What Are Crypto VCs Investing in? Binance Research

The downward trend in 2023 has failed to deter the steady pace of deals and investments in the digital market space. Binance Research’s latest report revealed that a substantial share of this sustained growth came from gaming and infrastructure projects.

While the traditional VC share surged to 45% since the beginning of the year, the report found that the gap between traditional and Web3 investors has gradually narrowed.

Investors Are Drawn Towards Gaming Industry

During the bullish market conditions of 2021 and early 2022, there was a consistent increase in total funding. Funding peaked in April 2022, totaling $6.8 billion, marking a substantial 361.8% surge from January 2021.

However, in the aftermath of the FTX contagion, there was a significant decline in funding between the second and third quarters of 2022, with only $2.4 billion of total capital invested in Q3. According to Binance Research’s analysis, the funding levels have stabilized.

Furthermore, there was an increase in the number of deal funds in January and February 2023, primarily driven by growth in the Infrastructure and Gaming sectors.

In the last four quarters, the gaming category secured the highest amount of funding with 87 deals. Although it claims the highest cumulative funding, gaming recorded the smallest average investment per deal, amounting to $7.42 million.

This indicates that investors perceive potential in the gaming industry. However, given the nascent stages of development in Web3 gaming, investment amounts remain “conservative.”

“The sustained investment from venture capitalists in the gaming industry signals a strong forecast for its expansion, accompanied by a rise in funding for AI and Data in recent quarters. Q3’23 saw a shift towards four main areas of interest, including DEX.”

Coinbase Ventures Tops as Non-Lead Investor

Binance Research’s findings reveal that prominent VC firms such as Pantera Capital, Dragonfly, Coinbase Ventures, a16z, and Polychain Capital frequently engage in co-investments. Notably, Polychain Capital and Coinbase Ventures stand out with the highest number of joint investments, totaling 40. This can be attributed, in part, to the fact that Olaf Carlson-Wee, the founder of Polychain, was Coinbase’s first employee and former Head of Risk.

Despite a quarterly decrease in the count of unique investors, the decline slowed to 5.9% in the last quarter. Coinbase Ventures has consistently led deal counts over the past four quarters, allocating 33.3% to DeFi and 39.2% to infrastructure. DWF Labs, a relatively new entrant, initiated its investment activities in October 2022.

Coinbase Ventures, with 49 non-lead investments, adopts a strategy of diversifying its portfolio by making smaller investments across a broader range of projects. This is in contrast with other investors, such as a16z, who prefer larger lead investments in a more selective number of projects.