Crypto startups raised $819 million in August, a 53% year-on-year decline

It’s no longer news that crypto and the broader blockchain startups haven’t been enjoying a smooth ride recently. Apart from the fact that there has been a steep drop in funding, there is a decline in interest, traction and investment which has led to workforce reductions, salary cuts and outright shutdowns.

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Looking at the numbers for August, it looks decent, at least superficially. But a deeper dive shows that the crypto startup sector is not yet fully past its stormy days. Funding is still down, and lots of work still needs to be done.

Crypto startup funding for August 

According to data from PitchBook, venture capitalists invested $819 million into crypto funding, across 91 companies in August 2023. That figure represents a 51% increase relative to the $542 million crypto startups raised in July.

Those numbers, on the surface, look relieving, but a deeper look shows that all is still not well. Out of the total $819 million raised, just one company, Haqqex, a digital asset exchange attracted $400 million, while crypto custodian, BitGo raised $100 million. This shows that just two startups claimed around 55% of the total funds raised in the space, in August. 

Also, without those two rounds, there would have been a massive dip in comparison to the funds raised in July. In a broader sense, this time last year (August 2022), $1.74 billion was raised by crypto startups, which is a 53% decline year-on-year, according to data. 

This is an indication that the crypto space still has a long way to go, in order to match, or surpass the funding figures it attained during its boom around 2021 to early 2022.

Why has there been a decline in funding?

Not long ago, startups in the blockchain space, ranging from crypto, NFT, metaverse and all other offerings, seemed like the next big thing in the tech space.

However, for various reasons, the numbers for August and previous expository ones have revealed that the blockchain space has endured a difficult time recently. Since around the second quarter of 2022, investments into the crypto space have declined for five consecutive quarters.

According to Lexi Novitske, General Partner at Norrsken22 and Founder of Acuity Venture Partners, an investment firm in early-stage companies across Africa, who spoke to Technext recently, this decline in crypto funding is not just related to a decline of interest in crypto, as cited in many quarters. 

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According to her, investors are now looking more inward into existing portfolios. They pay more attention to startups with proof of profitability and attractive economics, to the detriment of web3 startups which are typically based on a future expectation of profitability.

She also believes the downturn is an economic impact of inflation globally. 

“People are much more conservative with their cash; they’ve probably been affected by the decrease in their crypto investments. The overall high cost of living, all of those things have played a part.

A  lot of these consumer-focused platforms that were trying to build nice to have or interesting to have products are becoming out of favour relative to other companies that are building need to have products,” she said.

The venture investor still believes that crypto has useful space in the tech ecosystem. However, it might now take a background stage in contrast to visible roles. 

“A lot of AI companies are building solutions that tackle problems that we see in the analog setting by using backend technology leveraging web3,  AI, and other deeper tech solutions to build more efficiently.”

So in terms of crypto startups fading, Lexi Novitske says no. In her opinion, it is rather evolving to be much more of a hidden aspect of technology rather than something necessarily on the surface.