It would be difficult to describe crypto venture capital as being in a funding drought. Investors deployed approximately $5.7 billion into crypto and blockchain companies during the second quarter of 2026, according to Galaxy Research, an increase of 31% from the previous quarter.
What has changed is where that money is going and what founders increasingly have to demonstrate to get it. Nearly 80% of the capital invested during the quarter went to later-stage companies. Crypto startup valuations have also fallen sharply from their highs in the final quarter of 2025, while raising new crypto venture funds remains difficult. Galaxy recorded only five new funds during Q2, the lowest quarterly number for several years.
September continued the mixed picture. FinDaS recorded $1.05 billion across 48 Web3 funding rounds, compared with a preceding 12-month monthly average of $2.01 billion and almost 67 rounds. Capital is clearly still available, but what appears to be disappearing is the assumption that a promising Web3 company should be able to raise it easily. I think that could ultimately produce better companies.
Varun Datta, venture capitalist and CEO of Truth Ventures, explores why tougher fundraising conditions may be forcing Web3 companies to build stronger businesses.
What investors now expect
There have been periods in Web3 when the strength of a market narrative could compensate for weaknesses elsewhere in a business. A compelling technology, experienced founders and a convincing token model could attract significant capital before there was much evidence of who the eventual customer would be or whether that customer was willing to pay.
Some excellent companies were funded during those periods, so I would not dismiss what abundant capital made possible. It allowed founders to experiment with technologies and business models that conventional investors may not have financed, and some of today’s infrastructure emerged from exactly that environment. But easy money also allowed companies to postpone difficult questions around who needed the product, why the technology was better than the existing alternative, how the company would make money and whether the business would still work if token prices fell and incentives became less attractive.
Those are questions I think investors are increasingly asking earlier. I have argued previously that crypto VC risks mistaking consensus for discipline when investors retreat towards companies and categories that have already been validated. Selectivity should not mean waiting until somebody else has proved that an opportunity exists.
At Truth Ventures, our focus is early-stage Web3 infrastructure, so there will often be limited revenue and sometimes a product that is still being developed when we first meet a founder. It would be unreasonable to expect an early-stage company to have everything proven.
What I do expect is a founder who understands the problem extremely well. There is a meaningful difference between uncertainty because something has not yet been built and uncertainty because nobody has worked out why it needs to exist. That distinction becomes much more important when capital is selective.
A difficult market changes how companies build
The most obvious effect of a tougher fundraising environment is that companies have to make their existing capital last longer. That can mean smaller teams and slower expansion, but it also changes the order in which decisions are made.
When a company cannot assume another large funding round will arrive in 12 or 18 months, revenue matters earlier. Customer retention matters more. Founders have to understand which parts of the product people genuinely value rather than trying to build everything at once.
I think Web3 can particularly benefit from that discipline because token incentives have sometimes made it difficult to distinguish between adoption and subsidised activity. Tokens can be extremely effective at coordinating decentralised networks. They can encourage early participation, align incentives and distribute ownership in ways that conventional technology companies cannot easily reproduce. The difficulty comes when financial incentives are mistaken for product-market fit.
A protocol can have rapidly increasing activity because people are being rewarded to use it. That does not necessarily tell an investor what happens when those rewards decline. For me, the more useful question is whether the underlying product becomes more valuable as the network matures.
This is one reason infrastructure remains attractive. When I recently looked at AI agents and the infrastructure behind the emerging machine economy, the more interesting investment question was not necessarily which agent or wallet would win, but which settlement, metering and identity layers would be required if autonomous transactions became widespread.
The same principle applies more broadly. If a product solves a fundamental problem around scalability, privacy, settlement, identity, liquidity or interoperability, its utility does not necessarily depend on the market being excited about Web3 at that particular moment. In many cases, the opposite should be true: if adoption increases, the problem it solves becomes larger.
Follow where the capital is going
Recent investment activity also tells us something about what the market is beginning to value. Galaxy’s Q2 data shows that trading, exchanges, investing and lending attracted the largest amount of capital, but there was also meaningful investment across DeFi, privacy and security, tokenisation, AI and infrastructure.
More recently, S&P Global led a strategic investment in digital asset data company Kaiko, extending a relationship that already includes bringing financial benchmarks onchain. Kaiko now works with more than 250 financial firms, institutions and regulators.
I find investments like this interesting because the value proposition is relatively easy to understand. If financial markets move further onchain, institutions need reliable data, analytics, benchmarks and infrastructure. Whether a particular token rises or falls next month does not substantially change that requirement.
This does not mean every founder should pivot towards institutional infrastructure. Venture capital has its own cycles, and building whatever investors currently find fashionable is rarely a good foundation for a company. Founders should build around a problem they understand better than most people, rather than around the current preferences of venture funds. What has changed is that investors have more reason to test how real that understanding is.
What I look for in founders
At an early stage, numbers only tell you so much. A founder may not yet have meaningful revenue and the addressable market may itself still be developing. In Web3, we are often investing in infrastructure for markets that do not fully exist yet, which makes judgement particularly important.
I want to understand why a founder has chosen this problem, what they have learned that is not obvious from the outside and whether they understand where their own assumptions could be wrong. Regulatory awareness has also become much more important. A founder does not need to predict every regulatory development, but if the business model depends on regulators permanently ignoring a particular activity, that is something an investor needs to understand.
The same applies to defensibility. Having impressive technology is valuable, but technology alone does not always create a durable business. Distribution, network effects, proprietary data, developer adoption, integrations and the difficulty of replacing infrastructure once customers depend on it can all become more important over time.
These considerations are not unique to Web3 and, in some ways, that is the point. As the sector matures, I think good Web3 investing increasingly looks less like betting on crypto narratives and more like evaluating technology companies.
There will still be opportunities that are genuinely unique to decentralised networks, and there will still be periods when capital flows rapidly into a particular part of the market. That is the nature of venture investing. But founders should not assume those conditions will finance them indefinitely.
The current market is not preventing Web3 companies from raising money; the latest figures make that clear. It is becoming more discriminating about which companies receive it and at what stage. For strong founders, that is not necessarily bad news.
A company that can demonstrate real demand, sensible economics and a reason for customers to keep using its product when market sentiment changes is more likely to survive the next downturn. It is also more likely to be around when the infrastructure it has spent years building finally becomes essential.
Web3 does not need less ambition from its founders. It needs more evidence that the ambition is attached to a business that can last.
About Varun Datta
Varun Datta is the founder and CEO of Truth Ventures, an early-stage venture capital firm investing across Web3 infrastructure and emerging decentralised technologies. He focuses on founders tackling fundamental problems in areas including developer infrastructure, decentralised AI, DePIN, privacy and scalability, and writes regularly about how venture capital can identify durable value as the Web3 market matures.
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