With 2023 more than half over, I was curious about where VCs were spending their money in crypto. So far in 2023, VCs have put $4.2B of Venture Capital into crypto-related projects – putting crypto on track to raise around $8B in 2023.
As we can see, however, the amount of capital flowing into crypto projects from VCs has plummeted from the highs of $36B in 2021 and $2B in 2022. Venture capital flowing into crypto projects in 2023 is more in line with 2017, 2019, and 2020. The declining interest in VCs is almost certainly due to bearish market conditions, tightening liquidity, higher rates, and the rise of new speculative vehicles from AI projects. It remains to be seen if VCs will come back to funding crypto projects, but given the returns some made when monetary conditions were looser, I would be surprised if they didn’t.
Regarding where VCs are putting capital, there were a few surprises. First, I was surprised to see Gaming so high and DeFi as low as it is. Since some crypto-games released in the last few years have struggled to retain players and mindshare, I would’ve expected less venture money. But the crypto-gaming thesis still seems to be going strong as crypto-gaming projects managed to raise almost $500M. DeFi being as low as it is, just around $300M in venture capital, is a sign of the time. DeFi projects have seemed to struggle to find use cases beyond speculation. VCs seem to be signaling they think the market is oversaturated by spending their crypto funds on non-DeFi projects.
Secondly, I must highlight VC spending on infrastructure. Given the excitement around LSDs, Ethereum moving to PoS, L2s, and other scaling solutions, it is no surprise that infrastructure plays were as popular as they were. The amount of VC spending on infra lends credence to my hunch that infrastructure plays in the future will be crowded. It also echoes some opinions on ETH-Paris I have seen that highlighted how everyone was talking about infrastructure and ignoring the App layer.
Some project raises, and VC spending were hard to categorize as it branched across several sectors and focused on AI. I generally grouped these projects under Misc. Given the popularity of AI throughout the year, it’s not surprising to see VCs focusing some money on those ventures that sit at the intersection of AI and crypto. All in all, 2023 is shaping up to be a challenging year for crypto projects looking to raise capital – which seems to suggest that there are great deals to be had out there with reasonable valuations.