May 27, 2023

Venture Capital Funding Into Web3 Startups

by Soham Panchamiya and Pankhuri Malhotra

in Articles

According to data from Crunchbase, venture capital funding into Web3 startups dropped 82% year-over-year (YoY), declining from $9.1 billion in Q1 2022 to $1.7 billion in Q1 2023.

Crunchbase News highlighted the data in an April 20 report, noting that the $1.7 billion figure for Q1 2023 also marks the lowest amount of Web3 startup funding since the $1.1 billion posted in Q4 2020 — a time in which “many people had never heard of Web3.”

Deal flow, or the number of total deals between VCs and Web3 startups, also saw a significant drop, with 333 deals recorded in Q1 2023 — marking a YoY decline of roughly 33%.

This doesn’t surprise me. Web3 is finished with the hype cycle and a correction was not only necessary but inevitable. This is further bolstered by all the bad news surrounding crypto.

But let’s also not forget that interest rates are rising, the winds of recession are blowing and we’re in the middle of a bear market, a dry up is inevitable.

As Web3 companies get through this crypto winter, the ones who survive and launch will likely be the ones to benefit from the onslaught of deal work that will follow. It’s only a matter of time.

Let’s also not forget that the world in 2023 is very different from 2017. A cookie-cutter company structure involving onshore and offshore jurisdictions is no longer as cookie-cutter as it used to be as most prominent jurisdictions popular among Web3 companies have introduced (or are in the process of introducing) comprehensive VASP regulations.

Moreover, if you’d like to operate your project from a major Web3 hub – Dubai, Abu Dhabi, Singapore, Hong Kong, etc. – legal support on the treatment of your project under local regulations is no longer an option, but a necessity, lest you subject yourself to punishing fines from local regulators.

Reach out within your network, speak to your contacts and if you’ve raised funds for an innovative project, get legal guidance and support sooner rather than days or weeks before your launch when you’re suddenly hit by an onslaught of requirements that delay all your plans. This is a complicated and emerging area of law and most practitioners and regulators are learning right alongside business owners on the best way to navigate the space. Having competent and experienced counsel on your side is now a necessity, as it would be for any business in any sector.

The legal and compliance support you need is just as important as your customer acquisition and marketing and team building. Order is coming to the world of Web3 and the companies that thrive will be the ones who get organised first and then conquer the world.

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