More than 80% of early-stage startups that raised funds in 2022 are active today despite the high-profile crypto crashes that sent markets tumbling, according to a new report from venture capital firm Lattice Fund. In an Oct. 1 report on startup funding, analysts at Lattice Fund said that of the more than 1,200 crypto startups that raised a combined $5 billion in funding in 2022, 76% managed to launch a product on mainnet, though 18.5% are no longer active or have shut down.
Ethereum restaking protocol Eigenlayer (EiGEN) has been the most successful, Lattice said, though Eigenlayer’s success in executing its go-to-market strategy and releasing a multibillion-dollar product by 2023 is a rare story among the 2022 cohort. Only 1.5% of startups managed to find what Lattice dubbed a “Product Market Fit” (PMF), and only 12% of projects were able to secure additional rounds of funding.
Infrastructure and centralized finance (CeFi) were the most successful sectors for investment, with 80% of CeFi and 78% of infrastructure projects launching products on mainnet. Meanwhile, gaming and the metaverse proved to be more hype than substance, with the highest failure rates of any sector. “Chasing stories can make you sad,” said Lattice co-founder Regan Bozman in an accompanying post on X. “$700M has been spent on gaming seed rounds, but Gaming & Metaverse had some of the highest failure rates and likelihood of remaining active without any supply.”
Meanwhile, the data shows that Ethereum remained the preferred Layer 1 ecosystem for new projects, while Bitcoin-based projects showed the highest resilience to failure. Around $1.4 billion was invested in 314 Ethereum-based projects – 18% of which failed in the long run. Meanwhile, of the 18 Bitcoin-based startups that raised funds, all are still active and growing today.
The story of Solana (SOL) was different. Although $350 million was invested in 87 Solana-based startups, due to a number of external factors, including the collapse of FTX and a sharp drop in the price of the native SOL token, 26% of the projects failed to make it to 2024. Notably, teams on Solana and Ethereum were equally likely to receive follow-on funding. In contrast, no projects on Near, StarkNet, or Flow were able to raise follow-on rounds.
Despite the solid results from the 2022 cohort, analysts at Lattice said the “2022 vintage” is technically in a tougher spot than companies that raised funds in 2021. A weak market without much new retail participation could be a challenge for startups looking to find product-market fit, while an increase in the overall number of new seed-stage startups and a “crowded token launch market” means more teams will have a hard time getting tokens to market and rewarding their investors, according to the report. “All of these issues are compounded by the fact that investors have moved into hotter sectors (e.g. DePIN and Ai) and ecosystems (e.g. Base and Monad) today,” the report said. “This highlights that returns come not from chasing what’s hot now, but what will be hot in 1-2 years.” Meanwhile, institutional investors appeared spooked by rising tensions in the Middle East, with 11 U.S. spot Bitcoin ETFs seeing a combined outflow of $242.6 million on Tuesday, Oct. 1, according to Farside Investors. It was the largest outflow in nearly a month, after $288 million left Bitcoin ETFs on Sept. 3. It was also the third-largest day of outflows in the last five months, reversing a trend of eight consecutive trading days of inflows that peaked at $494 million on Sept. 27. Fidelity Wise Origin Bitcoin Fund saw the largest outflow of $144.7 million on October 1, followed by ARK 21Shares Bitcoin ETF, which lost $84.3 million. Bitwise Bitcoin ETF saw outflows of $32.7 million, while VanEck Bitcoin ETF lost $15.8 million and Grayscale Bitcoin Trust lost $5.9 million. Invesco, Franklin, Valkyrie, WisdomTree, and Grayscale’s Mini Bitcoin Trust all saw zero outflows. BlackRock iShares Bitcoin Trust was the only one to post positive inflows, recording $40.8 million on the day, marking its 15th straight day without an outflow.
Recall that spot Bitcoin prices fell nearly $4,000 following Iran’s missile strike on Israel on October 1. The asset fell to a two-week low of $60,315 before recovering to $61,620 at press time. Meanwhile, nine U.S. spot Ether ETFs also saw a day of outflows, with a total of $48.6 million from the products.
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