“Cratered” was the word Crunchbase used to describe the state of Web3 funding in 2023 when it recently published its annual roundup of the sector. Year-on-year funding fell a jaw-dropping 74 percent in the last 12 months, with less than $7 billion distributed over more than 1,500 deals. Compare that with 2022, when investors poured over $26.5 billion into nearly twice as many rounds.
The well-documented crashes of 2022 will no doubt have played a part in the funding drain, yet external forces could be as much to blame as the FTX bankruptcy. Startup funding across the board suffered over the past year, with U.S. investors pulling back by 30 percent compared to 2022. Even fintech, long the darling of VCs, hasn’t escaped unscathed.
Yet in the same timeframe, the race to dominate generative AI has ensured that as much as a third of available funding is being directed toward AI companies. The trend is no less prevalent in big tech, where firms including Snap, Microsoft, and eBay have reportedly slashed up to 34,000 jobs in 2024 so far alone, still a smaller number than those slashed in 2023 by Meta, Amazon, and Microsoft.
The crypto market is only weeks into the new year and the mood already feels markedly different. The bitcoin ETF news may have set the market alight and there is more than a spark of interest in digital assets from investors and analysts alike – a spark that’s receiving further oxygen from the excitement around the bitcoin halving due in April.
The mood shift is evident in the pace at which funding news has picked up in the first weeks of 2024, as well as the scale of investment involved. In January, news emerged of a new blockchain VC fund with an initial capital of $25 million ringfenced for investment in early-stage Web3 and crypto initiatives. The founders are a trio of Web3 investment veterans who have provided support to flagship projects, including Polygon, Polkadot, and Cosmos.
Digital asset bank Sygnum narrowly missed out on achieving unicorn status in a round announced in January. One of Switzerland’s regulated players, the bank raised $40 million in a round led by Italian asset management firm Azimut Holdings, which valued it at $900 million.
Staking infrastructure provider Kiln was another beneficiary of a substantial capital injection, with a successful $17 million raise announced in January. Staking became one of the few sustainable areas of interest during 2023 following Ethereum’s move to proof of stake the previous year, with the industry putting over 1.1 million ETH under Kiln’s management.
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While these are all important success stories for an industry craving VC liquidity, founders should avoid falling into the trap of thinking funds will flow as freely as they did before. Many investors believe the market will remain somewhat flatter, albeit more stable, than in previous bull markets. Michael Anderson of Framework Ventures told TechCrunch that valuations have come “back down to earth” and that the “investor class is thinking and behaving more rationally than before.”
What does this mean in practice? As well as more realistic valuations and a harder pitch, VC funds are also making changes to the way they manage and invest their capital in a bid to provide more reassurance to investors who may be deterred by the flagrant spending that was evident in 2021. Coinvesting, which focuses on the UAE and Middle East region, operates a co-investment strategy where every stakeholder, including General Partners, is also a Limited Partner. The fund states this approach aims to foster a shared commitment where GPs face the same opportunities and risks as LPs.
Others, such as ZXSquared, are taking a more cautious approach to volatility and returns. The crypto-centric fund deploys quantitative strategies with hedging instruments to dampen portfolio volatility down by as much as 70 percent compared to bitcoin.
Where VC Funds Will Be Flowing in 2024
According to things that are exciting a16z echoed by partners at NGC Ventures, expect fresh innovation and more efforts towards decentralization in areas such as DAO governance and fundraising, with developments in emerging fields such as DeSci.
DAO governance is still very much an area of experimentation, yet a16z highlights the fact that projects are operating in a “living laboratory” where they’re encountering many of the challenges, such as scaling governance, in reality. New projects can help to anticipate and avoid some of the most common pitfalls by leveraging the experience of incubators such as TDeFi, which offers a suite of support and advisory tools and services for Web3 founders.
Decentralized Physical Infrastructure (DePIN) was one of the most buoyant segments amid the liquidity drain of 2023, with analysts at Messari pinpointing it as the most resilient sector for on-chain revenues throughout the last cycle, losing only 20-60 percent from peak-to-trough, compared to 70-90 percent for the broader asset sphere. Not surprising that Van Eck also highlights continuing DePIN adoption as one of its 2024 predictions, creating a favorable funding environment for projects in this segment.
Alongside the market for DePIN networks is the rising demand for decentralized infrastructural services for the blockchain ecosystem itself. Pyth Network, a new oracle protocol squaring up to challenge Chainlink’s dominance with low-latency pricing data, created a substantial buzz in December after securing strategic investments from Castle Island Ventures, Multicoin Capital, Wintermute, and others.
There’s similar excitement around Subsquid, a peer-to-peer network for aggregating and delivering on- and off-chain data. The project sold out its token sale in under 20 minutes when it went live on January 18. With an increasing demand for Web3 infrastructure driven by institutions and enterprises, it seems likely that the trend will continue to roll over the coming year.
Amid the wider market downturn, AI was the standout success last year, attracting the “biggest of the big” deals, per Crunchbase, with OpenAI and Anthropic alone pulling in a staggering $17 billion. While this doesn’t directly benefit the Web3 sector, many believe that decentralized blockchain infrastructure is the key to avoiding many of the centralization and opacity risks currently being flagged by AI cautionaries.
A16z investors highlighted this as a key prediction for 2024, while partners at Multicoin Capital believe that decentralized GPU networks will help to meet the voracious demand for AI computing. With AI still one of the few segments to get investors excited, it’s a safe bet that projects joining the march to AI will continue to spike interest.
There is no sign of the return to the heady days of 2021 but a distinctly more optimistic outlook for investors and founders in 2024 compared to the depressed state of 2023. While innovators in uncharted waters may struggle to find investment, founders can expect to see capital concentrated in those segments that have previously demonstrated traction among users and proven more resilient against the market downturn.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
