Venture capital funding for Web3 startups saw an 82% YoY decline in Q1 2023, dropping from $9.1 billion in Q1 2022 to $1.7 billion, according to data from Crunchbase. This marks the lowest amount of funding seen in the Web3 sector since Q4 2020 when “many people had never heard of Web3”. Deal flow also fell with 333 total deals in Q1 2023, a YoY decline of about 33%. The data also highlights that the number of big funding rounds hitting nine figures almost completely dried up over the past year. This includes FTX, which raised $900 million in Q1 2022. In contrast, only two rounds in the most recently completed quarter hit the nine-figure mark.

While interest in Web3 startups has cooled of late, Crunchbase has noted that venture funding has also decreased in almost every sector. However, what is concerning is that Web3 startups represent a critical part of the crypto and blockchain ecosystem, and this decline in funding could impact the overall growth of the sector.

It is important to note that Web3 startups are early-stage companies that are either working directly with crypto or blockchain tech, or both. The definition is still evolving, but it is becoming increasingly apparent that these startups play an essential role in shaping the future of the Internet. They aim to develop decentralized platforms that offer more privacy, security, and control to users, compared to the current web architecture, which relies heavily on centralized authorities.

This significant drop in funding could be due to various reasons, including market corrections, heightened regulatory scrutiny, and a shift in investor sentiment towards other sectors. Nevertheless, the decline in venture capital funding for Web3 startups raises concerns about the future of the sector. It remains to be seen whether this trend will continue or if we will see a rebound in funding in the coming quarters.

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