Venture funding for Web3 startups experienced a steep 76% drop in the second quarter compared to the previous year, as investors shifted their focus towards AI and more traditional sectors, according to Crunchbase data. Web3 startups managed to raise just over $1.8 billion in 322 deals during the quarter, marking a 51% decrease in deal flow and reflecting a massive 78% drop in funding for the first half of the year compared to the same period last year.
The slump in Web3 funding is evident in the slowdown of large funding deals, with only three rounds surpassing $100 million in the most recent quarter, as opposed to 15 rounds in the same quarter the previous year. Despite this, Q1 of this year saw a relatively steady amount of funding, indicating a possible stabilization in investor interest.
Notably, cryptocurrency prices have surged, with Bitcoin and Ether seeing substantial increases, yet VC investing in the Web3 market remains cautious. While smaller investments are being made in foundational Web3 startups, major crypto exchange collapses and regulatory actions in the US have dampened investor enthusiasm. The future of Web3 funding remains uncertain, with the dominance of AI in the investment landscape and the potential impact of emerging trends yet to be seen.
As the market evolves, it remains to be seen if the Web3 sector can regain its appeal to investors, especially considering the changing landscape and growing interest in more established sectors. While some investors are cautiously optimistic about the future, others may remain hesitant until a more robust ecosystem is established, and regulatory uncertainties are addressed. It’s worth noting that this analysis is based on VC-backed startups in both the cryptocurrency and blockchain realms. The fate of Web3 funding and its potential revival will likely depend on the industry’s ability to address current challenges and create a compelling case for investors looking to be part of this dynamic and transformative space.