Original title: Crypto & Blockchain Venture Capital – Q2 2024
Original author: Alex Thorn, Gabe Parker
Original source: galaxy
Translated by: Eason, Mars Finance
Please note that all charts and information are based on data collected on July 1, 2024. Data will change as more transactions are reported in the future. This report is based on publicly available data at the time of writing and represents a point in time.
Cryptocurrency venture capital rebounds in second quarter
introduce
After a strong first quarter for Bitcoin and liquid cryptocurrencies, the market has cooled slightly but is still up sharply year-over-year. The crypto venture capital market rally observed in Q1 appears to be continuing. However, as of July 1, the data still appears to be slightly below the general sentiment. Founders and investors generally report that the funding environment is more active than in previous quarters.
The number of deals fell slightly quarter-over-quarter, from 603 in Q1 to 577 in Q2, while investment capital increased from $2.5 billion in Q1 to $3.2 billion in Q2. The median deal size increased slightly from $3 million to $3.2 million, but the median pre-money valuation surged to near-all-time highs, from $19 million to $37 million. This suggests that despite the lack of available investment capital compared to previous peaks, the crypto market recovery over the past few quarters is leading to intense competition and missed opportunities (FOMO) among investors.
Number of transactions and investment capital
In Q2 2024, venture capitalists invested $3.194 billion (up 28% QoQ) in cryptocurrency and blockchain-focused companies across 577 deals (down 4% QoQ).
Investment Capital and Bitcoin Price
A multi-year correlation between Bitcoin prices and capital invested in cryptocurrency startups has been broken, with Bitcoin rising sharply since January 2023 while venture capital activity struggles to keep pace. While BTC has surged so far this year, investment capital has increased but is still well below the levels it was when BTC last traded above $60,000 in 2021-2022. Crypto-native catalysts such as Bitcoin ETFs and emerging areas such as re-staking, modularity, Bitcoin L2, and the pressure of crypto startup bankruptcies and regulatory challenges, combined with macroeconomic headwinds (interest rates), have led to this significant Disagreement. Allocators may be preparing to return in earnest due to the resurgence of liquid cryptocurrencies, which could lead to increased venture capital activity in the second half of the year.
Stages of venture capital investment
In the second quarter of 2024, 78% of funding was allocated to early-stage companies, while 20% was allocated to later-stage companies. While early-stage VC funds focused on cryptocurrencies are active and still have funding for 2021 and 2022, large, comprehensive VC firms have exited the space or significantly reduced activity, making it more difficult for later-stage startups to raise funds.
In terms of deals, the share of pre-seed deals declined slightly but remains high compared to previous market cycles.
Valuation and deal size
Valuations of venture-backed crypto companies fell sharply in 2023, with Q4 reaching the lowest median pre-money valuation since Q4 2020. However, valuations rebounded slightly in Q1 2024 before surging to $37M in Q2 (up 94% Q/Q), the highest level since Q4 2021. Note that reporting delays and a lack of detailed public valuation data can cause these numbers to fluctuate significantly as more data becomes available. We strive to provide this information promptly after quarter end, so the data we provide is subject to revision, though there is still a signal in this surge. Median deal size rose slightly Q/Q (+7%) to $3.2M, but has been essentially flat over the past five quarters. The rise in valuations stems from improved sentiment; despite no significant increase in invested capital, founders have taken advantage of interest and competition among the existing investor base.
Investment Type
Companies and projects in the “Web3/NFT/DAO/Metaverse/Gaming” category raised the largest share (24%) of crypto VC capital in Q2 2024, with $758 million in total VC funding. The two largest deals in this category were Farcaster and Zentry, which raised $150 million and $140 million, respectively.
Infrastructure, Exchanges, and Layer 1 companies followed closely behind, accounting for 15%, 12%, and 12% of invested capital, respectively. Notably, the Layer 1 category grew its market share of invested capital by more than 6x, thanks to Monad and Berachain exchanges raising $225 million and $100 million, respectively. Bitcoin L2s raised $94.6 million in Q2 2024, up 174% QoQ ($34.7 million in Q1 2024).
Number of transactions by category
In terms of deal count, Web3 leads with 19%, driven by an increase in decentralized social media and gaming-related deals. While the number of restaking-related cryptocurrency startups raised declined in Q2 2024, the infrastructure category ranked second in deal count, accounting for 15% of deals this quarter.
Close behind are trading and DeFi-related cryptocurrency companies, accounting for 11% and 9% of all deals completed in Q2 2024.
Investments by stage and category
Breaking down investment capital 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 Web3, Layer 1, and Infrastructure categories went to early-stage companies and projects. Venture capital funding for companies in the Deals category went to more later-stage rounds in Q2 2024.
Examining the share of capital invested in each category by stage provides insight into the maturity of each investable category.
The number of deals tells a similar story. A large portion 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
More than 40% of deals in the second quarter of 2024 involved companies headquartered in the United States. The United Kingdom accounted for 10%, Singapore for 8.7%, the United Arab Emirates for 3.13%, and Hong Kong for 2.78%.
Companies headquartered in the United States attracted 53% of all venture capital funding, up 23.5% month-on-month. The United Kingdom attracted 12.78%, Singapore 4.6%, and the United Arab Emirates 4.39%.
Group Investment
The vast majority of deals and funds raised in Q2 2024 involved companies founded between 2021 and 2023.
Key Takeaways
Crypto venture capital sentiment continues to improve, although levels remain well below the 2021-2022 bull run. With BTC and ETH up about 50% year-to-date, invested capital is up 28% month-over-month, while deal count is roughly flat. If this pace holds through the end of the year, 2024 would rank third in terms of invested capital and deal count, behind only 2021 and 2022.
Web3 and Layer 1s received significant investment. The Web3 category led with approximately $750 million in funding, led by Farcaster ($150 million) and Zentry ($140 million). Layer1s ranked fourth with $371 million, led by Monad ($225 million) and Berachain ($100 million).
Median valuations surged to their highest level since Q4 2021, the peak of the last bull run. While generalist VCs have mostly remained on the sidelines due to the challenges and macroeconomic headwinds in 2022, crypto-focused VCs have found themselves in a more competitive environment, giving founders more leverage in negotiating terms. Note that this median is based on available data as of July 1 and may be updated as more information about Q2 deals is reported, which could revise the median downward.
Bitcoin L2 continues to receive significant investment. Bitcoin Layer 2 companies and projects raised $94.6 million, up 174% month-over-month. Investors remain excited about the emergence of more composable blockspaces in the Bitcoin ecosystem, attracting models like DeFi and NFTs back into the Bitcoin ecosystem. Our internal research shows that at least 65 projects call themselves "Bitcoin Layer 2."
Early-stage deals led the way in Q1. Early-stage deals accounted for nearly 80% of invested capital, with pre-seed deals accounting for 13% of all deals. Continued interest in early-stage deals bodes well for the long-term health of the broader cryptocurrency ecosystem. While some late-stage companies struggle to raise funding, entrepreneurs are finding willing investors for new and innovative ideas.
The United States continues to dominate the cryptocurrency startup ecosystem. While the U.S. maintains a clear lead in transactions and capital, regulatory resistance may force more companies to move overseas. If the United States is to remain a center of technological and financial innovation in the long term, policymakers should be aware of how their actions or inactions will affect the cryptocurrency and blockchain ecosystem.