NFT Startups Have Lost Investors’ Interest

What makes most NFT startups do wrong that makes their investors lose interest? The NFT, or non-fungible token, is one of those hot venture industries that I never really understood. However, I do not write the cheques or perform the due diligence. As a result, when well-known VCs began funding large NFT-related rounds last year and early this year, it appeared to be a space to watch. So keep an eye on everything. And, after months of data collection, we can infer that the NFT space is no longer as hot as it was earlier this year. Fewer transactions are being completed, and considerably less money is being invested in them. To give you an idea of how far things have fallen, we’ve plotted seed and venture investment in NFT-related firms over the last seven and a half quarters:

It’s hot out there.

As you can see, investment in all things NFT peaked in the first quarter of this year, with investors pouring $2.1 billion into the field. A fourth of this was spent on a single transaction: $450 million for Yuga Labs, of Bored Ape Yacht Club fame. Animoca Brands, a metaverse digital property venture, and NFT marketplace OpenSea raised a total of $659 million. The fourth quarter of 2021, which established a record for global venture capital across all industries, was also a hot period for NFTs. Over $1.5 billion was raised by startups in the field, with $725 million coming to Forte, a blockchain gaming platform. Big NFT rounds accrued when markets were up. According to Crunchbase records, at least a dozen startups raised rounds of $100 million or more between Q3 2021 and Q2 2022.

Cold weather

Those were the days. NFT-related funding has slowed significantly in the second half of this year, with the upcoming quarter set to display the biggest divergence. For example, halfway through the fourth quarter, the three largest NFT-related deals with known backers are all $10 million rounds. If Q4 funding continues at its current rate, the quarterly total will be more than 80% lower than the peak in Q1. The cost of NFTs and related assets looks to be declining as well. According to a Decrypt report, overall NFT sales volume and the total number of NFTs sold dropped in October, reaching monthly lows for 2022.

Some digital assets are crumbling while others are holding up, albeit at a lower level than before. On the collapsed side, one high-profile example was the NFT of the first-ever tweet, which sold for $2.9 million initially but garnered offers of only a few hundred dollars when its owner tried to sell. Meanwhile, the lowest-priced Bored Ape, possibly the most iconic digital collectible, has dropped by more than 60% from its peak in April. However, it still costs roughly $70,000, indicating that this is not a garbage fire.

Markets, believers, and nonbelievers

Prognostications regarding where NFT startups investment will go from here vary greatly based on one’s initial interest in the space. For supporters of blockchain, crypto, decentralized finance, and metaverse living, the emergence of Web3 will only lead to further adoption of NFTs.

Nonbelievers may be perplexed that billions were ever invested in this asset class.

Nonbelievers are frequently proven wrong in the startup world as a technology that once seemed marginal or out there obtains widespread adoption. However, market dynamics offer some support for the nonbeliever case in the case of NFT startups, with funding sharply down. Still, the game isn’t over. The recent decline in investment may be more of a pause than an exodus of NFT startups backers. And the enduring appeal of some collectibles, such as hipster apes, suggests that they have real staying power.

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