Crypto startups draw record VC money, may lead to more IPOs in 2022

Venture capitalists are betting heavily on cryptocurrencies in 2021, as they are pouring more money than ever into startups in this sector.

Crypto and blockchain startups were backed by a record $33 billion in funding last year — exceeding inflows from all previous years combined and forming at least 43 companies worth more than $1 billion, according to a report from the financier’s research arm. Encrypted digital galaxy by Michael Novogratz.

Further underlining the scale of crypto startup activity, valuations of companies in the digital asset space were 141% higher than the rest of the venture capital space in the fourth quarter, which alone saw $10.5 billion of venture capital allocated to new crypto and blockchain businesses.

“The reason the numbers are so high is because the crypto-asset markets have grown significantly and historically, and venture investment has already closely tracked the bitcoin and other market prices,” Alex Thorne, head of company-wide research at Galaxy Digital, told Yahoo. . finance.

“Just as monetary and economic realities have pushed the big allocators down the risk curve, and the project gets a lot of dollars from these allocators, so there’s a lot of money to invest,” he added. “The ecosystem has diversified tremendously, and there are more places to put money than ever before.”

Venture capitalists invested more than $33 billion in crypto and blockchain startups in 2021, more than all previous years combined, according to a report by Galaxy Digital Research.

In 2021, venture capitalists allocated to crypto and blockchain startups at the fastest pace ever, registering more than 2,000 total deals, more than double the deals in 2020 and surpassing an all-time high for crypto venture capital deals in 2018. , which saw just under 1700.

Venture investors poured a record $700 billion into private companies in the whole of last year, twice as much as in 2018, with 4.7% of capital directed toward cryptocurrencies and blockchain, according to Galaxy Digital, which cited Pitchbook data.

Companies specializing in trading, exchange services and crypto-lending led the funding rush, capturing the lion’s share of capital at around 41%, while startups built NFTs (non-fungible tokens), DAOs (Decentralized Autonomous Organizations) and Web3 (the acronym of Web 3.0). , or a decentralized Internet system) is in second place, with 17% of the funding. Other classes of cryptocurrency venture capital firms have funneled cash into embedded custody services — the systems that store and protect digital assets — digital infrastructure and decentralized finance.

Last year, $22 billion, or a third of all venture capital, raised and deployed in the industry, went into deals of $100 million or more, with more investments reported by companies in later stages as transactions with “pre-incorporation”. ‘, or early-stage firms declined, indicating that startups that have exited the 2018-2020 bear market are maturing to later stages, according to Galaxy Digital. However, this changed in the last quarter of the year, when the portion of invested capital that went to early stage startups represented 60% of all crypto venture capital funding.

Venture capital has also helped carry 43 unicorn companies — companies valued at $1 billion or more — into the crypto space in 2021, with Galaxy Digital expecting a number of high-value companies to enter public markets in the near future.

Thorne estimated – although he emphasized that it was a rough figure – that up to a quarter of the top-rated crypto startups could go public in the next 24 months.

“The most exciting thing to me is how diversified the public equity picture would be if that were to happen,” he said. “Obviously, the billion dollar valuation is not what it used to be, but this is an impressive and diverse group of companies offering more extensive products and services than in the past, when it came to trading and mining.”

Thorne added that previously, the largest share of companies in the crypto and blockchain space were solely focused on mining and trading; While now, the group includes compliance companies, tax companies, data companies, and gaming companies, among others.

“The investmentable crypto-public equity ecosystem is on the cusp of becoming more diversified,” he said.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter Tweet embed

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