The goal with this analysis is to inform founders and investors on fundraising trends in crypto venture. The primary data point which will be considered is round size. While not a perfect proxy, round sizes can be used to infer a range of possible valuations. I.e. if we assume that seed stage rounds result in 10% - 20% dilution, then a $5m round would imply a valuation between $25m and $50m. This method is not an exact science but since most valuation data is not made public, it is one of the more useful ways to look at fundraising data.
Considering the current state of cryptocurrency markets and the overall economic climate, it is reasonable to expect that median round sizes would see a decline across all stages. However, the data shows that for the most part, the opposite is true. Median round sizes have been trending up, especially at the seed stage.
The above charts show median round sizes for all funding rounds that have taken place since the beginning of 2021. As mentioned previously, the data shows that median round sizes at the seed stage have consistently been increasing in spite of the conditions of the broader crypto market - starting at $1.9m in Q1 2021 and steadily rising to $5.0m in Q4 2022.
The Series A data also shows a general trend upwards - starting at $10.7m in Q1 2021, peaking at $20.0m in Q2 2022 and holding at $17.5m in Q4 2022.
For later stage rounds, there was an upward trend from $64.0m in Q1 2021 to the Q1 2022 peak of $95.0m. Since then, the round size has mostly been trending downwards, reaching a low of $40.0m in Q3 2022.
There is typically a reporting lag between when a round is completed and when the round gets announced. This delay can be anywhere from a few months to a few quarters, based on our experience. With this in mind, it is unlikely that the recent FTX blowup has been priced into any of the rounds being announced yet. However, even before the FTX situation, the public crypto market was down significantly through 2022. Events like the collapse of Terra, and blowup of Three Arrows Capital should be reflected in the activity data in the most recent data in Q4 2022.
In order to explain the trend, we took into consideration the number of deals getting announced. The data shows that the number of rounds announced peaked in Q2 2022 and has since been declining steadily. Keeping in mind the reporting lag mentioned earlier, this makes sense. Rounds announced in Q2 were likely completed prior to the events of the Terra blowup that occurred in May 2022. Since then, the number of deals being completed has decreased meaningfully.
The decline in the frequency of funding rounds may help to explain the corresponding increase in median size of those rounds. This shift towards fewer, larger rounds indicates a higher level of selectivity from investors, implying that companies able to secure funding in the current environment are high-quality opportunities (proven track record, real traction, etc.). In times of economic uncertainty, it is natural to see a flight towards quality, resulting in consolidation of capital around fewer companies.
We also wanted to see if round sizes were being driven up by larger funds (a16z, Polychain, etc.) but after looking at the data, they were generally in line with the rest of the market, albeit contributing to slightly larger round sizes throughout.
Finally, companies may be seeking to raise more money to extend their runway in the current economic environment. While having 12-18 months of runway may have been sufficient during the peak of the market, it may no longer be sufficient given the increased uncertainty. Companies are therefore likely raising more capital to ensure they have enough resources to weather any potential storms and maintain operations during this period. This scenario would also likely lead to a reduction in the number of funding rounds, as companies look to secure a larger amount of capital in a single round rather than spreading it out over multiple rounds, contributing to the observed trends.
What this Means for 2023
The downward trend in the number of rounds being done is likely to continue. The FTX saga has inspired VC’s to do more diligence and will further the flight towards quality. And many non-crypto funds who decided to dabble in crypto are unlikely to come back anytime soon.
These trends will end up being a positive in the long run. As fair-weather funds and founders move to the next big thing, those that remain will be truly convicted. This will shift the focus onto companies that are building long term products, leading to a consolidation of both talent and capital around those companies.
Data source and methodology
Fundraising data was collected from Messari’s Dove Metrics fundraising dataset. We collected data going back to the beginning of 2021 and calculated the median round size for Seed, Series A, and Series A+ rounds on a quarterly basis. We chose to use median over the average because there were a few rounds which skewed the data - i.e. there were some $50m+ rounds counted as seed, which doesn’t really fit the profile of a typical seed round.
*Disclaimer: No dataset on private funding is perfect so there are definitely gaps (rounds missing, mislabeled stages, etc.). And as mentioned above, round size is not a perfect indicator for valuation. The goal was not to nail down the precise valuation, but to get a general idea of where they are trending.