As crypto prices remain at lower levels, venture capital (VC) funding also recorded one of its worst quarters since 2021. Despite this, executives in the space remain optimistic about the industry’s long-term potential.
Crypto data platform RootData highlighted that the second quarter of 2023 delivered one of the worst performances in terms of crypto fundraising. Compared with the first quarter of 2022, where $12.62 billion were raised across 559 funding rounds, Q1 2023 saw around $2.1 billion across 292 rounds — an 83% decrease in VC investments flowing into the space.
Despite the flow of venture capital funds slowing down, professionals working in the space believe there’s still a strong ongoing belief that crypto has potential in the long term.
Gvantsa Chkuaseli, the head of structuring and fundraising at Web3 accelerator Outlier Ventures, told Cryptox in a statement that despite the downturn in Q4 2022, there’s also been an uptick in activity. According to Chkuaseli, this suggests investors strongly believe in blockchain’s long-term potential.
“We can see with our own portfolio, such as Mawari’s recent $6.5 million seed round co-led by Blockchange Ventures and Decasonic, and Zinc’s $5 million Series A, that there is interest despite the challenging conditions,” Chkuaseli explained.
Chkuaseli added that some investors appear undeterred by the recent downturn and continue to back early-stage companies within the sector. “We still believe, though, there are reasons to be optimistic,” Chkuaseli said. The executive also noted the massive interest in startups focused on artificial intelligence (AI), highlighting that fetch.ai received $40 million in funding from DWF Labs earlier this year.
JUST IN: AI-focused #crypto protocol @Fetch_ai has raised $40 million in new funding from @DwfLabs.$FET rose 13.9% to $0.388 following the news.
: https://t.co/eeHLD0FOGa pic.twitter.com/czlV9oNrZb
— CoinGecko (@coingecko) March 29, 2023
Saqr Ereiqat, co-founder of Dubai-based venture-building firm Crypto Oasis, believes that despite the negatives brought about by the downturn, there are still positive takeaways from the current situation. Ereiqat explained:
“On the positive side, this shift allows for a more discerning selection process, ensuring that only the most promising projects receive funding. Moreover, the challenging times serve to crystallize the winners, separating the truly innovative ventures from the rest.”
Even though there are positive outlooks, the executive still expressed empathy toward projects that are struggling because of the lack of funding. “It’s disheartening to witness numerous companies facing the risk of extinction due to the scarcity of funding opportunities,” he said. Ereiqat also told Cryptox that this situation emphasizes the importance of strategic decision-making for projects.
Similar to Chkuaseli, Ereiqat also highlighted how AI-focused projects are still seeing massive amounts of investments. Citing the $1.3 billion funding round for Inflection AI, the executive said there’s a growing opportunity within the AI startup landscape.
Related: Crypto VC is struggling only from a North American perspective — Animoca Brands CEO
Meanwhile, Phillip Lord, the president of the crypto payments platform Oobit, believes that it’s necessary for entrepreneurs to focus on building companies with sustainable business models and clear revenue streams. According to Lord, this help VCs be compelled to invest in their projects. He said:
“We are currently in a higher interest rate cycle, and rates are expected to remain high for the next three to five years. As such, businesses should avoid the ‘growth at any cost’ model, and instead focus on building strong and sustainable operations that will stand the test of time.“
Lord also highlighted that the VC model is experiencing a change because of AI. “Burn rates of companies can drastically come down if AI is fully embraced,” Lord said. The executive also predicted that there would be solo entrepreneurs earning more than $25 million annually “with literally no staff” because of AI.
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