This article was compiled and organized by BlockWeeks
In 2021, the amount of capital that venture capital institutions invested in the crypto and blockchain technology sector exceeded the total of all previous years combined. Among them, companies that facilitate digital asset trading or start businesses in the Web3 field took the largest share of the funding.
According to statistics, in 2021 venture capital investment in crypto/blockchain startups exceeded $33 billion, a figure higher than the cumulative investment of all previous years. Of this, $22 billion (67%) flowed to financing rounds with a single deal size exceeding $100 million. Funding obtained by crypto/blockchain startups accounted for approximately 4.7% of the total global venture capital deployed that year, close to 5%.
In the fourth quarter of 2021, valuation levels in the crypto/blockchain sector were 141% higher than in other areas of venture capital, meaning this was an extremely founder-friendly financing environment, while also reflecting fierce competition among investors to secure allocations. Although the absolute value of single deal sizes rose, they remained in a comparable range compared with other VC sectors.
At least 43 companies that completed financing in 2021 joined the ranks of "unicorns." At the same time, the number of Pre-Seed round deals continued to decline, while Series A and later-stage rounds grew—a clear signal that companies founded during the crypto bear market from 2018 to 2020 are gradually maturing and moving toward later stages.
One Year of Investment Exceeding the Historical Total
Investment in the fourth quarter of 2021 alone exceeded $10.5 billion, driving the full-year venture capital total for the crypto and blockchain sector to a record high of $33.8 billion. The full-year number of deals also hit a record, reaching 2,018, almost double that of 2020 and far above the previous historical high of 1,698 in 2019.
By round, Series A financing absorbed the largest amount of capital in the fourth quarter, but later-stage rounds also received considerable investment. The share of capital flowing to early-stage companies rose to more than 60% in the fourth quarter, indicating that companies founded earlier in the year progressed rapidly and had already been noticed by investors.
The number of deals remained high across all stages throughout the year, cumulatively exceeding 2,000. However, the share of deals involving the earliest stage—Pre-Seed companies—continued a months-long downward trend; at the same time, the share of deals completed at the Series A stage reached a historical high. This dynamic can partly be attributed to the overall maturation of the industry: early-stage companies founded during the 2018 to 2020 bear market are successfully advancing to later stages.
Trading and Lending Attract the Most Capital, Web3 and NFT Follow
Of the $33 billion that venture capital invested in the crypto/blockchain ecosystem, the largest portion went to companies providing trading, investment, exchange, and lending services. Such enterprises received more than $13.8 billion in total, accounting for 41.83%.
But the share of funding going to Web3 companies is rising—companies building NFT, DAO, and metaverse tools, infrastructure, and games together took 17% of the funding.
Large deals became a notable feature of 2021: there were 69 financings exceeding $100 million during the year, and these deals together contributed $22 billion, accounting for 67% of the $33 billion in total venture capital invested in crypto/blockchain startups.
Crypto VC Fund Size and Number Expand in Tandem
The explosive growth of the industry in 2021 led venture capital fund managers to raise and deploy capital at an unprecedented pace. According to preliminary data from VisionTrack, the number of venture capital institutions focused on crypto/blockchain has exceeded 500. A total of 49 new funds completed fundraising in 2021, with an average size of about $300 million, double the average fund size in 2020.
Among these 49 new funds, 43% were new institutions raising for the first time, and 41% were new vehicles raised by established institutions. Demand from allocators for crypto/blockchain VC exposure caused many managers to return to the fundraising market faster than expected. VisionTrack data shows that 62% of managers who completed fundraising in 2020 returned to the market in 2021 to raise a new fund—a remarkable proportion considering that most funds typically set an investment cycle of 3 to 5 years.
A 141% Valuation Premium: A Seller's Market Thoroughly Favoring Founders
In 2021, global venture capital investment in startups at all stages exceeded $700 billion, the largest private investment in early-stage private companies on record. Measured by total VC investment, crypto/blockchain startups took 4.7%, the highest share in history.
Building on a trend that continued to evolve over the past five quarters, the valuation gap between crypto/blockchain startups and the overall startup ecosystem widened further in the fourth quarter. Even though valuations in the overall VC market were already at historical highs, the median pre-money valuation of crypto/blockchain startups was as high as $70 million, 141% higher than the $29 million in the overall VC market.
