The typically explosive growth in VC funding in the blockchain industry in 2021 and the first half of 2022, often a lagging indicator of the industry's health, appears to be cooling off after seven consecutive sectors saw growth. According to data from Cointelegraph Research, in July 2022, the inflow of funds into the blockchain venture capital market fell by 43% month-on-month.
The Web3 space, including GameFi and Metaverse, continues to capture the vast majority of investor interest. However, the decline in capital inflows should be seen in context, as these figures are close to the same period in 2021, when the crypto market is in a bull market.
Even the most bullish Bitcoin supremacists seem unwilling to accept the bleak reality of a long cold winter, as the cryptocurrency’s price bounces sporadically at best. Venture capital firms are not immune to negative sentiment either, suggesting that the recent downturn in the crypto market has started to show up in private funding rounds. The crypto venture train for 2021-2022 may be losing steam, as Cointelegraph Research’s recently released Q2 VC Report revealed that the average deal value in the VC industry fell 16% to $26.8 million in Q2 .
Cointelegraph Research Terminal VC database data contains comprehensive details on transactions, M&A activities, investors, crypto companies, funds, etc. The data shows that the total number of transactions in July fell by 26% month-on-month, and the average transaction value continued to trend downward.
Total capital inflows fell sharply by 43% to $1.98 billion in July from $3.5 billion in June. It's easy to take a negative view of these numbers, but compared to 2021, the venture capital market looks to be in a healthier state. Capital inflows into the blockchain sector totaled $30.5 billion throughout 2021 and were surpassed by $31.3 billion in early-to-July 2022, despite the difficult macroeconomic situation leading to some turmoil in crypto markets. Bankruptcies and controversies, such as Terra's debacle in May.
Venture capital firms changed their investment strategy in the second quarter, leaning towards investing in Web3 instead of decentralized finance (DeFi). This trend continued in July, with Web3 companies accounting for 44% of investment volume and 55% of 141 deals (78 deals). Capital interest in DeFi continues to weaken, accounting for 27% of total financing, and transactions completed in July accounted for only 17% of total transactions. Additionally, GameFi accounted for 20% of the 78 deals and Metaverse Inc. accounted for 17%.
For a comprehensive analysis of the blockchain venture capital landscape in July, check out Cointelegraph Research's recently launched monthly "Investor Insights" report. The research team breaks down the major events that have impacted the market over the past month, as well as the most critical data from various sectors of the industry, including venture capital.
Fundraising figures for July were marked by a sharp drop in closed venture capital deals, with five companies receiving more than $100 million in funding. Fundraising totaled $15.4 billion in July, representing a 61% increase from June's $9.5 billion. Sequoia Capital China, which has previously backed several cryptocurrency and blockchain-related companies, raised $9 billion in funding in July alone.
Investor interest is shifting to Web3, and uncertainty in the DeFi space is affecting investor sentiment. The downturn in the crypto market and the uncertain macroeconomic situation are affecting private funding, but the outlook remains positive. With overall funding volumes, deals, and deal values down month-on-month, venture capital market inflows remain on par with Q2 2021, when the market was in a bull market.
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