Web3 Funding Meltdown: Startups in Search of a Lifeline

Transactions on the deal market declined 51%, from 659 to 322 for some time. This is the lowest level since December 2020.

If we analyze the entire first half of the year, the results look even more dismal. During that time, Web3 projects were only able to raise $3.6 billion – which represents a 78% drop.

Funding has dropped almost tenfold. The market is full of ideas, but there are no new companies, and those that do appear are disappearing fast.

Many highly valued projects are now trading at steep discounts, and the number of startups has dropped significantly.

In the first six months of 2022, analysts recorded 15 investment rounds, each totaling more than $100 million, but that number has dropped to just three this year:

1. A project from Switzerland called Islamic Coin raised $200 million with backing from ABO Digital.

2. Αn omnichain protocol called LayerZero raised $120 million with Sequoia’s participation.

3. Worldcoin, a startup founded by Sam Altman, raised $115 million with the support of Blockchain Capital.

Experts from Crunchbase have noticed that many big investors have now shifted their attention to the artificial intelligence sector, which raised $25 billion in the first half of this year.

According to more recent data distributed by WuBlockchain, the venture capital sector continues to show negative trends. In September, the total funds raised amounted to only $510 million, 24% less than in August and 72% less than in the same period last year.

Experts believe that interest in cryptocurrencies and Web3 is growing, but now more attention is being paid to TradFi and DeFi projects, as well as corporate blockchain solutions that do not require a radical overhaul of existing infrastructure.

The collapse of the FTX exchange has hit the reputation of crypto projects hard, the CrossFi head added. The bankruptcy of the exchange caused the collapse of lending projects, which in turn affected the portfolios of venture capitalists. A major player such as Alameda also funded a lot of crypto projects.

The negative impact on the venture capital sector is amplified by the macroeconomic environment: high inflation, key rate hikes, rising yields on low-risk assets. The crypto market is highly dependent on these processes.

Large venture capital funds, according to the founder of Afford.Capital, are feeling good so far and continue to attract investments. However, smaller companies are experiencing serious difficulties. Many of them have had to suspend their operations due to the market situation.

Where can startups look for funding? They usually have limited choices:

1. Grants from private or public organizations, for example, the United Nations Children’s Fund (UNICEF) provides equity-free contributions of up to $100,000 for technology startups that contribute to human development.

2. Many large firms are setting up their own Web3-focused investment funds, such as the Polkadot Foundation, the NEAR protocol grant program, and the Harmony Ecosystem Fund.

3. gas pedals and incubators that provide access to investment, mentorship and ready-made business plans.

4. Fundraising, which has become especially popular among crypto startups, replacing Kickstarter with a decentralized counterpart called Juicebox.

Creating a successful product requires proper positioning, finding your niche, working with your target audience, developing your community and constantly improving technological aspects.