The median single deal size also approached a historical peak, rising more than 160% from the fourth quarter of 2020 to the end of 2021, approaching $4 million. The rise in deal sizes shows that funds are deploying more capital, and competition is materially affecting pricing.
A Horizontal Comparison with Quantum, Cloud, Robotics, Fintech, and Machine Learning
When crypto/blockchain is compared side by side with the five major fields of quantum computing, cloud computing, robotics, fintech, and machine learning, crypto's share of both deal count and VC funding scale is rising. In 2021, VC deals in the crypto/blockchain field exceeded 2,000, accounting for 12.41% of the total deals across these six fields.
A Rare High Degree of Synchronization Between the Primary Market and Coin Prices
Historically, venture capital activity in the crypto/blockchain field has often mirrored the market capitalization trend of the crypto asset market. Before 2021, the private market usually lagged behind Bitcoin price performance, as evidenced by the trends in 2017 and 2018. But in 2021, venture capital activity and the digital asset market were almost perfectly synchronized, with large capital inflows and BTC price increases occurring at the same time.
This data is not just a milestone; it also reveals several key judgments:
First, the crypto/blockchain startup ecosystem is maturing. Data points supporting this judgment include: a large number of successful early-stage crypto companies—a considerable portion of which were founded during the 2018 to 2020 bear market—have grown and advanced to later stages; 69 financings exceeded $100 million; 43 companies completed financing at valuations exceeding $1 billion and became unicorns; the share of Pre-Seed stage deals has continued to decline relatively; and the types of companies being built and products being developed are more diverse, a result of the expansion of use cases and market opportunities.
Second, a large number of non-crypto-native institutions are entering this field. The rise in total venture capital invested in crypto/blockchain companies is not only the result of crypto-native startups advancing to later stages; many later-stage traditional companies are also incorporating crypto into their strategic maps.
Third, fund sizes are expanding explosively. Both new and established venture capital institutions are raising record-sized funds at record speed. Several institutions raised more than one fund in 2021, and the average fund size counted by VisionTrack was $300 million. The median size of crypto/blockchain deals is near an all-time high, up more than 160% from the fourth quarter of 2020 and approaching $4 million by the end of 2021.
Fourth, the rise in valuations can be described as meteoric. Over the past year, the valuation growth of crypto/blockchain companies has significantly outperformed the overall VC market, and the lead in median pre-money valuation has widened quarter by quarter. The fourth quarter's $70 million versus $29 million shows the enormous demand from investors to allocate capital to this ecosystem. Intensified competition among venture capital institutions has enabled crypto founders to raise more capital with less equity dilution. But at the same time, with the market so hot, whether many venture capital funds—especially smaller ones—can ultimately achieve returns remains an unavoidable question.
More Crypto Companies Are Moving Toward Public Markets
Currently, major crypto-related public companies include Coinbase (NASDAQ: COIN) and a group of listed Bitcoin miners such as Argo Group (NYSE: ARGO), Riot Blockchain (NASDAQ: RIOT), and Marathon Digital Holdings (NASDAQ: MARA). There are also crypto-concept stocks such as Robinhood (NASDAQ: HOOD), PayPal (NASDAQ: PYPL), and MicroStrategy (NASDAQ: MSTR), but crypto is not the core business of these companies (MicroStrategy may be an exception).
However, the number of crypto-native companies that completed VC financing in 2021 with valuations exceeding $1 billion has reached 47 (another count puts it at at least 43 unicorns), and this does not include industry leaders such as Binance, Kraken, Bitmain, and MicroBT—which appear not to have raised funds last year. These crypto unicorns that remain private will undoubtedly seek access to public capital markets in the coming years. Their businesses span an extremely wide range of categories, not only trading or mining but also gaming, NFTs, Web3, compliance, and data services. Investors hoping to gain crypto exposure through public equities will soon face a far more diverse set of options: from NFT and gaming companies to compliance and infrastructure targets.
Data note: The data in this report mainly comes from Pitchbook statistics. As more venture capital deals are reported to Pitchbook, the fourth-quarter 2021 data may be updated in the future.
