Crypto Startups Raised $759M in Q3, 3X More Than in Q2 2020

A crypto venture capital fund has crunched the numbers: crypto projects raised $759 million in the third quarter of this year, almost quadruple that raised in Q2 when the tumult around the coronavirus pandemic was in full swing. 

Outlier Ventures reported that crypto projects raised $227 million in September through 97 deals, $278 million in August in 24 deals, and $254 million in July with 29 deals. By comparison, in the entire second quarter of this year, Outlier found that crypto firms had raised just $200 million.

To thank is partly the rise of DeFi, or decentralized finance, non-custodial financial protocols that let you lend out your crypto or trade it on decentralized exchanges. 

In September, DeFi and Fintech deals made up for two-thirds of the total funding, or $157 million. In August they made up 62% of deals and in July 72.4%. By comparison, in the whole of 2020, they made up 40% of deals.

All this is an improvement on the first half of this year, when investment into crypto may have seemed like a reckless thing to do—the stock market had taken traders on a crazy ride.

According to Russian research team Grom, crypto venture capitalists were half as likely to invest Series A funding rounds, amid this year’s pandemic, compared to last year.

Taking data from Crunchbase and Coindesk, the Russian research team at Grom found that the average amount invested in Series A funding rounds—usually the first big round of funding for early-stage startups—was $10.4 million this year; in the first half of 2019, blockchain firms raised an average of $21 million.

Grom’s research looked at 34 Series A investments sourced from publicly-available data. Private or undisclosed venture capital investments and back-alley crypto deals are left out of its research, as were investments in later-stage startups, like Series B or Series C funding rounds. 

So, why the sudden shift? There’s the obvious: “It’s because of the coronavirus,” Bohdan Zapototskyi, Grom’s PR manager, who also contributed to the report, told Decrypt. 

“It’s because of the restrictions that might have been placed on, moving capital, [particularly] in the US—the capital of capital.” As the global economy collapses, “Investors are less willing to risk their money into risky investments,” he said. And what’s riskier than crypto? 

But there’s more nuance to it than that, found the researchers. Amid the uncertainty, funding was more consistent this year—i.e., there were few crazy, off the wall investments this year as VCs played it safe. In 2019, the spread between the largest and smallest transactions was $198.7 million. 

The largest investment (by far) was in the $200 million Series A funding round for crypto exchange Bithumb. In 2020, the spread was just $29.2 million—the largest was $31.2 million in the Series A round for Lightnet.

Compare that to this summer. “You may be laughing at the yield farming memes,” wrote Outlier’s investment manager Ana-Maria Yanakieva in her July update, “but investors are seeing some real potential.”

Since Yanakieva’s letter, we now know that some of those projects in which investors saw potential blew up in flames. Yanakieva certainly got one thing right in her July post: the memes were funny.