An Overview of VC Investments in Crypto Companies

1.8k crypto companies have raised over $88B in VC funding

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Blockchain tech was introduced thirteen years ago in 2009 when Bitcoin was founded. Since then, 1,809 crypto-related companies have raised over $88B in funding from VCs. From 2020 to 2022, the total funding of the entire space grew 243% YoY and the total number of companies grew 245% YoY.

Running Sum of Total Funding and Number of Crypto Companies

Crypto companies and crypto tokens-like cryptocurrencies are not synonymous. Crypto companies maintain mostly centralized, traditional company structures with some also issuing crypto tokens. Crypto tokens are liquid assets living on a blockchain. Owning a crypto token gives a claim to the token itself. Owning a piece of a crypto company makes one a traditional shareholder. Crypto companies participate in the cryptocurrency world in three ways:

1. Build cryptocurrency projects that distribute tradable liquid crypto tokens, ie. Solana
2. Build infrastructure for consumers and businesses to access liquid tokens, ie. Coinbase
3. Build blockchain infrastructure tools for developers and creators, ie. Alchemy.

VCs are opting to invest in crypto companies alongside crypto tokens because of three main factors:

1. Infrastructure tools to enable easier and faster development of blockchain applications and to allow users to access crypto tokens. These infrastructure tools lack decentralization, for now.
2. Many centralized companies today building blockchain solutions could benefit from having their own cryptocurrency. But first, many challenges need to be addressed in tech (blockchain trilemma), economics (sustainable tokenomics), governance, and regulation.
3. Building through a private entity is one form of maintaining a proprietary information edge. However, blockchain is inherently transparent and once companies launch projects and scale, the value of proprietary information diminishes. The initial edge of proprietary information could separate the winners from the rest.

This post tries to make sense of VC funding activity in crypto companies to better understand where the space is headed. To do this, I analyzed the funding, category, and geographical data of 1,809 crypto companies from Crunchbase.

Funding

75% plus of VC-backed crypto companies have each raised over $5M in total funding. About 46% have raised between $5M and $25M.

Number of Companies by Total Funding Ranges

VC-backed crypto companies have a wide range of latest funding amounts and don’t follow traditional funding ranges by round. For example, there are seed-stage companies like Yuga Labs raising significantly more money than Series A to Series E crypto companies. This makes sense given that crypto companies are generating revenues at record speed and are looking to capturing massive opportunities. Some companies have additional funding from token or NFT sales which may precede normal VC funding rounds.

Companies by Last Funding Round Raised

Company tenure doesn’t really play a significant role in raising more VC funding. For instance, there are 20 companies founded between 2010–2015 and 21 founded between 2016–2021 that each raised over $400M.

Company Year Founded and Total Funding

Categories

Of the 50 categories, the Ecosystem and Service Firms and the Exchange categories dominate crypto companies. The majority of companies in these categories received funding in 2021 and 2022. NFTs are an interesting category since it is one of the largest categories and almost all NFT companies received funding in 2021 and 2022. Categories are generated based on company descriptions.

Categories with 100+ VC-Backed Crypto Companies

Bitcoin and Infrastructure related crypto companies are the most mature of the top categories as almost 40% have each raised over $25M in total funding. NFT and Gaming related crypto companies are the most nascent categories as almost 30% and 40% respectively have raised $10M or less.

Categories by Total Funding Ranges

Geography

49% of VC funding went to US-based crypto companies. The next major regions include the UK, Cayman Islands, Hong Kong, Canada, Singapore, Japan, China, and Switzerland.

Total Funding by Region

About 33% of VC-backed crypto companies are based in the US. UK, Singapore, Switzerland, Canada, China, and Hong Kong are other major regions for crypto companies.

Total Number of Companies by Region

Conclusions

After sifting through the data, we see that VCs are aggressively investing large rounds into many crypto companies. This isn’t surprising as many investors believe crypto is developing into a massive opportunity with significant upside. VCs are investing in companies for their market-size potential as highlighted by large rounds across companies of all tenures. There’s also a large focus on Ecosystem players and Service Firms enabling blockchain applications. Exchanges are also a large focus as they’re a gateway for consumers and institutions to access crypto. We also see the emergence of DeFi, NFTs, and Gaming categories as companies and VCs are heavily building and investing. Lastly, despite regulatory challenges, US-based crypto companies continue to dominate in funding dollars. This is probably in part because US-based VCs still dominate venture investing. In the next post, I’d like to dig deeper into new emerging categories.

Initially published on Substack. Subscribe for more articles like this:

https://crypt0xbyt3s.substack.com/