2024 Q1 Crypto Market Venture Capital Research Report: Project Valuations Are High, Infrastructure Is Still a Hot Investment Spot

By Alex Thorn, Gabe Parker

Compiled by: Xiaobai Navigation coderworld

introduction

Bitcoin and broader liquiditycryptocurrencyThe market surged in Q1 2024, leading to renewed optimism across the industry. The crypto venture capital market appears to be rebounding, although based on information available at the time of writing in mid-April, the data appears slightly bleaker than market sentiment. Overall, founders and investors are reporting a more active funding environment than in previous quarters. After 3 consecutive quarters of declines in deal count and funding, both rose in Q1. While liquiditycryptocurrencyThe market rally can boost sentiment in the venture capital community, but the rate cuts sought at the beginning of the year seem unlikely to happen. Stubborn inflation data, coupled with a generally strong U.S. economy, has led to a lot of hawkish comments from Federal Reserve officials, and as a result, futures markets have lowered expectations for rate cuts in 2024 from 7 cuts in January to 1-2. Higher interest rates will continue to pose challenges for venture funds seeking to raise capital, and therefore, startups seeking to receive investments from these funds.

Number of transactionsMonth-on-month growthThe number of TP3T increased by more than 50%, but the investment funds only increased by 29%. Categories that attracted a lot of venture capital attention included Bitcoin Layer2,pledgeand infrastructure such as developer tools, as well as games. Deal sizes were flat month-over-month, but valuations grew by nearly 1,00%, suggesting that funding remains tight but founders are able to take advantage of improved market sentiment and raise capital with less dilution.

Crypto Market Venture Capital

Number of transactions and investment capital

In the first quarter of 2024, venture capitalistscryptocurrencyMarket andBlockchainThe company invested $2.49 billion (up 29% month-on-month) in 603 deals (up 68% month-on-month).

This is the first increase in investment dollars and deal count in 3 quarters, perhaps signaling a “bottom” in Q4 2023, but the persistence of quarterly growth – and more meaningful growth – will confirm this in the coming quarters.

Investment Funds & Bitcoin Price

While venture capital in the crypto space is often correlated with the price of Bitcoin, that correlation has broken down over the past year, with Bitcoin surging since January 2023 while venture capital activity has mostly languished. Bitcoin surged in the first quarter of 2024, and while investment dollars also rose, activity is still far from the levels seen when Bitcoin last traded above $60,000.L2New areas such as the stock market and the macro headwinds (interest rates) have combined to create significant divergences.

Venture Capital by Stage

In the first quarter of 2024, about 80% of funding went to early-stage companies, while 20% went to later-stage companies. Because crypto-focused early-stage venture funds remain active, and many are still relying on their own fundraising to stay alive in 2021 and 2022, compelling early-stage companies are still able to get funding. But many large integrated venture capital firms have already exited the industry.Xiaobai Navigation, or has significantly reduced its risk exposure, making it more difficult for late-stage startups to raise money.

On the deal side, the share of pre-seed deals increased slightly in the first quarter, indicating growth in newly formed startups.

Valuation and deal size

Venture-backed crypto company valuations fell sharply in 2023, with Q4 reaching the lowest median pre-money valuation since Q4 2020. However, valuations rebounded in Q1 2024 despite median deal size remaining stable QoQ. The data suggests that founders were able to raise the same amount of capital but with less dilution compared to the last quarter of 2023. Meanwhile, the dynamics across the venture capital complex were the opposite – deal sizes fell 50% QoQ while median pre-money valuations were essentially flat, suggesting that founders had to sell more equity to raise the same amount of capital.The rise in valuations may stem from the upturn in market sentiment in the first quarter – despite the lack of more funding, founders were able to take advantage of the improved market sentiment and obtain higher valuations.

Investments by Category

In the first quarter of 2024, companies and projects in the “Infrastructure” category raised the largest share of crypto venture capital (24%), led by EigenLayer’s $100 million round.

Web3 and Trading companies followed closely behind, accounting for 21% and 17% of investment funds respectively.

In terms of transaction number, Web3 leads with a share of 24%, mainly due to the increase in gaming-related transactions.

Infrastructure and Trading followed closely behind, accounting for 15% and 12% of all transactions completed in the first quarter of 2024, respectively.

Investments by stage and category

Breaking down the investment dollars and deal count by category and stage provides a clearer picture of what types of companies are raising funding in each category. The vast majority of funding in the Infrastructure, Web3, and Trading categories went to early-stage companies and projects.

Examining the share of funds in each category’s investment stage provides an understanding of how mature each investable category is in the eyes of investors.

The number of deals tells a similar story. The majority of deals completed in almost all categories involved early-stage companies and projects.

Examining the share of deals completed by stage within each category provides insight into the various stages of each investable category.

Investment by Geography

Despite the tricky regulatory environment, companies headquartered in the United States continue to complete the most financing transactions and raise the most funds from venture investors. In the first quarter of 2024, more than 37.3% of transactions involved companies headquartered in the United States. Singapore was 10.8%, the United Kingdom was 10.2%, Switzerland was 3.5%, and Hong Kong was 3.2%.

Companies headquartered in the United States attracted 42.9% of venture capital funding. Singapore attracted 11.1%, the United Kingdom attracted 9.7%, Hong Kong attracted 7.9%, and France attracted 5.6%.

