Bullets

• Introduction

• Fundraising Landscape

• Fundraising This Year (2023)

• Highlight of Select Fundraises

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Introduction

Fundraising plays a large role in both crypto and traditional markets as it is a way for projects to raise early capital by selling equity to private investors and funds. While these opportunities often are unavailable to the average investor, it is a good idea to be educated on the general fundraising landscape for several reasons. For one, knowing whether a project has sold tokens to investors through a private sale is key when analyzing the tokenomics and flow.

The fundraising landscape has evolved significantly over the past years with new crypto sectors and protocols attracting large amounts funding. Today’s report will be covering the fundraising landscape over the past years as well as dive into the details of this year’s raises.

Investments from VC’s and angel investors can be broken down into different stages:

• Pre-Seed
• Seed
• Series (A-E)
• Strategic

In 2023 alone, approximately 641 funding rounds have been conducted for 617 projects by 1957 unique investors with the cumulative financing amount totaling at $5.58b. The most popular round type was Seed.

Fundraising Landscape

Years prior to the 2021 bull run, most of the raises were fairly concentrated when looking at the amount of unique investors partaking in fundraising. As the industry has matured, more and more investors have been seeking exposure in the space. In 2021 and in early 2022 we saw mind-boggling sums being given out to projects seeking capital from investors due to “up only” price action and low interest rates. It’s evident, that this period in crypto has come to a close, with cumulative funding amounts in 2023 being barely above what they were in 2019 and 2020.

When it comes to raising funds, certain firms such as a16z, Paradigm and Jump Crypto have made a name for themselves by actively leading many notable rounds and distributing wads of cash from their seemingly bottomless pockets. Most of the big rounds took place, when the grass was a whole lot greener, although activity hasn’t died out completely. A relic from the not so distant past — 3AC, has also made it onto the list with 7 rounds being led by Su Zhu and the rest of the firm.

Beyond this, its worth looking into which categories have been funded the most in this period. As seen below, DeFi investments account for 29% of the total amount of raises in this period. Some of the larger DeFi investments include Li.Fi, M^ZERO and Radiant. Furthermore, gaming has also been a popular category for VC’s with the majority of these investments being in 2021 and 2022. To this day however, it still remains one of the most funded crypto sectors.

Another popular category by dollars invested is layer-1 blockchains. These corresponding tokens lead the 2021 bull run with several seeing 100x returns from their launch. The chart below shows the 8 largest layer-1 blockchain raises in 2021-2023 with Near, Aptos and Solana at the top. More recent raises include Celestia and Sei who have also made the list however these projects have raised a significantly lower amount relative to the chains that launched in the bull run 2021.

Note that this is not the valuations at which these L1’s raised at but the $-amount they raised from investors.

Fundraising In 2023

As mentioned in the previous segment, the most popular rounds for investors have been seed rounds. Their popularity can be attributed to having the highest ROI since solid products with a good market fit have shown to reach astronomical valuations right out the gate enough times to convince investors that this is a viable investment strategy.

Times are tough since liquidity is hard to come by nowadays as market conditions in 2023 have been less favorable than previous years, making investors more reluctant to take on additional risk. Most projects tend to receive from a million to upwards of ten million dollars in funding, with only a handful established players raising fifty million or more.

Who are these established players that have managed to attract significant amounts of funding this year? As seen from the chart below, these are LayerZero, Worldcoin, Scroll and Eigenlayer amongst others. Notably, most of these products are some sort of blockchain infrastructure either as a bridge, a chain or a privacy protocol.

Despite not making the list of largest raises this year, DeFi projects continue to be the most sought after crypto sector by VC’s and private investors in general. Binance Labs is an example of a VC investing heavily into DeFi with investments in Pendle, Radiant, Helio and others this year.

Keeping all this in mind, let’s take a look at some interesting investments that have taken place in the second half of this year.

L1 Raises in H2 2023

Sei

Sei is a Cosmos-based Layer 1 blockchain, specialized in optimizing infrastructure for trading applications through the "Twin Turbo" consensus mechanism. Sei claims to be capable of processing up to 20,000 transactions in 0.5 seconds, and is particularly focused on enhancing the decentralized exchange (DEX) ecosystem.

