Series-A Web3 Venture Report — Q1–2023
Series-A Web3 Venture — Q1–2023
Venture funding is slowing down, and startups that received Seed funding during the ‘21/22 bull market are now gearing up to secure their next round of funding — Series-A. To these new startups, the advice from most investors has been clear: cut burn, extend runway, and try to outlast the macroeconomic headwinds.
Now, as Q1 comes to a close, we have the data about what has happened to the Series-A web3 funding landscape and what it means for strategies, sizing, and partners of investors and investees. Let’s zoom in.
Data
Data was collected from Crunchbase for the purpose of analyzing web3/blockchain startups. A web3/blockchain startups is defined as any company that has been invested in by a crypto native fund or is categorized as being in the blockchain or cryptocurrency industry. Dates throughout the analysis are “announced on” funding dates provided by Crunchbase — keep in mind that these dates are most likely months after the raises are finalized.
Series-A funding rounds
In the first quarter of 2023, 22 web3 companies received Series-A funding, totaling $307M. This quarter saw a 77% decrease compared to the same quarter in 2022 and an 85% decrease from the highest amount of funding in the fourth quarter of 2021.
When compared to the broader venture market, Series-A funding across all verticals has declined by 52% from Q1 of 2022 to Q1 of 2023.
Round sizes are, of course, affected by macroconditions, but we know there is a lag in the adjustment. This is because announcements of raises may be made 6 months after the actual raise, and it takes some time for targets and valuations to align with market conditions.
In 2022, the amount of funding decreased in the last three quarters, yet the size of rounds remained relatively consistent. However, in the first quarter of 2023, the median Series-A funding size dropped from $18 million to $12.5 million.
Unfortunately, Crunchbase does not provide valuation data.
Compared to the general venture market, $12.5M is more in line with the last quarter, where the median Series-A funding size was $11M.
Who is investing in Series-A rounds?
Over the last few years, a number of web3 venture funds have raised huge amounts of capital for investment. Most notably: a16z ($4.5 billion), Paradigm ($2.5 billion), Pantera ($1.3 billion), Electric Capital ($1 billion fund: $400 million for equity investments), Dragonfly ($650 million), Variant ($450 million, $150M seed fund and $300M opportunity fund), Framework ($400 million: 50% for gaming).
So the next question is — what funds are participating in Series-A funding?
I put together this Spreadsheet that includes data for investors participating in Series-A rounds in the last 9 months (since June 2022): Spreadsheet Link
The data was surprising. We find, in the last 9 months, Polychain has led in 8 Series-A rounds, Pantera led 5, Paradigm 4, and ParaFi, Framework, and Dragonfly with 3.
This data suggests that a16z has only led one Series-A round in 9 months, while Electric Capital and Variant have yet to do so. It is possible that there are rounds that have not been made public yet, but overall, the funds appear to be exercising caution.
The table below is the same data in the spreadsheet, except formatted. Hopefully, this data helps founders target funds more likely to lead and participate in Series-A rounds.
Lead investors for Series-A rounds in the last 9 months.
Participating investors for Series-A rounds in the last 9 months.
Seed to Series-A metrics
What is the average time between a Seed and Series-A raise?
On average, for web3 startups, there are 12 months between when Seed and Series-A raises.
What does competition look like for Series-A funding?
In 2021, ~249 web3 startups raised Seed rounds, of those, ~23% — or 1 in 4/5— raised a Series-A round.
In 2022, ~332 web3 startups raised a Seed round, of those, only 5 have raised a Series-A, less than 1%.
It’s only been a quarter into 2023, but it’s already clear that we’re nowhere near the pace of 1 in 5 companies receiving the next round of funding. In the first quarter of 2022, 12% of the ~249 startups funded in 2021 had already received Series-A funding (compared to 1% noted above of the 2022 companies).
Conclusion
Every company is unique, and each will face a different backdrop of pressures and opportunities. However, every company needs to be taking whatever measures it can in order to survive, grow, and thrive.
If I can offer any guidance from the analysis:
- Clear evaluation metrics. OKRs (objectives and key results) are tedious and boring, but they are effective and are used at every successful large-scale company for a reason. Defining metrics helps teams stay focused and ensure that progress is made towards a unified goal. OKRs can be loosely defined: they can be anything from — grow signups by X%, increase DAU by Y%, or even ship Z new feature. At the start of each quarter, define goals and north star metrics. Be realistic about the progress you have made and the progress that needs to be made to reach a Series-A funding round.
- Plan alternatives to a Series-A round. It’s a buyer’s market. As the number of Seed companies vying for funding increases, and the amount of Series A funding decreases, the competition among startups will be intense. Create a plan for what to do if you don’t hit Series-A metrics or if you need more time to reach product-market fit. Will you raise a bridge round? Extension? Will you need new investors to participate in your next round or will your current investors participate?
- Look hard at burn rate. Focus on things you can control. There is no way to control macroconditions, but it is possible to control burn rate. Cutting the burn rate to buy yourself and the founding team an additional 6–12 months can make a huge difference in reaching product-market fit. These are hard decisions to make but look closely at where can costs be reduced.
- Lean on your investors. When it comes to fundraising, lean on your investors for introductions and market guidance. Our job is to understand and evaluate the market, so use this information to your advantage.
Building a company is hard, no matter the macroconditions. My hope, is that this data will be useful in developing a Series-A strategy for web3 founders.
Please feel free to reach out to me on Twitter — @seidtweets— with any follow-up questions. Thanks all for reading.
