Web3 dominates venture capital interest in blockchain industry in Q2 2022

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Cointelegraph Research brings an analysis of all the deals and trends from venture capital (VC) in the blockchain industry during the second quarter of 2022.

When looking at the aggregate total amount invested into the crypto industry in the second quarter, it will tell one story. However, a deeper dive into the data tells another tale. From a high level, the $14.67 billion invested in Q2 is about flat with the $14.66 invested in Q1. But, the largest chunk of that investment was in April, before the last two months of a large slump in global markets, which made even the most bullish crypto investor admit the bear market has arrived.

The good news is that even though this did happen, funds like Andreessen Horowitz (a16z) closed a $4.5 billion crypto fund, and investment continued to flow into different sectors of the crypto industry.

Download the full report here, complete with charts and infographics.

The Cointelegraph Research Terminal has a VC database that contains comprehensive details on deals, mergers and acquisition activity, investors, crypto companies, funds and more. Using this database, Cointelegraph Research analyzes the numbers to find the important trends in the industry. The report is just an overview of the highlights of the last quarter — not everything can fit into the 12-page quarterly report.

The numbers can lie

The total dollar value of individual deals in the blockchain industry remained flat at $14.67 billion for Q2, just barely over Q1’s $14.66 billion. This can point to an inaccurate conclusion that there is no change in VC investment trends, and everything is on a massive exponential growth curve.

The slump in traditional finance (TradFi) markets has been a headwind for the crypto markets. The risk-on to risk-off change has had a surprising impact on different sectors of the crypto sphere. These downward market pressures were only exacerbated by the collapse of Terra’s stablecoin, which brought down the overall market capitalization considerably. Macroeconomic forces have impacted venture capital firms to take a slight step back and approach projects with more caution and probably less capital allocation to reduce their risk exposure in the case of backing a bad project.

The number of individual deals in the blockchain industry was over 620, up a hundred more than the previous quarter. But, the average value of each deal decreased by over 16% to $26.8 million, perhaps indicating more risk-averse behavior on the part of VC and investment firms. So, while the data shows signs of a slow down in investment inflows in the crypto space, the interest to help build the next generation of blockchain and crypto products appears to still be strong.

Web3 becomes the sector of most interest for VCs

Out of all the overarching sectors in the blockchain industry in decentralized finance (DeFi,) centralized finance (CeFi,) blockchain infrastructure, Web3 and nonfungible tokens (NFT,) DeFi was basically always king for VC capital inflows. That all changed in Q2, when Web3 garnered around 42% of all the individual deals, leaving DeFi in a far distant second at 16%. This trend was highlighted further when analyzing the most active investors, who made around 42% of all deal activity for Q2, a drop from 65% in Q1.

Seven out of the top ten most active VCs chose Web3 as the sector of choice for investment. The push for active involvement of companies to pursue becoming part of the overall concept of the Metaverse is the driving force behind this new trend. In the next report, the Cointelegraph Research team will break down the Web3 sector into its different parts to see where VC interest is headed in the space.

Metaverse investment takes the lead

The top ten deals ranged lower than in the previous quarter but also held a massive $2 billion deal with Epic Games to expand into combining sports experiences and the crypto-metaverse. The Metaverse and Web3 were a running theme in these large deals, and so was the CEO of FTX exchange, Sam Bankman-Fried, becoming something of a “lender of last resort” and providing funds for firms like BlockFi, which was negatively impacted by the recent downturn in the market.

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Animoca Brands ahead in the M&A game

Mergers & acquisitions (M&A) can provide great strategic opportunities for companies, especially in times of turmoil. Animoca Brands seems to take these strategic opportunities seriously, acquiring three companies in the GameFi space and others in education and marketing.

Two big names also were involved in the acquisitions — eBay and Napster. eBay acquired Known Origin — a nonfungible token (NFT) marketplace — to help expand its product offerings to customers. Algorand and Hivemind acquired Napster to promote the music NFT market to improve access for consumers and music creators.

The report pulls from Cointelegraph Research Terminals’ expansive database along with analysis from Michael Tabone, a senior economist from Cointelegraph Research. Michael has an extensive background in economics, business, finance, cryptocurrency, blockchain technology and working with emerging technologies. Besides working for Cointelegraph Research, Michael is a Ph.D. candidate working on his dissertation, which is focused on the theory and application of DAOs.

Keychain Ventures is a crypto investment firm that engages in investing different funds in the blockchain space. Keychain Ventures, along with Cointelegraph Research, will be presenting quarterly interviews with VC firms as well as crypto/blockchain projects which have recently gone through a funding round. These interviews will open up different viewpoints of investment practices from all parties.

This article is for information purposes only and represents neither investment advice nor an investment analysis or an invitation to buy or sell financial instruments. Specifically, the document does not serve as a substitute for individual investment or other advice.