Crypto-focusedventurecapitalfirmsarestrugglingtoraisefundsdespitethebullishcryptomarkets,accordingtothelatestreportfromGalaxyDigitalResearch.Thereport,whichexaminescryptoVCfundraisingandthenumberofnewfunds,showsthattherewereonlyeightnewfundsinQ3of2024,andtheyraisedacombined$140million,thelowestsinceQ3of2020.
Accordingtothereport,thedeclineincapitalallocationtocryptoVCcontinuesatrendthatstartedinQ3of2023.Sincethen,theallocationhasbeenfallingquarteronquarter(QoQ)toitscurrentlevel.Thereportattributedthistoeventsin2022and2023,whichcausedmanyinvestorstowithdrawfromthecryptosector.
Itsaid:
“Themacroenvironmentandturmoilinthecryptomarketfrom2022and2023hascombinedtodissuadesomeallocatorsfrommakingthesamelevelofcommitmentstocryptoventureinvestorsthattheydidin2021andearly2022.”
Withthecontinuousdeclineincapitalallocation,thiscouldbecometheworstyearforcryptoVCintermsoffundraisingsince2020.Sofar,39newfundshaveraisedjust$1.91billion,andmostoftheVCshaveraisedsmallercapital.Theaverageandmedianfundsizesin2024arethelowestsince2017.
VCinvestmentsintocryptocompaniesfall20%inQ32024
Meanwhile,justasfewernewVCfundsfocusoncrypto,existingVCshavealsopulledbackontheircryptoinvestments.Inthethirdquarterof2024,VCsinvestedonly$2.4billionintoblockchainandcryptostartupsacross478deals.Thisrepresentsa20%QoQdeclineinvalueanda17%fallinthenumberofdeals.
Asthereportnoted,acontinuationofthistrendcouldsee2024endatthesamelevelorslightlylowerthan2023regardingVCinvestingincrypto.Already,thisyearhasmarkedasharpdeparturefromthecorrelationbetweenBitcoinperformanceandinvestmentincryptostartups.
Thisisduetomultiplefactors,includingBitcoinnowenjoyingmostoftheattention,thankstothespotexchange-tradedfunds(ETFs)thathavefueledthiscurrentbullrun.BesidesBTC,memecoinhasalsobeenresponsibleformostoftheon-chainactivity,forcingmanytraditionalVCstoshiftattentionawayfromcrypto.
“Weakallocatorinterestincryptoventure,andventurebroadly,combinedwithmarketnarrativesthatfavorBitcoinandhaveleftoutmanyofthehotnarrativesfrom2021canpartiallyexplainthedivergence.”
Still,crypto-focusedVCsarepouringmoneyintotheindustry,evenifnotatpreviouslevels.Mostinvestments(85%)wereinearly-stagecompanies,whiletherestwereinmoreestablishedcompanies.However,theVCpullbackfromcryptostartupsisalsounderstandable,givenhowthevaluationofthesedealsplummeted.Thepositivenewsisthatvaluationisstartingtorebound,withtheaveragedealsizebyQ3of2024nowat$3.5millionandthemedianpre-moneyvaluationat$23million,thehighestlevelsince2022.
DeFi,Layer-1networks,andAIcategoriesattractingthemostVCinvestment
DespitetheVCs’fundallocationfallinginQ3,distributionwasuneven.MostVCfundraisingcurrentlyfavorsstartupsinthedecentralizedfinancesector,whichareprojectsfocusedonlending,trading,exchanges,andinvesting.
Companiesinthesesectorsraised$462.3million(18.43%)ofallVCfundraisinginQ3of2024.Othertop-performingsectorsincludetheLayer-1sector,withover$400million,andtheWeb3/NFT/Gaming/DAOsector,withover$350.
However,theWeb3sectorsawa39%declineinitsVCfundingthisquarter,comparedtotheDeFisector,whichsawa50%increase.Nevertheless,theAI-focusedcryptoprojectssawthemostincreaseinVCfunding,witha500%risethatledtoover$250millioninfundraising.ThisprovesthatVCsarehotforartificialintelligence,eveninthecryptoindustry.
Interestingly,cryptostartupsbasedintheUSsawthemostfundingfromVCs,as44%ofthedealshadrecipientsintheUS.Thishappeneddespitethecountry’slackofregulatoryclarity,butitdoesnotcomeasatotalshockgiventhat55%ofthecapitalinvestmentswerealsofromUS-basedVCs.
cryptopolitan.com