Original Author: Tiffany Monteverde
Compiled by: Luke, Mars Finance
For over two years, I have been helping venture capital firms (VCs) find investment opportunities and provide financing support for startups. Since the beginning of 2023, I have officially started building a database on venture capital and startup financing. Initially, this was just a personal management tool that did not require in-depth analysis, as real-time interactions with startups and venture capital firms had already given me a good understanding of the market.
However, after reviewing over 1,000 startups in 2024, I believe I have collected meaningful data. With Notion's recent upgrades in data visualization through charts, reflecting on the year to see what insights my database can provide is undoubtedly the best approach!
Hot Areas
In all the reviewed transactions, infrastructure remains the dominant category for financing, followed by decentralized finance (DeFi). Compared to 2023, data analytics and tools startups have seen a significant decline, while decentralized physical infrastructure (DePIN), gaming, and consumer-facing applications have seen an increase this year.
The reason for this change in demand is market sentiment. As the market recovers and on-chain activity surges, we see an increase in interest in consumer-facing applications.
Another factor to consider is that the startup costs in certain areas are relatively high, not to mention the costs required to build excitement and a strong community prior to TGE (Token Generation Event). Especially in the infrastructure and DeFi sectors, financing needs to account for expenses related to technology development, liquidity/startup funding, marketing, and business development.
Not all startups are suited for venture capital. The availability of infrastructure tools today makes it easier to launch prototypes, test, and iterate, which has become a popular way to test and validate through Telegram mini-apps (to be discussed in detail later).
Major Subfields
When Bitcoin (BTC) prices rose in the first quarter, the focus of investment remained on the infrastructure sector, further concentrating on the Bitcoin ecosystem, particularly with increased demand for certain use cases (such as staking, cross-chain liquidity, etc.). This is reflected in the subfield chart, where the number of startups focusing on the Bitcoin ecosystem sharply increased in the second quarter as they captured some of the venture capital attention.
When it comes to the market, we typically see a correlation between prices (i.e., Bitcoin) and venture capital deployment, which in turn affects the growth of startup financing and valuation (to be discussed in detail later).
The increase in transaction volume in this specific field often repeats the pattern of venture capital deployment, similar to the significant increase in the number of transactions built on the Telegram / TON ecosystem, which was a reaction following Pantera Capital's announcement of investment in May. As a result, Telegram has become a popular platform for rapid release, helping startups to test and validate user demand while building community engagement.
Another area that continues to attract attention and excitement is the intersection of crypto and artificial intelligence (AI). The number of transactions in the AI/machine learning (ML) field continues to increase and has maintained a leading position in 2023, with startups not only attracting the interest of venture capital but also drawing the attention of both crypto and non-crypto users who are closely following the evolving AI landscape.
Another notable phenomenon from these charts is that despite a quiet market with a lack of excitement from the second quarter to the third quarter, there was a surge of transactions in September. This was primarily due to the market's expectations of a bull market at the end of 2024 to early 2025, with many projects trying to seize the opportunity to launch their tokens in anticipation of the expected market momentum.
When will the tokens go live?
As previously mentioned regarding the expectations of a bull market and the timing of token releases, the fourth quarter of 2024 is undoubtedly the most popular quarter for token releases, followed by the third quarter of 2024 and the first quarter of 2025.
The cost of successfully launching a token is relatively high, requiring efforts through strong partnerships, listing partners, market makers, and liquidity providers to attract community attention and gain exposure through marketing campaigns. This has led many startups to choose fundraising in the private sale/pre-TGE round and KOL (Key Opinion Leader) round to ensure sufficient funding before the token launch.
If we look back at the timing when startups decided to raise funds before TGE, assuming that the 'deal inbound' date is an alternative indicator for the start date of the round, most startups plan their financing rounds a quarter in advance, expecting to achieve their fundraising goals by the time of the token release.
If you closely observe the number of open financing rounds in the third and fourth quarters of 2024, you will notice that some transactions plan to conduct TGE in the corresponding quarters. This is likely because some startups failed to meet their fundraising goals in time, ultimately delaying the TGE date to ensure everything is ready upon release.
Based on my experience working with Web3 startups and venture capital firms since 2022, although there is a slight increase in the deployment of venture capital in 2024, it has not fully recovered, and the recovery remains slow in 2023 and 2024. This is also reflected in the aforementioned observations regarding the deal inbound date and planned TGE date, where many startups struggle to raise sufficient venture capital and complete financing, thus having to postpone TGE.
Valuation Changes
By analyzing the trend of monthly transaction volumes along with venture capital deployment and TGE trends in relation to changes in market sentiment, it is quite interesting to observe that the average valuation of financing rounds shows a downward trend throughout this year.
Average valuations are closely related to the phase of the round (seed round, private sale/pre-TGE round, Series A, etc.); they typically reflect the maturity of the product/business and whether the startup has previously raised funding.
In my dataset, about 45% of startups are in the seed round, 32% are in the private sale/pre-TGE round, and 19% are before the seed round; the rest include OTC, Series A, and Series B.
There may be two factors causing the decline in valuation:
Venture Capital Deployment and Demand As mentioned earlier, the deployment of venture capital in 2024 has not significantly increased compared to 2023 (see Galaxy's report), and it is closely related to market prices (especially Bitcoin's volatility), which naturally makes it difficult for many startups to raise funds and meet their fundraising goals as planned.
The Response of Retail Investors and the Market to Public Token Releases Poor market sentiment and the historical trend of overvaluation during token releases have dampened retail investors' enthusiasm. Many feel excluded by venture capitalists, who obtained early shares at discounted prices, leaving retail investors facing the pressure of buying into tokens with high valuations, while the high return potential of these tokens seems out of reach. Many projects that launched tokens earlier this year even failed to maintain their initial valuation at release, with the vast majority of tokens trading at significantly lower valuations post-release.
In response to this, startups are beginning to adopt lower valuations during fundraising to prevent prices from being too high at TGE, thereby restoring retail investor confidence and ensuring more sustainable market dynamics.
Summary
Although historical data and patterns can never accurately predict the future, understanding the dynamics and interconnections between the market, venture capital, and startups is still quite valuable, as these three elements intertwine to form a delicate balance.
The only guarantee in this industry is: the crypto field will never disappoint—it truly is a 'wild west' full of variables, and we must be prepared for the unexpected.
