Blockchain startups develop as international VC funding generated $25.2B in 2021

Final yr was spectacular for blockchain startups, as analysis from CB Insights discovered that enterprise capital funding reached new heights throughout each quarter of 2021. In keeping with CB Insights’ “State Of Blockchain 2021” report, $25.2 billion value of enterprise capital funding went to international blockchain startups final yr, demonstrating a 713% enhance from $3.1 billion in 2020.

The report additionally discovered that the US led the best quantity of funding offers in This fall of final yr, producing $6.26 billion for 157 offers. The doc notes that international progress was pushed by rising shopper and institutional demand for crypto-related services. 

VC funding centered on crypto adoption

Chris Bendtsen, a senior analyst at CB Insights, advised Cointelegraph that CB Insights’ report accommodates information aggregated from personal advertising funding from over 3,000 blockchain and crypto firms that the agency usually tracks. Bendtsen additional defined that whereas the title of the report references blockchain, this serves as an overarching class that features cryptocurrency, nonfungible tokens (NFT), enterprise blockchain and decentralized finance (DeFi). Bendtsen identified that almost all of VC funding talked about all through the report was allotted to crypto-focused startups. The report states:

“Over $100M mega-rounds (value $100m+) have been the driving pressure behind blockchain’s file funding yr. The 59 mega-rounds in 2021 accounted for simply 5% of whole offers however 60% of whole funding. The most important mega-round offers went to crypto exchanges, brokerages, NFTs, gaming, and funds.”

In keeping with the report, $1 out of each $4 value of funding went to crypto exchanges and brokerages, which additionally equates to 1 / 4 of all international blockchain funding in 2021. Bendtsen remarked that whereas the largest offers went to main crypto exchanges akin to FTX — which ranked because the second-largest fairness deal for brokerages and exchanges in This fall of 2021 — funding for country-specific exchanges has additionally been on the rise. 

For example, CoinSwitch Kuber, one of many largest crypto buying and selling platforms in India, ranked No. 4 for high equality offers for brokerages and exchanges in This fall of 2021, producing over $260 million in its latest Collection C funding spherical. “Based mostly on these findings, it’s develop into evident that we’re seeing the globalization of crypto, as extra country-specific exchanges are elevating spectacular rounds,” stated Bendtsen.

Bendtsen additional identified that international VC funding for crypto custody and pockets suppliers reached $6.3 billion final yr. “Towards the start of 2021, lots of funding was going to consumer-driven exchanges, however there was a shift later within the yr that noticed main funding rounds go to crypto custody suppliers and custodians,” he remarked.

For instance, the New York Digital Funding Group (NYDIG) ranked as the highest fairness deal in This fall of 2021 beneath the class of custody and pockets suppliers. In December 2021, the establishment specializing in Bitcoin (BTC) monetary companies secured a $1-billion fairness funding led by WestCap Group. Fireblocks, the digital asset custody platform, ranked immediately beneath NYDIG with its $550-million elevate from Sequoia Capital.

Michael Shaulov, CEO of Fireblocks, advised Cointelegraph that he believes buyers are paying extra consideration to custody and pockets suppliers as a result of this has been the largest barrier to entry for institutional participation. “Having a direct custody resolution and applied sciences that may plug and play into the crypto capital markets is a game-changer for companies and people alike,” he stated.

“Our buyers see us because the picks and shovels of the crypto business. This contains every part from direct custody wallets and settlement networks to compliance integrations with Chainalysis and Elliptic, together with entry to staking suppliers.”

In regard to the corporate’s newest funding spherical, Shaulov stated that Fireblocks plans to increase its choices to incorporate securing high-value transactions round DeFi and NFTs. That is necessary, particularly now because the variety of scams and fraudulent actions throughout the DeFi and NFT sectors has elevated.

Though legal exercise throughout the NFT house has began to rapidly unfold, the CB Insights report discovered that funding allotted to NFT startups grew by a margin of 130 instances. In 2020, NFT startups generated $37 million in VC funding, which reached $4.8 billion in 2021. “Gaming, marketplaces, and infrastructure are the highest 3 NFT classes driving the funding craze,” the report highlighted.

Animoca Manufacturers, which ranked because the No. 1 investor by firm rely in This fall of 2021 based on CB Insights, made a minimum of 49 investments in blockchain tasks final yr. Yat Siu, co-founder and government chairman of Animoca Manufacturers, advised Cointelegraph that NFT and blockchain gaming general have been main drivers of the expansion in funding final yr:

“Now we have all the time believed that NFTs, and specifically gaming, are key to the mass adoption of blockchain, and I feel what occurred in 2021 strongly means that this thesis shall be realized in 2022. It’s fascinating to notice that in 2021, many new blockchain customers entered the world of crypto not due to cryptocurrencies however as a result of they have been in search of to amass NFTs.”

Conventional VCs take an curiosity 

Along with the place funds are going, Bendtsen famous that the CB Insights report discovered that extra conventional buyers began taking curiosity in blockchain startups final yr:

“Over the course of 2021, Andreessen Horowitz jumped out as a smart-money investor. They’re one of many greatest VC corporations on the earth and introduced an enormous crypto-focused fund in June of final yr.”

As Cointelegraph beforehand reported in June 2021, the Silicon Valley enterprise agency launched “Crypto Fund III,” a $2.2-billion enterprise fund co-led by Andreessen Horowitz normal companions Chris Dixon and Katie Haun. In keeping with the CB Insights report, Andreessen Horowitz was ranked because the No. 3 blockchain investor in 2021, falling beneath Coinbase Ventures and China’s AU21. “Our numbers present that Andreessen Horowitz invested in 46 blockchain startups final yr, the third-most of any investor on the market, together with the crypto-focused funds. This exhibits that we’re seeing extra conventional corporations coming into the crypto house,” remarked Bendtsen.

Whereas this can be, Siu famous that Andreessen Horowitz has had a for much longer historical past with blockchain investments. For example, the enterprise agency invested in blockchain-company Dfinity in 2018. As such, Siu remarked that whereas Andreessen Horowitz isn’t new to the house, the corporate did ramp up its investments in Web3 startups all through 2021. 

“It is rather clear that A16z and different main buyers like Sequoia China perceive the big potential of Web3 and of the worth that the appliance of blockchain can ship, and they’re investing accordingly,” he stated. Given this, Siu believes that extra well-known enterprise capitalists and corporations will proceed to spend money on blockchain startups, notably these innovating with NFTs.

Will crypto value volatility affect funding?

Whereas latest progress for blockchain startups has been spectacular, crypto value volatility and unclear rules might create challenges for firms trying to elevate funds sooner or later. For example, rising inflation in the US might additional affect the value of Bitcoin. Additionally, unclear rules round NFTs could possibly be detrimental for brand new firms getting into the house.

Though these challenges needs to be fastidiously thought of, Bendtsen defined that not one of the information just lately generated from CB Insights signifies any kind of slowing down for funding. “The very fact is that these buyers view crypto as a long-term play. I, due to this fact, don’t assume the decrease crypto costs at the moment will have an effect on startup funding sooner or later.” Shaulov added that he believes there shall be rising settlement round cryptocurrency regulation all over the world, which can finally gasoline retail and institutional adoption.