Funding capital in the Web3 space has doubled this year, in the first six months alone, according to data sourced from Venture Intelligence.
The sector has already raised over $1 billion, compared to $0.5 billion in the whole of 2021, signalling continued investor interest in the burgeoning sector, despite the unfavourable macro tailwinds and funding winter.
However, while early-stage deals have not slowed down, late-stage deals are taking more time, say experts tracking the space.
To put it in perspective, last year, during the same period (January-June), the Web3 segment saw $60 million being raised. Seed and Series A deals took center stage, data shows.
The top deals of this year include Polygon’s $450 million fundraise, $136 million of CoinDCX, NFT marketplaces Rario and Fancraze raising over $100 million and SaaS startup Coinshift’s fundraise.
The most active investors in the space include Polygon Studios, Sequoia, Coinbase, Woodstock, Better Capital, Alpha Wave Global and Tiger Global.
Startups in the Web3 segment, where services are built on blockchain and are decentralised, usually raise funds in equity and tokens. For tokens, these startups sign on a ‘simple agreement for future token’ (SAFT) instead of ‘simple agreement for future equity’. The token economy has, of course, taken a hit after the crash of the crypto market over the last few months.
This also comes at a time when startups are finding it tough to close rounds, raise growth capital and have started laying off employees. Over 10,000 employees have been laid off so far by Indian startups.
“Last year, the activity increased towards the later part for multiple reasons. That momentum was carried towards the beginning of this year as well,” said Aashima Arora, who is investments lead at Polygon Ventures, which is the investments arm of Polygon Studios globally.Upward trend seen ahead
While investments have slowed down, they are now seeing more quality in the market as the ancillary noise is out, she said.
“Equity markets have 5-7 years of these cycles while crypto has 2-3 years. So we were anticipating this and are hoping that we will start seeing an upward recovery from later this year,” she said.
“Bear markets are great for investing as you get great deals, great founders and hiring also becomes more qualitative. But most of the investors are still actively investing,” adds Arora.
Reiterating this, another investor, requesting anonymity, said that early-stage deals are still happening while late-stage deals have slowed down due to the macro tailwinds.
He adds that the startups which survive this bear market will have a solid product at the end.
“There was a lot of noise over the last few months, with everyone busy organising meet-ups but no one was talking about how to build a product, community or teams. That is at the forefront now,” he adds.
Meanwhile, even well-funded crypto exchanges that are also investing in Web3 ventures, are looking to reduce their cash-burn and growing avenues of revenue generation, as they grapple with declining trading volumes, which is set to fall further as the 1 percent tax deducted at source (TDS) will start tomorrow (July1, 2022).
