Venture capitalists flock to blockchain firms in third quarter: Pitchbook

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Decentralized finance (DeFi) and Web3 were the primary targets of early-stage startup funding from some of the top private investors in the third quarter, research firm Pitchbook said on Tuesday, even as overall venture capital investments declined.

Web3 – a term used to describe a potential next phase of the internet – firms that were focused on decentralized software projects as well as blockchain-based products and services drew the most capital with $879 million invested across 24 deals during the quarter, Pitchbook's Emerging Tech Indicator report showed.

Outlook for funding in the current quarter has darkened as cryptocurrencies reel from the impact of the stunning collapse of FTX earlier this month.

"Still, we note there are areas of the cryptocurrency ecosystem that are less exposed to trading activity, which could be less impacted by the fallout from FTX," Pitchbook analysts said.

Some of the largest deals in the sector were captured by funding such as $300 million Series B for Mysten Labs and a $200 million Series A for Aptos Labs, two new blockchain networks that may compete with established players like Ethereum and Solana, analysts noted.

Overall, venture capital (VC) activity softened for the third consecutive quarter, totaling $4.7 billion across 153 deals, a 32% decline from second quarter's $6.9 billion across 244 deals, Pitchbook said.

Other hot sectors for VC investments included financial technology, accounting for $737.4 million across 24 deals during the quarter, and biotechnology, that lured in $725.8 million across 11 deals, Pitchbook said.

Pitchbook's Emerging Tech Indicator report tracked 153 early and seed-stage deals that involved the top 15 VC firms out of 5,997 total deals in the third quarter of 2022.