Will The Ripple Deal make waves in stagnant Web3 M&A?

Editor’s Note: For more Web3 coverage, please visit Crunchbase’s Web3 Tracker, a site to watch startups, investors, and funding news regarding all aspects of Web3, cryptocurrencies, and blockchain. Powered by Crunchbase’s extensive data, this page will be continually updated as the next iteration of the internet grows. We hope this data and our analysis serve as resources for readers to track and understand the Web3 landscape and all that it encompasses.

Even with crypto prices slowly creeping upwards, any kind of deal-making involving blockchain and crypto startups has been slow.

While funding is way down — plunging 82% year over year, to just $1.7 billion in the first quarter — M&A deals throughout the beginning of the year appear to be lacking punch, per Crunchbase data.

Although the number of M&A deals in the Web3 space is at the same pace as the last two years, large deals appear to be at a premium.

So far this year, only 16 startups in the area have seen an M&A transaction – compared to 44 for all of last year. However, the only deal with a notable announced price tag occurred last week, when San Francisco-based Ripple made its first acquisition, acquiring Switzerland-based Metaco for $250 million in cash and equity.

Where are the big deals?

That deal was the only one to break $100 million this year, while previous years have seen a handful of such acquisitions.

For example, last October About Capital Management acquired Chinese blockchain asset financial services provider Huobi for a reported $1 billion. About a year before that, India-based Polygon acquired scalable cryptocurrency protocol Mir Protocol for $400 million in December 2021.

In the previous two years, there were nine total M&A deals of $100 million or more – including those from major crypto and fintech companies such as La Jolla, California-based Silvergate Capital, Vancouver-based WonderFi and Montreal-based Nuvei.

Falling valuations

The drop in big money deals undoubtedly has a lot to do with falling valuations. While all industries have been affected by the downturn, it stands to reason that Web3 startups in crypto and blockchain were even more affected.

Web3 began to fall out of favor with investors quickly as last year progressed, with overinflated valuations in a slowing venture market that led many VCs to seek out other, better-defined industries and sectors.

Crypto’s instability didn’t help matters, and when the catastrophic collapse of FTX happened, many predicted doom for all things blockchain and crypto.

However, crypto prices have rallied significantly since the beginning of this year – with both Ether and Bitcoin up more than 50%. While Web3 applications are still struggling – along with the crypto-lending space that led to falling digital asset prices last year – investors appear to have a renewed interest in “picks and shovels” as they try to build out the Web3 infrastructure layer.

The Ripple deal is also promising for the M&A world. The startup is a major payments provider using blockchain — certainly an area of ​​finance that will continue to expand with further crypto adoption.

The value of the deal may also mean that some investors see valuations flattening out. This could bring more buyers off the sidelines who were waiting for the market to reach a low.

A strong M&A market is necessary for any sector to thrive – or even survive. If Web3 is to be a thing, the market will need to see an upturn so that investors can see future departures on the horizon.

Methodology

For Web3 funding figures, we analyze investments made in VC-backed startups in both cryptocurrency and blockchain.

Further reading:

Illustration: Dom Guzman