July 18, 2023 at 14:53 GMTModified date: August 9, 2023 at 10:26 GMT
July 18, 2023 at 14:53 GMT

Web3 VC funding dips as AI takes centre stage

Recent data from Crunchbase reveals a significant 76% decline in venture funding for Web3 compared with 2022 – down from approximately $7.5billion to $1.8bn

Web3 VC funding dips as AI takes centre stage

Recent data from Crunchbase reveals a significant decline in venture funding for Web3 compared with 2022.

In the second quarter of this year, the total venture capital funding for Web3 projects amounted to $1.8billion, marking a notable 76% decrease from the approximately $7.5bn raised during Q2 of 2022.

When comparing the number of deals recorded, there is similarly a drastic reduction of over 50% between Q2 2022 and Q2 2023. 

Looking further, startups raised 15 rounds exceeding $100m in Q2 of 2022,. However, in the most recently completed quarter, only three such rounds were observed.

A look at the first half of both years depicts an even more significant slowdown in investment activity within the Web3 sector. 

As VCs lose confidence in the Web3 space, data shows that the artificial intelligence (AI) sector is emerging as the primary beneficiary of their skepticism. In May, AI safety and research company Anthropic raised $450m Series C and a month later, Inflection AI raised a whopping $1.3bn led by Microsoft, Reid Hoffman, Nvidia etc.

Despite the slowed interest of VCs in the blockchain and crypto space, a few notable funding rounds were recorded in the just concluded quarter.

Swiss-based Islamic Coin secured $200m from ABO Digital in June. In another landmark funding, blockchain messaging protocol LayerZero Labs successfully closed a $120m Series B funding round, with participation from heavyweights like a16z crypto and Sequoia Capital. 

In May, Sam Altman’s Tools For Humanity raised a $115m Series C led by Blockchain Capital. 

What’s in store for Q3?

As institutional investors, including prominent names like BlackRock, Fidelity, and WisdomTree, show increasing interest in Web3 and the possibility of a spot Bitcoin ETF gaining regulatory approval, there is a strong likelihood that venture capital funding in the sector could experience a significant upswing.

Ripple’s recent legal victory against the SEC in their prolonged two-year legal battle could serve as an additional catalyst that may influence the investment landscape. The partial win, specifically the ruling that the sale of XRP on public exchanges does not violate securities law, could instill greater confidence among venture capitalists (VCs) when considering projects with similar business models to Ripple.

This ruling implies that VCs can potentially invest in such projects without the looming threat of regulatory repercussions from the SEC. 

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