Web3 startup funding is definitely not picking up steam, but it might be beginning to stabilize — which is essential after a few quarters that looked like they were going to collapse.
Web3 startups raised just over $2 billion in the just-ended second quarter, based on Crunchbase data — a very slight increase from the $1.8 billion raised in Q1. However, it is down 18% from Q2 last 12 months, when such startups raised $2.2 billion.
It was also the second consecutive quarter in which funding for Web3 startups increased, following eight consecutive quarters of declines.
Funding in the first half of the 12 months, which totaled $3.7 billion, was down 18% in comparison with the first half of 2023 but up 42% in comparison with the second half of last 12 months, when funding for blockchain and cryptocurrency startups fell sharply.
Big money
While funding was higher than in the previous three quarters, there was a lack of enormous funding rounds, with only seven reaching $50 million or more.
The presence in New York was a great help in obtaining these numbers Monad Laboratories locking down Web3’s largest funding round up to now this 12 months, raising $225 million in funding led by Paradigm. Monad is a Layer 1 blockchain that is compatible with the Ethereum virtual machine but can process transactions faster using the same algorithm. The round is harking back to the 2021-22 era, when Layer 1 protocols similar to Aptos Laboratories raised on a large scale.
Other major Web3 rounds in Q2 include:
- Based in Los Angeles FarcasterEthereum-based decentralized social network raises $150 million in Series A funding led by cryptocurrency investor Paradigm valuing the company at $1 billion.
- BerachainEthereum-compatible blockchain for financial applications, raises $100 million in a funding round led by BH Digital AND Framework projects valuing the company at $1.5 billion.
- Based in Santa Clara, California AuradinBitcoin mining hardware and artificial intelligence provider, has raised $80 million from a handful of investors including Mayfield Fund 1 AND Celesta Capital.
In addition, Humanity Protocolblockchain platform for creating unique identities using biometrics, raises $30 million in seed funding led by Kingsway Capital which earned the company the title of “unicorn” despite the fact that it existed for only a 12 months.
What’s next?
The obvious query is: are we approaching a tipping point for Web3?
The industry could also be in crisis as investors pull out of the sector, with funding falling to a low of $1.2 billion in the fourth quarter of last 12 months.
The second quarter of this 12 months marked a second consecutive increase in funding — albeit only moderately — and there look like significant underlying trends that suggest the industry is having fun with renewed investor interest.
Monad’s funding round, like others, seems to point out that investors are once again interested in building out the sector’s infrastructure — something that’s mandatory if firms wish to build an effective application layer.
Also, while crypto is not the be-all and end-all of Web3, it is closely related. That’s why its resilience is value mentioning. Bitcoin is up 69% in the last six months, while Ether is up almost 49%.
Bitcoin’s run continues, even after the much-talked-about halving a few months ago. In fact, the digital asset appears to be gaining popularity as more and more financial institutions look so as to add U.S. ETFs that hold Bitcoin.
But the numbers aren’t all positive. Deal flow fell by about a quarter in Q2, with only 292 rounds announced. That means fewer firms are getting funded. Maybe it’s just investors becoming more selective about what they invest in when it involves Web3. Or possibly it’s a sign that there are fewer attractive firms on the market and/or investors are placing fewer bets on startups.
The next quarters should provide an answer about the way forward for Web3 financing.
Methodology
To obtain Web3 funding data, we analyze enterprise capital-backed startup investments in each cryptocurrency and blockchain technology.