Final yr was spectacular for blockchain startups, as analysis from CB Insights discovered that enterprise capital funding reached new heights throughout each quarter of 2021. In keeping with CB Insights’ “State Of Blockchain 2021” report, $25.2 billion price of enterprise capital funding went to international blockchain startups final yr, demonstrating a 713% enhance from $3.1 billion in 2020.
The report additionally discovered that the USA led the best quantity of funding offers in This autumn of final yr, producing $6.26 billion for 157 offers. The doc notes that international progress was pushed by growing shopper and institutional demand for crypto-related services.
VC funding targeted on crypto adoption
Chris Bendtsen, a senior analyst at CB Insights, advised Cointelegraph that CB Insights’ report incorporates knowledge aggregated from non-public advertising and marketing funding from over 3,000 blockchain and crypto firms that the agency commonly tracks. Bendtsen additional defined that whereas the title of the report references blockchain, this serves as an overarching class that features cryptocurrency, nonfungible tokens (NFT), enterprise blockchain and decentralized finance (DeFi). Bendtsen identified that almost all of VC funding talked about all through the report was allotted to crypto-focused startups. The report states:
“Over $100M mega-rounds (price $100m+) had been the driving drive behind blockchain’s file funding yr. The 59 mega-rounds in 2021 accounted for simply 5% of whole offers however 60% of whole funding. The largest mega-round offers went to crypto exchanges, brokerages, NFTs, gaming, and funds.”
In keeping with the report, $1 out of each $4 price of funding went to crypto exchanges and brokerages, which additionally equates to 1 / 4 of all international blockchain funding in 2021. Bendtsen remarked that whereas the most important offers went to main crypto exchanges similar to FTX — which ranked because the second-largest fairness deal for brokerages and exchanges in This autumn of 2021 — funding for country-specific exchanges has additionally been on the rise.
As an example, CoinSwitch Kuber, one of many largest crypto buying and selling platforms in India, ranked No. 4 for prime equality offers for brokerages and exchanges in This autumn of 2021, producing over $260 million in its current Collection C funding spherical. “Based mostly on these findings, it’s turn out to be evident that we’re seeing the globalization of crypto, as extra country-specific exchanges are elevating spectacular rounds,” mentioned Bendtsen.
Bendtsen additional identified that international VC funding for crypto custody and pockets suppliers reached $6.3 billion final yr. “Towards the start of 2021, a number of funding was going to consumer-driven exchanges, however there was a shift later within the yr that noticed main funding rounds go to crypto custody suppliers and custodians,” he remarked.
For instance, the New York Digital Funding Group (NYDIG) ranked as the highest fairness deal in This autumn of 2021 beneath the class of custody and pockets suppliers. In December 2021, the establishment specializing in Bitcoin (BTC) monetary providers secured a $1-billion fairness funding led by WestCap Group. Fireblocks, the digital asset custody platform, ranked straight beneath NYDIG with its $550-million elevate from Sequoia Capital.
Michael Shaulov, CEO of Fireblocks, advised Cointelegraph that he believes buyers are paying extra consideration to custody and pockets suppliers as a result of this has been the most important barrier to entry for institutional participation. “Having a direct custody resolution and applied sciences that may plug and play into the crypto capital markets is a game-changer for companies and people alike,” he mentioned.
“Our buyers see us because the picks and shovels of the crypto business. This consists of every little thing from direct custody wallets and settlement networks to compliance integrations with Chainalysis and Elliptic, together with entry to staking suppliers.”
In regard to the corporate’s newest funding spherical, Shaulov mentioned that Fireblocks plans to increase its choices to incorporate securing high-value transactions round DeFi and NFTs. That is essential, particularly now because the variety of scams and fraudulent actions throughout the DeFi and NFT sectors has elevated.
Though prison exercise throughout the NFT area has began to rapidly unfold, the CB Insights report discovered that funding allotted to NFT startups grew by a margin of 130 instances. In 2020, NFT startups generated $37 million in VC funding, which reached $4.8 billion in 2021. “Gaming, marketplaces, and infrastructure are the highest 3 NFT classes driving the funding craze,” the report highlighted.
Animoca Manufacturers, which ranked because the No. 1 investor by firm rely in This autumn of 2021 based on CB Insights, made no less than 49 investments in blockchain initiatives final yr. Yat Siu, co-founder and government chairman of Animoca Manufacturers, advised Cointelegraph that NFT and blockchain gaming total had been main drivers of the expansion in funding final yr:
“Now we have all the time believed that NFTs, and particularly gaming, are key to the mass adoption of blockchain, and I feel what occurred in 2021 strongly means that this thesis can be realized in 2022. It’s fascinating to notice that in 2021, many new blockchain customers entered the world of crypto not due to cryptocurrencies however as a result of they had been searching for to accumulate NFTs.”
Conventional VCs take an curiosity
Along with the place funds are going, Bendtsen famous that the CB Insights report discovered that extra conventional buyers began taking curiosity in blockchain startups final yr:
“Over the course of 2021, Andreessen Horowitz jumped out as a smart-money investor. They’re one of many greatest VC companies on this planet and introduced an enormous crypto-focused fund in June of final yr.”
As Cointelegraph beforehand reported in June 2021, the Silicon Valley enterprise agency launched “Crypto Fund III,” a $2.2-billion enterprise fund co-led by Andreessen Horowitz common companions Chris Dixon and Katie Haun. In keeping with the CB Insights report, Andreessen Horowitz was ranked because the No. 3 blockchain investor in 2021, falling beneath Coinbase Ventures and China’s AU21. “Our numbers present that Andreessen Horowitz invested in 46 blockchain startups final yr, the third-most of any investor on the market, together with the crypto-focused funds. This exhibits that we’re seeing extra conventional companies coming into the crypto area,” remarked Bendtsen.
Whereas this can be, Siu famous that Andreessen Horowitz has had a for much longer historical past with blockchain investments. As an example, the enterprise agency invested in blockchain-company Dfinity in 2018. As such, Siu remarked that whereas Andreessen Horowitz isn’t new to the area, the corporate did ramp up its investments in Web3 startups all through 2021.
“It is vitally clear that A16z and different main buyers like Sequoia China perceive the big potential of Web3 and of the worth that the appliance of blockchain can ship, and they’re investing accordingly,” he mentioned. Given this, Siu believes that extra well-known enterprise capitalists and companies will proceed to put money into blockchain startups, notably these innovating with NFTs.
Will crypto value volatility impression funding?
Whereas current progress for blockchain startups has been spectacular, crypto value volatility and unclear rules could create challenges for firms seeking to elevate funds sooner or later. As an example, rising inflation in the USA could additional impression the worth of Bitcoin. Additionally, unclear rules round NFTs could possibly be detrimental for brand new firms getting into the area.
Though these challenges must be fastidiously thought of, Bendtsen defined that not one of the knowledge just lately generated from CB Insights signifies any sort of slowing down for funding. “The very fact is that these buyers view crypto as a long-term play. I, subsequently, don’t assume the decrease crypto costs right now will have an effect on startup funding sooner or later.” Shaulov added that he believes there can be rising settlement round cryptocurrency regulation all over the world, which can in the end gasoline retail and institutional adoption.
