Recently, NFT startups haven’t been attracting investors as much.
Non-fungible tokens (NFTs) are one of the hottest new areas in venture capital that I’ve never quite understood. However, I don’t handle the due diligence or the check-writing. So, it was interesting that prominent VCs began funding significant NFT-related rounds late last year and early this year.
Now we must keep an eye on everything. Moreover, here is what we learn by monitoring data over several months: The interest in the NFT market is significantly lower than it was earlier this year. There are fewer transactions, and far less capital is being invested in them.
Below, we’ve plotted seed and venture funding to businesses involved with NFT over the previous seven and a half quarters, so you can get a feel for how far things have fallen:
You can see that the highest level of investment in NFT occurred in the first quarter of this year when $2.1 billion was allocated to the sector. This was about a quarter of the total, with $450 million going to Yuga Labs (the company behind Bored Ape Yacht Club) in a single purchase. The NFT marketplace OpenSea and the metaverse digital property play Animoca Brands raised a combined $659 million.
It’s no surprise that the fourth quarter of 2021 was a busy time for NFTs, considering it was a record-breaking period for worldwide venture capital across all industries. Overall, startups in this sector raised almost $1.5 billion, with $725 million going to Forte, a blockchain gaming platform.
Large NFT rounds built up during market rallies. According to Crunchbase, at least a dozen startups raised $100 million or more during the third quarter of 2021 and the second quarter of 2022.
Where startup investment in NFTs will go from here is a matter of strong conjecture, with predictions ranging greatly based on the individual’s initial interest in the sector.
Supporters of blockchain, cryptocurrencies, decentralized finance, and metaverse lifestyles generally agree that the proliferation of Web3 will only lead to more widespread use of NFTs.
Doubters may wonder why someone would invest so much money in something they don’t believe in.
It’s not uncommon for skeptics to be proven incorrect in the startup world when technologies that were previously considered novel or experimental become standard fare. However, market realities provide some backing for the nonbeliever position in the case of NFT companies, with financing dramatically falling.
It’s not over yet, though. The recent slowdown in NFT startup funding may be just a lull between periods of increased investment. And the fact that some collectibles, like those hipster monkeys, remain popular over time is evidence of their durability.