After a challenging year for the crypto industry, the sector has proven itself durable as around 80% of early-stage crypto startups, which managed to raise funds in 2022, are still active till date, according to a study by venture capital firm Lattice Fund.
Particularly, despite the significant market turmoil affecting many digital assets and companies in recent years. Seventy-six percent of the over 1,200 startups that were funded $5 billion in 2022 rounds was able to launch mainnet products afterwards.
Source: Lattice Fund
However, 18.5% of those projects have closed down or fallen apart. One of the highlights of the report was that of the Ethereum re-staking protocol Eigenlayer which emerged as the most successful project amongst the 2022 rounds.
The report revealed that Eigenlayer executed its market strategy “effectively,” in less than one year delivering a multi-billion dollar product.
Yet, that was a rarity among the 2022 startup class. According to Lattice, only 1.5% of the projects managed to achieve what they termed "Product Market Fit" (PMF), and just 12% of these startups were able to secure further funding.
Sector Successes and Failures
The performance of these startups largely varied across sectors. Centralized Finance (CeFi) and infrastructure had the highest success rates with roughly 80% of CeFi and 78% of infrastructure projects launching a mainnet product.
Source: Lattice Fund
Conversely, the biggest failures were all gaming and Metaverse projects. On X, Lattice co-founder Regan Bozman pointed out the gap, stating that $700 million had been poured into seed rounds in gaming alone but there were no actual product or service teams to show for it.
The report also highlighted a continued bias in favour of Ethereum as the primary ecosystem for new projects. In total, $1.4 billion was invested across 314 Ethereum-based ventures, of which 18% ultimately failed to sustain their business in the long term.
Source: Lattice Fund
On a more positive note, despite the MtGox incident, all 18 out of 18 Bitcoin-based startups that raised funds in January and February remain operating.
Solana-based startups, on the other hand, saw a more modest year, with $350 million coming in for just 87 projects. The events of FTX going under and a sharp drop in the price of the SOL token led to 26% of these startups not surviving to 2024.
However, projects on Solana and Ethereum had surprisingly similar odds of receiving follow-on funding. Interestingly, startups building on Near, StarkNet, and Flow faced more challenges, as none managed to raise subsequent investment rounds.
Furthermore, although the overall 2022 cohort is apparently performing well, they are operating in an even more difficult environment than the startups that raised funds in 2021, Lattice analysts noted.
The report also emphasized a shift in investor interests, with capital now flowing to sectors deemed "hot," such as Decentralized Physical Infrastructure Networks (DePIN) and Artificial Intelligence (AI), as well as ecosystems like Base and Monad.
