Funding For Crypto Startups Continues to Drop

In the last week of August, the crypto fundraising scene appears to be slowing down, with only four startups collectively raising approximately $14 million.

The leading fundraiser was DeForm, an on-chain marketing firm based in San Francisco, securing $4.6 million in seed funding. This investment was led by Kindred Ventures and included support from investors like Elad Gil, Scalar Capital, Alchemy Ventures, and Next Web Capital.

DeForm's focus is on developing a "crypto-native" client management software (CRM) aimed at helping businesses and creators gain deeper insights into their customers.

Another notable investment was made in FirstMate, which raised $3.75 million to launch a "creator-owned NFT storefront builder." Dragonfly Capital, Coinbase Ventures, and Next View Ventures were among the investors backing FirstMate. This new product, developed in partnership with Manifold.xyz, empowers NFT creators to set their own royalty payout structures and customise their sites.

Additionally, European crypto investment firm Greenfield Capital led a $3.5 million seed round for Stroom Network. Stroom Network's mission is to introduce a liquid staking solution on Bitcoin's Lightning network through its ERC-20 token, InBTC, described as a "liquid derivative" of Bitcoin staked on Lightning that can be redeemed 1:1 for Bitcoin.

Crypto funding is almost at a two-year low

In the broader crypto fundraising landscape, August 2023 marked a significant downturn. Crypto startups experienced their lowest point in over two years, with total venture funding dropping to less than $500 million for the month, save for major investments into Haqqex and BitGo. This decline represented the fourth consecutive month of dwindling venture funding volumes, signalling a shift in sentiment among venture capitalists. Investors are now adopting a more cautious approach, carefully selecting promising projects while being mindful of inflated valuations that characterised previous years.

Many startups that once secured substantial funding at high valuations are now struggling to attract investment in 2023, unless they undergo significant restructuring efforts. Although pre-seed and seed funding segments remain relatively healthy, they make up only a fraction of the overall market.

Several factors contribute to this funding drop, including the impact of the bear market on declining cryptocurrency prices, which has led to a wave of disillusionment among investors. A critical factor exacerbating market challenges is the severe shortage of liquidity, attributed to large institutional investors retreating from the crypto space during the bear market and the FTX incident further deterring their return.

Despite these challenges, the crypto industry remains resilient, with pockets of innovation and growth. Startups and investors alike must approach the current landscape with caution and strategy, as the industry undergoes a period of maturation and realignment with market realities.

It's worth noting that the United States dominates crypto startup funding, attracting 45% of all venture capital funding in the crypto industry, followed by the United Kingdom (7.7%) and Singapore (5.7%).