While all things Web3 dominated much of 2021 and the early part of last year, the end of 2022 showed a significant cooling of investor interest in the still-young space.

Market weakness is not unusual, considering the significant pullback in VC spending seen globally and investors likely turning to more mature and proven industries.

However, the crypto winter and the instability of the digital asset market have also undoubtedly led investors in a different direction, something that will likely be exacerbated by the dramatic collapse of FTX.

The last quarter of last year turned out to be the most brutal, as funding fell a staggering 74% over the same quarter of 2021, dropping from $9.3bn to just $2.4bn, according to Crunchbase. data. The total dollar amount also makes it the lowest quarterly total since only about $1 billion went to startups in the fourth quarter of 2020.

The fourth quarter continued a clear downward trend in investment in the space, as trading fell every quarter of the past year. Deal flow also declined quarter-over-quarter in 2022, with just 327 financing deals announced last quarter, compared to a staggering 677 in the first quarter of the year.

In Web3, amber group, Matter Laboratories, uniswap Y mineplex they were the only companies to announce rounds above $100 million last quarter, while the fourth quarter of 2021 had 20 such rounds.

2021 vs. 2022

The overall numbers for the year paint a slightly better picture for startups that may be looking for funding in the new year.

Funding for VC-backed startups in Web3 dropped by about a quarter, from a record $29.2 billion in 2021 to about $21.5 billion last year.

The deal count was fairly even, with a difference of less than 100 deals per year. However, unlike 2021 when FTX, NYDIG Y Robin Hood raised rounds of $1 billion or more, 2022 did not see any rounds of that size.

The biggest rounds of 2022 according to Crunchbase data were:

Two other startups have also raised $400 million in rounds this year in the sector: FTX and FTX USA – and are probably the main reasons why Web3’s funding will have a hard time recovering.

Overall, there were three dozen rounds in 2021 of $200 million or more going to VC-backed Web3 startups, up from just 25 last year.

End of Web3?

It’s easy to look at the total numbers, and especially the current downward trend, in Web3 funding and conclude that the “Web3 craze” is over.

However, it is important to consider companies in general. With venture capitalists cashing their investment checks, many are looking to industries that have been proven, not the hope of a new decentralized application or digital asset exchange.

Web3 is relatively new, and many investors are not as used to it as areas like SaaS, enterprise software, or traditional fintech. In uncertain times like now, many are likely to cringe instead of jumping in with both feet.

Undoubtedly, the crypto winter and the instability of that market have also had an influence. When venture capitalists were pouring money into the sector, bitcoin was hitting highs of nearly $70,000. Now, cryptocurrency holders are in the grip of one of the biggest debacles in startup history, which everyone will see in court this year.

That won’t help Web3 funding, but the FTX debacle could start to separate the good from the bad in the cryptocurrency sector and start giving investors more confidence in all things decentralized and Web3 as a whole.

Or 2022 could be the start of something dangerous for many Web3 startups.

Methodology

For Web3 funding numbers, we looked at investments made in VC-backed startups in both cryptocurrency and blockchain.

Illustration: Dom Guzmán