Web3 Funding Shifts Toward Later-Stage Firms, Raising the Bar for Founders

Web3 companies can still raise capital, but founders can no longer count on a strong market story to do the heavy lifting. The money is flowing disproportionately to later-stage businesses, and investors are pressing earlier for evidence that customers need the product and will keep using it when token incentives fade.

The figures point to a market that is selective rather than shut. Galaxy Research counted about $5.7 billion invested in crypto and blockchain companies in the second quarter of 2026, up 31% from the previous quarter. Yet nearly 80% went to later-stage companies. Startup valuations had also fallen sharply from their late-2025 highs, while Galaxy recorded just five newly raised crypto funds in the quarter, the lowest quarterly count in several years.

September offered another measure of the change. FinDaS tracked $1.05 billion across 48 Web3 funding rounds, below its prior 12-month monthly averages of $2.01 billion and nearly 67 rounds. Money remains available; the assumption that a promising company can raise it easily is what’s eroding. For founders willing to build through that shift, the tougher market may produce businesses with firmer foundations.

Varun Datta, venture capitalist and CEO of Truth Ventures, argues that this change is pushing Web3 investors to look past market narratives and test the underlying business sooner. That shift affects how founders use capital, what kinds of products attract attention and how investors judge early-stage teams.

Investors want a clear problem behind the pitch

During periods of abundant funding, a persuasive technology thesis, experienced founders and a plausible token model could carry a company a long way. Some ventures funded in those conditions became valuable contributors to the sector. The capital also let teams test products and business models that conventional investors might have passed over.

But easy fundraising could leave basic business questions unanswered. Who needs the product? What does it do better than an existing option? How does the company earn money? And does the proposition still hold if token prices fall or rewards become less attractive? Those questions are moving earlier in investor conversations, as fewer companies can rely on another large round to buy time.

For early-stage infrastructure investors, that doesn’t mean every company must arrive with significant revenue or a finished product. At Truth Ventures, Datta says, teams may still be building and have little revenue when they first meet investors. The more useful test is whether founders understand the problem deeply enough to explain what they are trying to solve and why it matters.

There’s a difference between uncertainty because a product hasn’t been built yet and uncertainty because nobody has established a reason to build it. In a selective market, that distinction carries more weight. Datta has also warned that investors can mistake consensus for discipline when they gravitate only to categories another company has already validated. Careful investing should still leave room to identify an opportunity before it becomes obvious.

Less capital changes the order of decisions

When a company can’t assume another funding round will arrive in 12 or 18 months, it has to make its existing resources last. Teams may stay smaller and expansion may slow. Founders also have stronger reasons to focus on the features customers value, retain those customers and bring revenue into the plan earlier.

That discipline matters in Web3 because token rewards can blur the difference between genuine adoption and activity driven by subsidies. Tokens can help coordinate decentralised networks, attract early participants and distribute ownership. The challenge is knowing whether users value the product itself or the financial reward for using it.

Rapidly rising protocol activity doesn’t settle that question. If usage depends on incentives, founders and investors need to understand what happens when those rewards decrease. Datta’s more telling test is whether the underlying product gains value as the network develops. That puts attention on continued use and product utility, rather than activity counts in isolation.

Infrastructure can offer a clearer case when it solves a persistent problem. In his recent consideration of AI agents and the infrastructure behind a potential machine economy, Datta focused on the supporting systems autonomous transactions might need: settlement, metering and identity. The investment question, in that framing, is not only which agent or wallet will find users. It’s also which underlying services a larger network of autonomous transactions would require.

The logic extends beyond AI. Products addressing scalability, privacy, settlement, identity, liquidity or interoperability can have a reason to exist regardless of whether Web3 is attracting widespread attention. If adoption grows, the problems those systems address may grow with it. That makes the durability of the need a more useful starting point than the market’s mood at any one moment.

Capital is finding practical infrastructure

Galaxy’s second-quarter figures show trading, exchanges, investing and lending attracting the largest share of capital. Investment also reached DeFi, privacy and security, tokenisation, AI and infrastructure. Those categories span both financial products and the systems needed to support them, but they don’t amount to a reliable instruction for founders to follow the latest funding trend.

A September transaction involving digital asset data provider Kaiko illustrates the appeal of infrastructure with a clear customer need. S&P Global led a strategic investment in the company, building on an existing relationship that includes bringing financial benchmarks onchain. Kaiko works with more than 250 financial firms, institutions and regulators.

If more financial markets operate onchain, participants need reliable data, analytics, benchmarks and infrastructure. The demand for those services doesn’t hinge on whether a particular token rises or falls next month. That clarity helps explain why foundational tools can attract attention from established market participants.

Still, a founder who pivots toward whatever investors currently favour may be building around a temporary preference instead of a lasting customer problem. Venture capital moves in cycles. A company is better served by founders who know their problem firsthand and can show what they’ve learned about it. Investors’ greater scrutiny makes that understanding harder to fake.

Technology needs a path to lasting value

Early-stage numbers often leave room for interpretation. A young company may have little revenue, and the market it hopes to serve may not yet exist at scale. That is particularly common in Web3 infrastructure, where investors sometimes back systems for markets still taking shape. A founder’s reasoning matters alongside whatever traction is available.

Datta looks for why a team chose its problem, what it has discovered that outsiders might miss, and whether it can recognize where its assumptions could be wrong. A business model that depends on regulators permanently ignoring an activity would also raise questions about the company’s assumptions. Founders don’t need to predict every policy change to explain how their business works.

Defensibility requires similar scrutiny. Strong technology is useful, but it doesn’t automatically create a lasting business. Distribution, network effects, proprietary data, developer adoption, integrations and the cost of replacing infrastructure can all help a product hold its position as customers come to depend on it.

As Web3 matures, evaluating a company increasingly means examining it as a technology business: its customers, economics, adoption and reasons for staying power. Decentralised networks still create opportunities that don’t map neatly onto conventional software companies, and funding can still rush into particular parts of the market. But founders can’t build a plan that depends on those periods lasting indefinitely.

The current numbers show that capital is moving through the sector, though it is concentrated more heavily in later-stage businesses and fewer new funds are being raised. For founders, the practical task is to demonstrate that demand is real, the economics make sense and customers have a reason to return when market enthusiasm changes. A company that can show those qualities has a better chance of surviving a downturn and being ready when its infrastructure becomes necessary.

Ambitious ideas still matter in Web3. The challenge is connecting them to products people need and businesses that can endure after the funding cycle turns.

About Varun Datta

Varun Datta is the founder and CEO of Truth Ventures, an early-stage venture capital firm investing in Web3 infrastructure and decentralised technologies. His focus includes developer infrastructure, decentralised AI, DePIN, privacy and scalability. He writes about identifying durable value as the Web3 market matures.

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