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Newsletter: October - The State of Crypto VC Funding: Insights and Trends in 2023

To no one’s surprise, the venture capital (VC) funding landscape in 2023 is contracting compared to the gangbuster years of 2021-22. Per CBInsights, deal size, number of deals, and the total dollar amount are on pace to decrease significantly compared to the prior two years.

However, it is not all bad news. Despite the overarching challenges that have marked the VC fundraising environment, Q3 2023 witnessed venture funds amassing more than $1 billion, marking a potential reversal from the downturn initiated in Q3 2022. Furthermore, there was a modest increase in the launch of new funds, with the figure rising to 15 from the previous quarter's 12. However, it's crucial to note that median and average fund sizes remain considerably lower than their zeniths during bull runs.

Cryptocurrency financing in 2023 has painted a sobering image, bearing witness to a continued bearish sentiment that took its roots in early 2022. The data from the third quarter of 2023 reveals that this downturn is persistent, with fundraising totals resembling those observed at the close of 2020. In Q3 2023, the crypto industry amassed approximately $2 billion over ~300 deals. This represents a 35% decline in both overall funding and the number of deals from the previous quarter.

The funds' allocation across different sectors in Q3 mirrors the patterns observed in the preceding 12 months. Chain infrastructure, decentralized finance (DeFi), and the gaming segment are the sectors that predominantly drew investments. On the other hand, the services sector—which encompasses marketing, security, incubation, and legal services—was the only other segment that witnessed average funding in excess of $100 million during the past year. These four sectors stand out in an ecosystem teeming with potential, consistently drawing the lion's share of investor interest.

Chain Infrastructure: A Closer Look

The chain infrastructure segment was vital in fundraising, accumulating the most capital in Q3, albeit through merely 20 deals. Significantly, a third of these deals were centralized around the smart contract platform niche, suggesting the “L1 Wars” are not over yet.

However, an intriguing evolution is unfolding within the chain infrastructure domain. Scaling solutions garnered 44% of the total capital raised in this sector. Historically, Q1 2022 was a watershed moment when funding directed towards scaling solutions outstripped that of smart contract platforms. This trend was powered by Polygon's remarkable $450 million fundraising for its array of scaling solutions. Since then, this ratio of investments between scaling solutions and smart contract platforms has only surged, peaking at a staggering sevenfold during Q4 2022. This dramatic tilt can be attributed mainly to the diminishing investment activity in the smart contract platforms during that period.


The DeFi space has been one of the most affected sectors during this crypto bear market. It has witnessed a substantial reduction in funding, with just 175 DeFi funding rounds culminating in an aggregate investment of ~$780 million. The average investment per round stands at approximately ~$4.5 million. This marks a stark contrast to the preceding year, where ~340 funding rounds amassed a total of ~$3.6 billion, with an average of $10 million per round. This represents a decline of over 55% in the average sum raised per round, indicating a tightening of financial resources within the sector.

Despite the bearish trends, certain DeFi protocols have demonstrated resilience by securing substantial funding. This suggests that investor confidence in the potential of DeFi and cryptocurrency has not entirely waned. Notably, Blockchain Capital has raised $580 million, earmarked for investment in DeFi projects, gaming ventures, and infrastructure development. This substantial investment underscores a continuing belief in the long-term viability and transformative potential of decentralized finance.

Geography Trends

While the United States has historically been a powerhouse in the crypto startup arena, its dominance is now showing signs of fading. Although U.S.-based crypto enterprises were involved in over 35% of the total deals and drew in more than 34% of the venture capital, their market share faces stiff competition. Nations like the United Arab Emirates, Singapore, and the U.K. are emerging as formidable contenders. These countries have been proactive in adapting and evolving their regulatory frameworks around cryptocurrency, making them increasingly attractive to investors and startups alike.

Conclusion and Summary

The cryptocurrency venture capital (VC) sector remains mired in a bearish trend, raising pertinent questions about the possible depths the market might yet reach. Although the declining trend is noticeable across the broader venture capital landscape, nuances unique to the crypto ecosystem intensify its impacts. Amidst these challenges, the Q3 2023 data brings forth some significant observations.

While the present bear market casts shadows of concern, a comparison with previous downtrends offers a broader perspective. The activity in terms of both deal counts and capital investment remains approximately two-fold when juxtaposed against figures from the 2017-2020 bearish phase. This comparison suggests that despite short-term challenges, the startup ecosystem in the cryptocurrency realm has achieved substantial growth in the more extended temporal spectrum.

Macroeconomic challenges, especially elevated interest rates, have dampened the appetite for long-tail risk assets such as venture funds. This sentiment may be further exacerbated by the memories of the dramatic failures of multiple venture-backed firms in 2022. The unfavorable environment for fundraising is palpable when noting the similarities between Q2 2023—a period that observed minimal capital allocation—and Q3 2020, marked by the COVID-19 pandemic's peak and associated financial tumult. Yet, Q3 2023 hints at potential resurgences, as both new fund counts and allocated capital witnessed slight increments.

Our Take

At Event Horizon Capital (EHC), we believe select cryptoassets will outperform all other asset classes over the next five, ten, and possibly even twenty years due to their superior qualities as new money/assets for the internet age. Because of this, we seek the best risk-adjusted exposure to protocols that personify the blockchain benefits outlined above. With crypto markets being one of the world’s most dynamic markets, our agile and active management provides the flexibility required for swift, decisive action while also never compromising on security.

EHC’s multi-strategy approach is built upon:

  • Qualitative fundamental research,

  • Quantitative tools and valuation metrics

  • Narrative and sentiment-driven market swings

This newsletter from Event Horizon Capital is intended for informational and illustrative purposes only and has been prepared to provide insights on the market. It should not be construed as an offer, solicitation, or recommendation to buy or sell any security or financial instrument, nor participate in any investment strategy. The opinions and information expressed in this newsletter are as of the date it was written and are subject to change without notice due to various factors, including changing market conditions and regulations. This newsletter is not intended as investment advice and should not be considered as such. Third-party data presented in this newsletter is sourced and deemed reliable, but no guarantee is made as to its accuracy or completeness. All investments carry risk, and there is no assurance that any specific investment, strategy, or product referenced directly or indirectly in this publication will be profitable or suitable for your portfolio.


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