Blockchain startups raise record funding despite crypto crisis

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An illustration showing the cryptocurrency bitcoin with a price chart in the background.

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Funding for blockchain start-ups surpassed $ 4 billion for the first time in the second quarter, despite a sharp drop in cryptocurrency prices.

Infant industry companies have raised a record $ 4.38 billion, according to data from analytics firm CB Insights, up more than 50% from the previous quarter and nearly nine times more than at the same period a year earlier.

Blockchain is the technology behind most cryptocurrencies. It is essentially a digital ledger of virtual currency transactions that is distributed over a global network of computers.

The biggest funding round for a blockchain company in the second quarter was a $ 440 million investment in Circle, a payments and digital currency company. Circle recently announced its intention to go public through a $ 4.5 billion merger with a blank check company.

Ledger, which develops hardware wallets for users to store their digital currencies, drew the second-largest round of the quarter, raising $ 380 million. In an interview in December, Ledger CEO Pascal Gauthier told CNBC that the crypto market is maturing, with the involvement of large institutional players.

“In 2018, when we lifted our last round, financial institutions weren’t there,” he said, adding that now, “every major financial institution in the world has a plan or is working on a plan. plan “to invest in crypto. .

Record funding shows how investors are finding other ways to gain exposure to the crypto industry, acquiring stakes in private start-ups developing technologies for digital currencies and the distributed networks that underpin them .

Venture capitalists don’t seem fazed by falling cryptocurrency prices. Bitcoin’s value has more than halved since it hit an all-time high of nearly $ 65,000 in April, when the U.S. cryptocurrency exchange Coinbase went public.

Ether, the world’s second largest digital coin, has also fallen more than 50% since it hit a record high of over $ 4,000 in May.

“At the current rate, blockchain funding will break the previous year-end record more than triple the total raised in 2018,” Chris Bendtsen, senior analyst at CB Insights, told CNBC.

“Blockchain’s record year of funding is driven by growing demand from consumers and institutions for cryptocurrencies,” he added. “Despite short-term price volatility, venture capitalists are still optimistic about the future of crypto as a major asset class and the potential of blockchain to make financial markets more efficient, accessible. and secure. “

Last month, Andreessen Horowitz launched a $ 2.2 billion cryptocurrency-focused fund. “We believe the next wave of IT innovation will be crypto-driven,” the Silicon Valley venture capital firm wrote in a blog post.

Fintech financing frenzy

Funding for FinTech companies as a whole also hit a new record. According to CB Insights, fintech start-ups raised $ 30.8 billion in the second quarter, up 30% from the previous quarter and almost triple the amount raised by fintech in the second quarter of 2020.

The fintech sector in Europe gained ground, with 50% of the top VC contracts in the quarter going to European companies. The trend has been spurred by the growing interest of foreign investors in the continent’s rapidly growing tech industry.

German stock trading app Trade Republic raised Europe’s biggest roundup, pocketing $ 900 million from Sequoia Capital and Peter Thiel’s Founders Fund. Mollie, a Dutch rival to payment companies Square, Stripe and Adyen, has raised $ 800 million.

Private fintech valuations have also risen significantly, with Swedish firm Klarna, which buys now and pays later, got a market value of nearly $ 46 billion in June.

This raised fears of a potential fintech bubble. Iana Dimitrova, CEO of UK fintech start-up OpenPayd, told CNBC that the upward trend in private funding rounds was “detrimental to the long-term sustainability of our industry.” The average fintech deal size increased 28% in the second quarter, according to CB Insights.

Is fintech in a bubble?

Another fintech boss, London-based Stefano Vaccino de Yapily, disagrees. “I wouldn’t see it as a bubble,” he said. “We have seen an acceleration in financial services over the past 12 to 18 months.” Andreas Weiskam, partner of investor Yapily Sapphire Ventures, said it was “a reflection of the great opportunity” in digital finance.

Yapily, which raised $ 51 million in new funding this week, is one of several companies developing technology to advance a new financial movement called open banking, which aims to open bank data and initiate payments. to fintechs and other third parties.

Open banking has grown a lot lately, with Visa recently agreeing to acquire Tink, a Swedish open banking start-up, for $ 2.1 billion after failing to acquire Plaid, a similar company in the states. United, due to regulatory pressure. Plaid then raised $ 425 million for a valuation of $ 13.4 billion in a fundraising round in April, while its British rival TrueLayer raised $ 70 million.

Meanwhile, a growing number of fintechs have tapped the public markets for the first time, with 19 companies going public or announcing plans to go public in the second quarter.

UK money transfer Wise went public in London for a valuation of $ 11 billion earlier this month, as a number of companies including Better.com, Dave and Acorns announced their intention to be made public through mergers with Special Purpose Acquisition Companies, or PSPCs.

In the crypto world, the Coinbase virtual currency exchange went public during a first blockbuster on the Nasdaq in April.

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