Encryption and Blockchain Venture Capital: Q2 2023 Review

Main Points

• The venture capital in the encryption field has not yet reached the bottom. Although the number of transactions saw a slight increase in the second quarter, the overall investment in cryptocurrency and Blockchain startups continues to decline month-on-month.

• Valuations continue to decline. The median pre-investment valuation for cryptocurrency venture capital deals in the second quarter of 2023 dropped to $17.93 million, the lowest level in nearly two years.

• The Web3 category dominates in terms of transaction volume, while the transaction category has raised the most total capital. This continues the trend from the previous quarter.

• The United States maintains a leading position in the encryption startup field. U.S. encryption startups account for over 43% of all completed transactions and over 45% of the funds raised.

• The venture capital financing environment remains challenging. In the second quarter, only 10 new encryption venture capital funds were established, raising $720 million, the lowest level in nearly three years.

Transaction Volume and Investment Scale

In the second quarter of 2023, the total investment in the cryptocurrency and Blockchain industry amounted to $2.32 billion, marking a new cycle low and the lowest level since the fourth quarter of 2020. This continues the downward trend since the peak of $13 billion in the first quarter of 2022. The total funds raised over the past three quarters are lower than the same period last year.

Although the total investment amount has not bottomed out, trading activity slightly rebounded in the second quarter, completing 456 transactions, up from 439 in the first quarter. This is mainly due to the increase in Series A transactions from 154 to 174.

From the perspective of capital investment, early-stage transactions before seed round, seed round, and Series A account for 73% of the investment in (, while later-stage transactions account for 27%.

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Analysis by Company Establishment Year

Companies founded in 2021 and 2022 completed the most venture capital deals in the second quarter. Unlike the first quarter, companies established in 2022 raised the most funds, followed closely by those established in 2021.

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Regional Distribution

American companies dominate both completed transactions and funds raised. In the second quarter, American companies raised 45% of the encryption venture capital funds, followed by the UK )7.7%(, Singapore )5.7%(, and South Korea )5.4%(.

From completed transactions, American companies accounted for 43% of all encryption venture capital transactions, followed by Singapore )7.5%(, the UK )7.5%(, and South Korea )3.1%(.

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Transaction Scale and Valuation

In the second quarter, the median pre-investment valuation of cryptocurrency venture capital transactions fell to $17.93 million, the lowest level in nearly two years. The median transaction size was $3 million. This trend is consistent with the overall venture capital industry.

![Q2 2023 Investment and Financing Report: Total Investment Amount Decreased Month-on-Month, with the US Dominating])https://img-cdn.gateio.im/webp-social/moments-e6a91b8094e2c4115280815a8312777a.webp(

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Market Segment Analysis

Trading, investment, and lending startups raised the most venture capital in the second quarter, totaling $4.73 billion, accounting for 20% of ). Web3, NFT, gaming, DAO, and metaverse startups came in second, raising $442 million, accounting for 19%.

In terms of transaction volume, companies in the Web3 gaming, NFT, DAO, and metaverse sectors remain in the lead, followed by trading, exchange, investment, and lending companies. Notably, privacy and security product companies saw the largest month-on-month increase in transaction volume (275%), followed by infrastructure (114%).

Venture Capital Fundraising

The number and scale of new fund issuances in the second quarter both hit a record low, with only 10 new funds established, raising $720 million. In the first half of 2023, the average size of new funds was $236 million, with a median of $50 million, a significant decrease compared to last year.

Analysis and Conclusion

• Encryption venture capital bear market is still ongoing, but activity remains higher than during the bear market period from 2017 to 2020.
• Venture capitalists are facing a difficult funding environment, and new funds are struggling to raise capital.
• The lack of new investment funds will continue to put pressure on founders, and the financing environment remains severe.
• Pre-seed round trading activities remain active, showing that entrepreneurs' enthusiasm is undiminished.
• The United States continues to dominate the cryptocurrency startup ecosystem, and policymakers should consider formulating policies that are conducive to innovation.
• Web3 leads in the number of transactions, while transaction-related projects still receive the largest investment.