Year in Review Part 2 – Where did VC money go in 2021 and what’s next?

20 Jan , 2022 Iconium

Year in Review Part 2 – Where did VC money go in 2021 and what’s next?

Remember the time when the crypto industry used to be considered a niche sector? Well, that time has passed.

2021: a record-breaking year

In 2021 VC firms invested over $33 billions into crypto/blockchain startups, exceeding all previous years’ investments in a single year and setting a new astonishing record. Just think that investments of Q4 2021 themselves accounted for more than those made in the whole 2020!

But that’s not all. Over the past year VCs invested more than $700 billions in startups across all industries. Almost 5% of these investments flowed to crypto/blockchain startups, the highest portion ever.

Crypto/blockchain startups have been beyond compare also in terms of deals’ valuation, recording a whopping $70m median pre-money valuation, 141% higher than the one of startups in the other industries.

The deal allocation rush in this industry has made competition amongst investors increasingly fierce. At the same time, the crypto environment has become more and more founder-friendly and founders can now afford to select investors and look for added value that goes beyond money.

It is estimated that VC firms in the blockchain and crypto universe are now more than 500. Only in 2021, 49 new funds (43% of which were first time funds) have raised an average amount of about $300 millions. Amongst the largest fundraises of the year were Paradigm’s ($2.5 billions), a16z’s ($2.2 billions) and Hivemind Capital Partners’ ($1.5 billions).

Deals’ features and global framework

Last year was also the largest by deal count. In 2021 there were more than 2,000 crypto/blockchain VC deals struck across all stages, twice as many as in 2020.

Investments in Series A stage have undoubtedly won the first prize with a stunning rally in Q4, but later stage investments were also relevant during the year, proving that the companies founded during the bear market of 2018–2020 have successfully made it to the next phase.

In terms of size, approximately 67% of total VC investments flowed into deals exceeding $100 millions raised, throughout 69 rounds.

These massive capital inflows and high demand have been spurred by a combination of increasing crypto adoption, expanding use cases and digital asset prices and it is now clear that we’ve moved well beyond just digital gold.

Indeed, if it’s true that most of the funds (41%) were raised by companies offering trading, investing, exchange and lending services, 17% of the total amount flowed into NFTs, Web3, DAO and Metaverse companies. A huge result if we think that most of these categories didn’t even exist up to one year ago!

Still not enough? Based on the data from Galaxy Digital Research, during last year at least 43 companies raised at valuations above $1billion, achieving “unicorn” status.

What should we expect next?

  • The astonishing increase in 2021 figures versus 2020 likely means that the VC crypto investments growth can be expected to continue in 2022, with more and more institutional investors getting involved into the blockchain space.
  • The $33 billion tally also includes funds raised by non-crypto-native firms, such as Robinhood Markets Inc. and Revolut Ltd., that started offering crypto trading, proving that the popularity of crypto is exploding also among tech companies. We expect this trend to grow further in 2022.
  • During 2021 VC activity has been almost perfectly correlated with the value of digital assets, confirming the historical trend that sees capital inflows increase as the price of Bitcoin rises. Although we can’t say whether VC activity in 2022 will mirror the prices again, we expect a significant amount of investments to come.
  • The crypto/blockchain startup ecosystem is maturing and becoming more and more diversified (Web3, Metaverse, NFT, …). This process might bring more companies in the space to the public markets, following in the footsteps of Coinbase, with candidates such as Kraken and Blockchain.com. At the same time, the significant capital inflows and growing interest from investors will allow companies to build more appealing and durable products.

We can’t wait to see what this new year brings!

Iconium Team

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