Graph Foundation Director: BTC Rally Fails to Rekindle Investor Interest in Crypto Startups

According to a director of a non-profit organization, investors’ growing interest in artificial intelligence (AI) may be diverting funds away from crypto startups. The director suggested that the diminished investor interest, even with a rising crypto market, supports this assertion. The director said the diminished interest could be due to a lack of awareness about recent crypto developments.

BTC Rally Fails to Ignite Investor Interest

The surge in investors’ interest in artificial intelligence (AI)-related projects may be partly responsible for the slight drop in the number of funding deals for crypto startups by venture capital firms, according to Eva Beylin. To support this assertion, Beylin, a director at The Graph Foundation, points to the significantly more money raised by AI firms in fewer funding rounds compared to crypto startups. One of those firms, Elon Musk’s xai, reportedly raised $6 billion in a single round.

In contrast, the recent Pitchbook report noted that crypto startups were only able to raise $2.7 billion in Q2 of 2024. While this was a 2.5% increase, the report data nevertheless shows that the number of such funding deals dropped by 12.5%. The report attributed this drop to the larger average deal sizes recorded in Q2 versus Q1. However, the level of venture capital funding for crypto startups indicates that investors are less enthusiastic about crypto than they were in 2021 and 2022.

The reduced VC appetite for crypto-related projects also came against the backdrop of a rising crypto market. According to the Pitchbook report, the year-over-year and year-to-date VC deal value growth stood at -9.8% and -11.7% respectively, further reinforcing the view that the rallying BTC and the crypto market in general have failed to reignite investor enthusiasm seen more than two years.

Beylin meanwhile argued that investors could be hesitant because they are unaware of recent developments within the crypto space, such as the success of crypto exchange-traded funds (ETFs) or the increasing adoption of consumer-facing on-chain applications.

Investors Favor Early-Stage Startups

Reacting to another report that suggested VC investors seem to prefer investing in early-stage startups over later-stage companies, Beylin said:

Since the crypto market has historically yielded strong returns for early-stage investors, many VCs continue to prioritize early-stage investments. The relatively low number of initial public offerings (IPOs) may have diminished interest — at least in the short term — in growth equity rounds, leading to a greater focus on early-stage opportunities.

Meanwhile, when asked why the U.S., which some see as hostile to the crypto industry, continues to be one of the best hubs for crypto startups, Beylin suggested that this may be due to factors such as its talent pool, easy access to capital, and a proven track record of successful crypto ventures.

Still, the Graph Foundation director admits that other jurisdictions will eventually overtake the U.S., particularly in areas where it lags, such as tokenization or the integration of stablecoins into government payment systems.

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