About a week ago, the Cosmos SDK based L1 received an undisclosed amount from Circle Ventures in the form of a strategic investment, in an ongoing bid to expand USDC operations across various blockchains. The investment was merited by Sei’s rapid transaction handling and promising scalability properties.

Noble

Noble is a new application-specific blockchain in the Cosmos ecosystem, purpose-built for native asset issuance. It aims to improve the efficiency and interoperability of native assets within the Cosmos ecosystem, starting with the USDC stablecoin. Noble's vision is to become the premier global hub for digital asset issuance, facilitating seamless connections with other blockchains

In a seed round, led by Polychain Capital with participation from Circle Ventures, Wintermute and many other investors, Noble raised $3.3m.

Linera

Linera is a Layer 1 blockchain that uses 'microchains' to enhance scalability, allowing for lightweight blockchains to run in parallel within a single validator set. This multi-chain infrastructure is specifically designed for scalable Web3 applications, aiming to solve blockspace scarcity and provide predictable performance, security, and responsiveness on a large scale.

Raising an additional $6m in seed funding, with Borderless Capital at the helm and investors such as DFG, a16z and GSR taking part, Linera sets out to create the first low-latency blockchain that will scale as easily as a web2 application.

L2 Raises in H2 2023

Blast

The talk of the town, Blast has attracted over $500 million within 7 days of launching. With the help of lead investors: eGirl Capital, Manifold, Standard Crypto, Paradigm and Santiago R. Santos, Blast successfully raised $20m. Blast aims to introduce native yield for various assets (e.g. ETH & stablecoins), allowing for automatic compounding while earning additional Blast rewards. Blast further plans to distribute all revenue to protocol developers through sequencer fee sharing.

Fhenix

Fhenix is an L2 which uses fully homomorphic encryption, focused on creating a confidential environment for smart contract development compatible with Ethereum.

Led by Multicoin Capital, Collider Ventures with investments from Node Capital, Robot Ventures, Tane, Hack VC, Metaplanet and Bankless Ventures, Fhenix secured $7m in seed funding. The capital will be put to use for deploying the roll-up focusing heavily on encryption and confidentiality.

Layer N

In a collaborative seed effort spearheaded by dao5 and Founders Fund, Layer N was granted $5m to bootstrap the delivery of a high-performance L2 catering to financial applications requiring speed and scalability, in an effort to replicate the efficiency of traditional financial markets while enabling decentralized, noncustodial offerings for CEXs.

DeFi Raises in H2 2023

Ekubo Protocol

Being solely funded by the Uniswap DAO, Ekubo Protocol received 3M UNI tokens (worth $18m) in exchange for 20% of their upcoming governance token’s supply. Ekubo is an AMM DEX designed for Starknet’s architecture, with strong emphasis on capital efficiency and third-party developer support.

Definitive

Non-custodial execution platform and API, Definitive acquired $4.1m in funding earlier this month in a seed round led by BlockTower Capital, with notable entities like Coinbase Ventures, Nascent and Robot Ventures tagging along. Definitive aim is to enhance trading experience in the DeFi space by offering trade execution with optimal slippage and price impact, coupled with advanced yield strategies.

Flashwire

Gate.io Labs, VeChain, CyberX, Legend Trading, Cobo and SuperChain Capital cumulatively contributed $10m to Flashwire in a Series A round in October. Flashwire, a Singapore-based digital bank is out on a mission to increase the visibility of financial services by making them more accessible and user-friendly.

Conclusion

Some takeaways from the research conducted:

• The total $-value of fundraises is down significantly this year relative to 2021 and 2022. With the recent market uptrend and BTC ETF anticipation however, it would not be surprising to see this number increase in 2024.
• DeFi is the most funded category but the largest individual raises are layer-1 and layer-2 blockchains.
• Gaming continues to be one of the biggest bets amongst crypto funds.
• Seed rounds are far more common than any other type of funding rounds.
• There has only been a few RWA related funding rounds this year. We anticipate this to grow significantly in 2024.

That’s all for this week! Make sure to subscribe for weekly analyses like this delivered straight to your inbox completely free of charge. 🫡

Sources: Token Terminal and Defillama

Nothing stated should be construed as financial advice!