Investments by cohort

Of the deals completed in the first quarter of 2024, the vast majority involved startups founded between 2021 and 2023, which makes sense given that 2024 has only just begun.

In terms of funding raised, companies founded in 2020-2022 received the most investment.

Crypto Venture Capital Financing

Fundraising for crypto venture funds remains challenging. The combination of macro and turbulence in crypto market infrastructure has prevented some investors from making the same level of commitment to crypto as they did in 2021 and 2022. 2024 began with investors generally expecting a sharp rate cut in 2024, but throughout the first quarter, strong inflation data tempered expectations for rate cuts this year, helping to maintain a difficult fundraising environment for venture capitalists. While the total amount of funds allocated to crypto venture capital funds fell month-on-month, the number of new funds increased, with at least 22 new funds announced.

On an annual basis, the average fund size continued to decline in 2024, but the median size increased slightly.

In terms of the sources of allocator flows, crypto-focused funds are still struggling to raise capital from traditional allocators, who accounted for a small portion of new allocations in the first quarter.

Key Takeaways

• Mood and activity are improving but remain well below previous levelsBull Marketlevel during the period.While digital asset markets have rebounded sharply from their 2023 lows, venture capital has lagged significantly. In previous bull markets (such as 2017 and 2021), the correlation between venture capital funding and liquid crypto asset prices was high, but in 2023 and 2024, venture capital remained well below previous levels while cryptocurrencies rebounded. There are many reasons for the stagnation of venture capital: the high interest rate environment has suppressed risk appetite; there is still weak sentiment remnant in the crypto market after the big outbreak in 2022; and there may be a lack of enough late-stage companies that can accept large venture capital funds. Therefore, in terms of funding and number of deals, early-stage companies have accounted for the largest share of venture capital activity. In fact, while the total amount of investment increased only slightly month-on-month, the number of deals increased by 50%, with the majority of deals occurring in Series A financing or earlier.

• Early-stage deals dominated the first quarter.The continued focus on early-stage deals bodes well for the long-term health of the broader cryptocurrency ecosystem. While later-stage companies have struggled to raise funding, entrepreneurs are finding willing investors for new, innovative ideas. These projects and companies are building scaling solutions, games, tools, and services at the intersection of AI and cryptocurrency.

• BitcoinETFMay give funds andStartupsBring pressure.The launch of a spot-based Bitcoin ETF in the U.S. provides investors of all sizes with an easy way to gain exposure to Bitcoin. While the more liquid Bitcoin is obviously not exactly the same as investing in a crypto startup, it may satisfy some investors and allocators’ need for exposure to the cryptocurrency ecosystem. ETFs are regulated, available on nearly all brokerage platforms, have low fees, and high liquidity. Bitcoin ETFs have the potential to also challenge stocks tied to cryptocurrencies, which have historically been an investment outlet for the industry.

• BitcoinL2The project has attracted strong interest from venture capital investors.2024年第一季度，加密风险投资者最集中的押注之一是投资比特币L2的项目。2023年的Ordinals的出现，随后创建的BRC-20TokenStandard, and now RunesTokenStandards have prompted people to view Bitcoin as a platform network rather than just a currency network. Dozens of teams have tried to build new second-layer networks on Bitcoin, many of which rely on and leverage layered expansion technologies developed in the Ethereum ecosystem (i.e. optimistic rollups, zk rollups, re-staking primitives, bridging protocols, etc.), and venture capitalists have invested heavily in these transactions.

• The Web3 and Transaction categories still dominate in terms of transaction volume and funding, but there has also been a surge in transactions in the Infrastructure sector.The Web3 and Transaction categories still lead in terms of both funds raised and transactions completed, but “Infrastructure” actually ranks first in funding and second in transactions in Q1 2024. This category is indeed broad (all three categories are broad), but the Infrastructure category broadly includes staking, re-staking, platform tools, sequencing services, or other orientedBlockchainTools for developers and users. EigenLayer’s $1 billion funding round leads investment in infrastructure funding.

• Although new, smaller funds have begun to see some fundraising success, fund managers still face a difficult environment.The number of newly launched funds increased month-over-month to 22 in Q1, but the total amount of capital allocated to crypto-focused venture fund managers continued to decline. Understandably, the average fund size ($108 million) declined month-over-month, while the median fund size ($65 million) rose only slightly. As mentioned above, crypto VC funds have struggled to raise capital since 2022, following the bankruptcies of several venture-backed crypto companies and rising U.S. interest rates, which reduced allocators’ risk appetite. If the price and launch rates of liquid cryptocurrencies continue to grow, and some large VC funds succeed in raising large funds, we expect the VC market to loosen up again and managers to achieve greater success.

• The U.S. continues to dominate the crypto industryStartupsecosystem.While the U.S. maintains a clear lead in transactions and funding, regulatory resistance in the U.S. could force more companies to go abroad. If the U.S. is to remain a center of technological innovation in the long term, policymakers should be aware of how their actions or inactions could affect cryptocurrencies andBlockchainecosystem.

The article comes from the Internet:2024 Q1 Crypto Market Venture Capital Research Report: Project Valuations Are High, Infrastructure Is Still a Hot Investment Spot

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