Lo and behold, we’re already halfway into 2023, which means we’re only a couple weeks away from brand new, sizzling data on the second quarter. However, it’s always wise to keep an eye on the horizon, so we’ve decided to draw the few conclusions about web3 and unicorn funding trends that we can from early data on the past three months.
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I think it’s fair to call the fervor that drove investors to throw money web3 startups a feature unique to the last venture boom. Neither capital nor enthusiasm around fintech were in short supply in those months, and investors poured tens of billions of dollars into blockchain-focused startups that wanted to shake up the world of money and value management.
Firm believers in crypto are resolutely holding the line, but early data on the second quarter indicates that many venture investors are running for cover.
Going by the early numbers, there’s been a decline in the value of venture investment in unicorns and companies close to growing a horn. Indeed, that metric is close to record lows.
The gist is that the prevailing pessimism in the air is wearing down these once-key pillars of venture volume.
So there you have it: Today, we’re going over the bad news. In the coming days, The Exchange will explore a few trends that we consider very positive for startups. But first, here are the charts that don’t point up.
Down but not out
Despite the recent recovery that several key cryptocurrencies like bitcoin and ether have enjoyed, venture capital investment in web3 startups has been trending lower again. Crunchbase data indicates that web3 funding is likely to land around the $1.5 billion mark in the second quarter, about half-a-billion less than the $2 billion the space saw in the first quarter and miles from the $10 billion the category recorded in Q4 2021 and Q1 2022 each.
Compared to those peak quarters, web3 venture funding is set to decline more than 85% in Q2 2023, implying that while there is still capital for leading startups, the middle class of crypto companies have likely been unmoored and left to fend for themselves in today’s orca-laden seas.
One reason why the web3 data seems so pessimistic is that funding for unicorns is also falling sharply.
A separate Crunchbase dataset indicates that funding for unicorns totaled $39.2 billion so far this year. That is a lot of money, sure, but it’s quite dismal compared to the $131.2 billion that unicorns raised in 2022 or the $285 billion the group raised in 2021. If we estimate that unicorn fundraising totals $40 billion in the first half of 2023 to account for the final few days of the second quarter, we’re on pace for $80 billion this year. That’s 39% less than last year and 72% less than 2021.
Capital raised by what Crunchbase calls “emerging unicorns” has similarly tumbled to $2.4 billion thus far in 2023 from $19.1 billion in 2021. If we bump this year’s figure to $2.5 billion to account for the rest of Q2 and annualize it, funding for emerging unicorns could decline 74% this year compared to 2021 if investing patterns remain steady.
So what?
Why are we connecting the value of investments in web3 companies with total venture investment in unicorns? Because those two categories overlapped quite a bit not that long ago.
Observe the following TechCrunch+ riff from 2022:
[R]umor is out that OpenSea, an NFT platform, is considering raising capital at a $10 billion valuation. The company was last valued at $1.5 billion earlier this year. That’s the sort of valuation appreciation that some crypto startups are enjoying today.
The result? There are now 64 total crypto unicorns. And, per The Block Research, that figure has grown by 39 so far in 2021. Simply: More than half of the global crypto unicorns reached the $1 billion threshold this year alone.
It’s not a shock that web3 funding and unicorn funding peaked around the same time — we’re often talking about the same companies when we consider each separately.
When we get more data, it will be interesting to explore the fate of the smaller and younger cohort of crypto companies. After all, new startups’ fortunes in these less exciting economic times could set the stage for the next generation of web3 giants.
This data is preliminary, but it likely will not change the key narratives in startup land today: The times are hard and cash is God. We’ll dig more into those points as the week continues.