide spreads between founders’ asks and investors’ bids.”

There’s definitely a valuation reset going on right now, according to Stan Miroshnik, partner and co-founder of 10T Holdings.

“For investors like us, it’s time to buy,” Miroshnik told TechCrunch. “Valuations have come in and great companies are now available at a more reasonable price.”

“Generally, there is a big difference between people who are at the surface of understanding this space — those funds might take a backseat — but true crypto-native funds with conviction will continue to invest heavily,” Saurabh Sharma, head of investments at Jump Crypto, said to TechCrunch. “This time is where we find the best long-term-thinking entrepreneurs.”

As for where funding is going, blockchain infrastructure is seeing 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 investments at 2%, it said.

A shift to an investor-friendly market

“Private and public market valuations are both taking a hit,” Gabe Frank, CEO and co-founder of Arcade, said to TechCrunch. “Crypto is a risk-on asset class and funding can dry up quickly.”

The market was founder-friendly for the past two years, but now it’s shifting into an investor-friendly market, Frank said.

“Financing for smaller projects that depend on token subsidies and early liquidity events is starting to fade. VC capital is mainly on the sidelines but will continue to deploy to tier-1 projects with clear market opportunities and sound fundamentals.”