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Fifteen charts to understand the 2022 crypto VC investment changes

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Pre-seed investment deals have been declining for years, with Web3 accounting for the majority of investments, and the US still dominating the crypto startup ecosystem

原文标题：《2022: Crypto VC Comes Down to Earth 》

Original article by alex thorn

The DeFi way

introduction

In 2022, Crypto VCS invested a total of $30 billion in Crypto startups, which is very close to the $31 billion invested in 2021. Most of these investment records occurred in the first half of this year, as the macro environment and crypto market's poor performance in the second half of the year led to a sharp contraction of investment records in Q3 and Q4, and even in the fourth quarter, the number of VC investments and the amount of money hit a two-year low. Among the new investment trends, an increasing number of institutions are favoring late-stage companies, while pre-seed round investment records continue a multi-year downward trend. Among the investment domains, the number of companies in the Web3 category accounted for the largest proportion, and the companies involved in the construction of trading and investment vehicles raised the most funds.

VC investment and investment amount

In terms of the number and amount of investment deals, 2022 ranks second in the history of cryptocurrency VC, second only to 2021.

Throughout 2022, from Q1 to Q4, the number of investments and the amount invested declined quarter-on-quarter. In the third and fourth quarters, companies in the industry raised $6 billion (366 deals) and $2.7 billion, respectively, a drop of more than 50% in a single quarter.

In the first quarter of 2022, the crypto VC industry hit a record high of $13 billion in investment and 1,100 deals. Following the rise in US dollar interest rates, the worsening macroeconomic environment, and the volatility of the capital markets, investors' interest in the crypto sector has decreased significantly. Crypto VC transaction number and investment amount also began to continue to decline, crypto VC market in the fourth quarter of 2022 performance is even less than the same period of 2018 level.

VC investment and Bitcoin price

The trend in venture capital continues to track the price of bitcoin, which hit a recent low in the fourth quarter of 2022, and VC investment, which also hit a low in the fourth quarter.

VC investment stage

The number of investments in early-stage companies decreased significantly, while the number of investments in late-stage companies remained relatively stable, but the proportion of late-stage investments also rose to more than 40%.

When examining the amount of investment at different stages of development, the decline in investment deals involving early stages of development was particularly marked, with the fourth quarter of 2022 being the first quarter on record in which late-stage deals exceeded pre-seed deals.

Valuation and deal size

The median deal size and valuation for Q4 2022 was the lowest since the first quarter of 2021, continuing a downward trend throughout the year.

While valuations of crypto companies declined in the fourth quarter, the overall venture capital market saw a slight increase.

Investment map

In Q4 2022, in the Web3 / NFT/DAO/Metaverse/Gaming (" Web3 ") in the field of investment accounts for the vast majority of trading, all the deals completed in the fourth quarter of 2022, 31% of the investment to Web3 start-up company, Trading, investing and lending (" trading trading ") came in second at around 13 per cent.

However, in terms of the amount of money invested, the largest amount of money was invested in startups involving "deals" compared to the smaller and earlier investments in the Web3 category, indicating that this emerging niche and narrative is in its early stages.

Phases and categories of investment

When we break down investment deals by industry category and stage of development, we find that most of the investment goes to Web3 companies in the early stage of development. More than 50% of investments in the Web3, Wallet, Privacy/Security, Compliance and mining categories occurred in the seed round and pre-seed, while 60% of investments in the transaction and data categories occurred in the A round and later.

The picture is different when measured by the amount of money invested, with media/communications/education spending higher in the early stages and custodial spending higher in the later stages.

The US continues to dominate the Crypto VC market, with more than 40% of investment deals going to startups based in the US.

Crypto VC fund

In the current macro environment, it is difficult for investment institutions to raise funds due to investors' reconsideration of investment risks or direct withdrawal of investment, especially with the decline of crypto asset prices and market turmoil, which further worsens such difficulties. In the Q4 of 2022, Both the number of crypto VC funds and the total amount of crypto fund fundraising have hit a new low in the past two years.

However, on a full-year basis, 2022 was still the largest year for crypto VC fundraising, with more than 200 funds raising over $33 billion, a significant increase from the $19.4 billion raised by 140 venture funds in 2021.

Looking at the whole VC market, more than 200 funds will be raised in 2022, with the average size of each fund exceeding $160 million. The active VC fundraising market in the first half of 2022 was driven by the crypto narrative of 2021, with several prominent large fund fundraising pushing up the final total, a16z, Hivemind, Ribbit Capital and Haun Ventures, among others, have launched their own sizeable investment funds in 2022.

Key points

2022 was an important year for crypto VC. Despite declining investment interest throughout the year, the VC market continued to perform in 2022 in line with the explosive year 2021, indicating that despite the general decline in asset prices in 2022, the momentum of the 2021 boom continued. Still, the continued decline in the number of deals, the amount of money being invested and the amount of funds being raised points to a tough time ahead for all concerned.

The crypto VC industry environment has become very difficult for project founders and investors. The entire crypto market has been severely disrupted due to asset prices and some infrastructure collapse, while macroeconomic turns and monetary policy uncertainty have dampened crypto VC fund allocations, with VC investment in the fourth quarter of 2022 reaching its lowest level in nearly two years. The decrease in capital flow to crypto VC has led to a decrease in start-up investment, and this capital squeeze has led to lower project valuations and more stringent investor requirements, which have combined to make the funding environment for crypto entrepreneurs even more difficult. In 2023, startups should focus on fundamentals, control operating expenses, and increase revenue.

Pre-seed investment deals have been declining for years. In the fourth quarter of 2022, late-stage investment deals surpassed pre-seed deals for the first time, a trend that highlights the maturation of the crypto industry but also points to a future with fewer new companies and products.

Web3 accounted for the majority of investments, and "trading" related investments accounted for a higher proportion. Web3 funding continues to lead VC investment, accounting for more than 30% of all closed deals in Q4 2022, and a large number of early-stage companies are building in the Web3 space, particularly in the NFT sub-space. In addition, companies building platforms and tools for trading and investment continue to dominate in terms of funding amounts, demonstrating the importance and growing maturity of market infrastructure in the crypto ecosystem.

The US still dominates the crypto startup ecosystem. Startups based in the United States accounted for more than 40 percent of deals completed in the fourth quarter of 2022, with Canada and Switzerland tied for second place at 2.5 percent. The importance and leadership of the United States in the crypto industry provides a compelling reason for U.S. policymakers to establish rules and regulations for this emerging field.