The crypto industry faced significant challenges in 2022, with the collapse of Terra-Luna, the bankruptcy of FTX, and the struggles of crypto lenders. Despite these setbacks, over 80% of the crypto startups that announced seed rounds in 2022 are still building today, according to a new report from Lattice VC. Venture capital companies invested more than $5 billion into 1,200 teams that unveiled their seed rounds during the tumultuous months of 2022, which is 2.5 times more capital than in 2021.
Mike Zajko, co-founder at Lattice, said that due to the massive influx of capital for 2022, there was a natural expectation of a higher failure rate. However, this prediction has not really come to fruition. Eigen Labs led the pack for crypto’s 2022 class with its restaking invention, which set a narrative that continues to anchor many incoming startups in Ethereum and beyond.
However, only 1% of teams found product-market fit, and just 12% of the teams have raised follow-on rounds, according to Lattice. This reality suggests rocky times ahead for teams hoping for a breakthrough without the support of a bull market. The 2022-era startups have seen notably fewer token launches than teams of 2021, with 15% in 2022 compared to the previous year.
crypto startups’ resilience in 2022
This may be due to teams missing the “bull market window” and centralized exchanges becoming more selective about which assets to list. Platform partnership appears to be as important as product.
Teams that launched on NEAR, Flow, and StarkNet – three ecosystems that raised nine-figure sums in 2021 and 2022 – have failed to raise follow-on funding, the report said. Crypto’s gaming sub-sector provides a useful case study. In 2022, this sector raised $700 million from venture companies betting on crypto-powered video games as the future.
However, the big ideas of crypto gaming – NFTs and the metaverse – are mostly afterthoughts in 2024 despite dominating media and investor attention in 2022. “Whatever the hot trend is during that year is not likely to be what people are talking about or excited about 1-2 years later,” said Zajko. Meanwhile, the two big trends of 2024 – AI and decentralized physical infrastructure (DePIN) – saw little venture capital action in 2022.
In two years, the market will get a better sense of whether the 2024 narratives have more staying power than those of 2022.
