This article was compiled and organized by BlockWeeks
In the first quarter of 2022, venture capital funding for crypto and blockchain startups exceeded $10 billion, setting a record for the highest single quarter in history. Even as both traditional markets and crypto asset markets experienced drawdowns during the same period, venture capital's bets on this sector continued to accelerate. Since the first quarter of 2021, the amount of crypto venture capital funding has hit new all-time highs every quarter.
Capital Flows in Against the Trend, Decoupling from Coin Price Movements
Before 2020, the scale of crypto venture capital typically followed changes in digital asset prices, only with a slight lag. In 2020 and 2021, investment amounts grew along with Bitcoin price increases; but during the sharp Bitcoin drawdowns in the summer of 2021 and the first quarter of 2022, venture capital continued to grow. This decoupling indicates that investors do not believe digital assets are heading into a long-term bear market, and that funds still have substantial dry powder waiting to be deployed.
Large funds managed by both new and established institutions such as Paradigm and Hivemind need to deploy enormous amounts of capital into this sector over the coming years, further intensifying competition.
Later-Stage Companies Attract the Most Capital, Individual Deal Sizes Continue to Inflate
In the first quarter of 2022, capital flowing into later-stage companies (Series B and beyond) exceeded that into early-stage companies (pre-seed, seed, and Series A). Later-stage deals accounted for more than 14% of the total, the highest on record, reflecting the growing number of later-stage companies in the crypto ecosystem and the industry's increasing maturity.
The total number of deals this quarter was slightly below the historical high of Q4 2021 but remained strong. Nearly half of all deals went to pre-seed, seed, or Series A companies, reversing the 2021 trend in which later-stage deals accounted for the largest share. However, this shift stemmed more from a slight decline in total deal count than from an increase in pre-seed deals—the number of pre-seed deals continued to decline in absolute terms.
Valuations and Deal Sizes Far Exceed Traditional VC
Median valuations and individual deal sizes for crypto and blockchain deals continued to rise. Compared with the broader VC market, the median deal size across the entire VC market in Q1 2022 declined for the first time since Q1 2020, while crypto deal sizes continued to climb sharply and valuations continued to outperform overall VC. This shows increasingly fierce competition for capital in this sector.
Founders can raise more money while giving up less equity, thereby pushing up median valuations. This dynamic makes it difficult for small early-stage funds to avoid dilution in subsequent rounds, which in turn affects overall fund returns and prompts many funds to seek additional capital.
Web3, NFT, Metaverse, and Gaming Become the Largest Sectors
By sub-sector, Web3, NFT, DAO, metaverse, and gaming companies became the segments attracting the most capital and accounting for the largest share of deal count in crypto venture capital for the first time. In the first quarter of 2022, these areas accounted for more than 40% of all deals.
Before 2021, most successful startups were concentrated in two verticals: trading/exchanges or mining rig manufacturing; today, large companies span diverse service areas including compliance, settlement, accounting, tax, and consulting. The dominant narrative in crypto VC has clearly shifted toward Web3, NFT, DAO, metaverse, and gaming, significantly expanding the investable landscape and attracting investors who typically focus on digital transformation, gaming, and the creator economy.
Why Pre-Seed Deals Continue to Decline
Despite rising crypto asset adoption and a massive influx of talent, the number of pre-seed deals (first-time financing for newly founded companies) continues to decline. One reason is that the market structure during the 2017 bull market was extremely immature—there was a lack of institutional custody, prime brokers, settlement platforms, and lending institutions. From 2018 to 2020, entrepreneurs seized these gaps and built a group of important infrastructure companies in today's crypto ecosystem, including FTX, Galaxy Digital, Fireblocks, FalconX, BlockFi, Paradigm, and others. These mature companies subsequently continued to raise capital at higher valuations, driving up later-stage deal and funding volumes.
Meanwhile, many market opportunities have been filled, leaving fewer "picks and shovels" opportunities for new entrepreneurs. Since "DeFi Summer," many new entrants have built entities directly on-chain without issuing equity; even when they raise funds, they prefer to sell tokens. The rise of DeFi, DAOs, and other on-chain entities has depressed early-stage data both in terms of actual financing amounts and in the statistical methodology of databases such as Pitchbook.
These trends together explain the decline in pre-seed deals in both absolute numbers and relative share, and also highlight the maturity of the crypto ecosystem: there is an unprecedented number of large companies within the ecosystem, and more new projects are launching in a more decentralized manner, somewhat approaching the original vision of blockchain technology.
Key Takeaways
In the first quarter of 2022, crypto venture capital continued to set records amid macroeconomic headwinds, with later-stage share, valuations, and deal sizes all indicating increased industry maturity; Web3, NFT, metaverse, and gaming became the largest sectors by capital and deal count; the decline in pre-seed deals is not a sign of slowing adoption, but rather the result of infrastructure opportunities being filled, the rise of on-chain financing, and data statistical methodologies working together. Overall, the crypto venture capital market is larger, more aggressive, and more competitive than in previous cycles.
