research • July 04, 2024
Note, all charts and information are based on data collected July 1, 2024. As more deals are reported in the future, the data will change. This report represents a point-in-time based on publicly available data at the time of writing.
Introduction
After a strong Q1 for Bitcoin and liquid cryptos, markets have cooled a bit, though they remain significantly elevated YoY. The crypto venture capital market rebound observed in Q1 appears to be continuing. However, as of July 1st, data still seems slightly less robust than the prevailing sentiment. Founders and investors broadly report a more active fundraising environment than prior quarters.
Deal count dipped slightly QoQ, decreasing from 603 in Q1 to 577 in Q2, while capital invested rose from $2.5bn in Q1 to $3.2bn in Q2. Median deal size increased slightly from $3m to $3.2m, but median pre-money valuation surged dramatically to near all-time highs, rising from $19m to $37m. This suggests that despite a lack of available investment capital compared to previous peaks, the resurgence of the crypto market over the past several quarters is leading to significant competition and a fear of missing out (FOMO) among investors.
Deal Count & Capital Invested
In Q2 2024, venture capitalists invested $3.194bn (+28% QoQ) into crypto and blockchain-focused companies across 577 deals (-4% QoQ).
Capital Invested & Bitcoin Price
The multi-year correlation between Bitcoin price and capital invested into crypto startups has broken down, with Bitcoin rising significantly since January 2023 while venture capital activity has struggled to keep pace. Although BTC has significantly risen YTD, the capital invested has risen but remains far below the levels seen when BTC last traded above $60k in 2021-2022. Crypto-native catalysts, such as Bitcoin ETFs and emerging areas like restaking, modularity, Bitcoin L2s, along with pressures from crypto startup bankruptcies and regulatory challenges, combined with macroeconomic headwinds (rates), have contributed to this notable divergence. Allocators may be preparing to return in earnest due to the resurgence of liquid crypto, potentially leading to increased venture capital activity in the latter half of the year.
VC Investment by Stage
In Q2 2024, 78% of the capital was allocated to early-stage companies, while 20% went to later stage companies. Despite the activity of crypto-focused early-stage venture funds, which still have dry powder from 2021 and 2022, larger generalist venture capital firms have exited the sector or significantly reduced their activity, making it harder for later stage startups to raise funds.
On the deal side, the share of pre-seed deals declined slightly, though remained elevated over prior market cycles.
Valuation & Deal Size
VC-backed crypto company valuations declined significantly in 2023, with Q4 reaching the lowest median pre-money valuation since Q4 2020. However, valuations rebounded modestly in Q1 2024, and then spiked to $37m in Q2 (+94% QoQ), reaching the highest levels since Q4 2021. Note that late reporting and a lack of detailed public valuation data can cause these figures to fluctuate significantly as more data becomes available. We strive to provide this information promptly after quarter-end, so our presented data is always subject to revision, though there is still a signal in this spike. Median deal size rose slightly QoQ (+7%) to $3.2m,but has been mostly flat over the last five quarters. The increase in valuations stems from improved sentiment; despite no significant increase in investment capital, founders have leveraged interest and competition among the existing investor base.
Investment by Category
Companies and projects in the “Web3/NFT/DAO/Metaverse/Gaming” category raised the largest share of crypto VC capital in Q2 2024 (24%), totaling $758m in VC fundraising. The two largest deals in this category were Farcaster, and Zentry, raising $150m and $140m respectively.
Infrastructure, Trading, and Layer 1 companies followed behind with 15%, 12%, and 12% of capital invested, respectively. Notably, the market share of capital invested in the Layer 1 category is up over 6x due to the Monad and Berachain deal, which raised $225m and $100m, respectively. Bitcoin L2s raised $94.6m in Q2 2024, a 174% QoQ increase ($34.7m Q1 2024).
Deal Count by Category
In terms of deal count, Web3 led the way with 19%, driven by an uptick in decentralized social media and gaming-related deals. While there was a decrease in re-staking related crypto startups that raised in Q2, 2024, the infrastructure category ranks second in deal count with 15% of the deals this quarter.
Trading and DeFi related crypto companies followed with 11% and 9% of all deals completed in Q2 2024.
Investment by Stage & Category
Breaking down capital invested and deal count by category and stage gives a clearer picture of what types of companies in each category are raising funds. The vast majority of capital in the Web3, Layer 1, and Infrastructure categories went to early-stage companies and projects. In Q2 2024, VC funding for companies in the Trading category went to more later stage rounds.
Examining the share of capital invested by stage in each category provides insight into the maturity of each investable category.
Deal count tells a similar story. Substantial portions of deals completed in essentially all categories involved early-stage companies and projects.
Examining the share of deals done by stage in each categories offers insight into the various stages of each investable category.
Investment by Geographic Location
In Q2 2024, more than 40% of all deals involved a company headquartered in the United States. The United Kingdom had 10%, Singapore had 8.7%, UAE had 3.13%, and Hong Kong had 2.78%.
Companies headquartered in the United States pulled in 53% of all VC capital invested, a 23.5% QoQ increase. The United Kingdom had 12.78%, Singapore had 4.6%, and the UAE had 4.39%.
Investment by Cohort
The vast majority of deals and capital raised in Q2 2024 involved companies founded between 2021 and 2023.
Key Takeaways
The crypto venture capital sentiment continues to improve, though levels remain significantly lower than the 2021-2022 bull market. With BTC & ETH rising ~50% YTD, capital invested is up 28% QoQ while deal count is mostly flat. If this pace holds through the end of the year, 2024 will see the third-highest investment capital and deal count behind 2021 and 2022.
Web3 and Layer 1s saw notable investment. The Web3 category led the way with about $750m raised, driven by Farcaster ($150m) and Zentry ($140m). Layer1s notably came in fourth with $371m, led by the Monad ($225m) and Berachain ($100m) deals.
Median valuation spiked significantly to the highest since Q4 2021, the peak of the prior bull market. With generalist venture capitalists mostly still on the sidelines due to the challenges of 2022 and macroeconomic headwinds, crypto-focused venture capitalists find 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 on Q2 deals is reported, potentially adjusting the median downward.
Bitcoin L2s continue to see significant investment. Bitcoin Layer 2 companies and projects raised $94.6m, up 174% QoQ. Investor excitement remains high that more composable blockspace will emerge in the Bitcoin ecosystem, attracting models like DeFi and NFTs back to the Bitcoin ecosystem. Our internal research suggests there are at least 65 projects identifying themselves as “Bitcoin Layer 2s.”
Early-stage deals led the way in Q1. Early-stage deals captured nearly 80% of the investment capital and pre-seed deals accounted for 13% of all deals. The continuing interest in early-stage deals bodes well for the long-term health of the broader cryptocurrency ecosystem. While some later-stage companies have struggled to raise capital, entrepreneurs are finding willing investors for new, innovative ideas.
The United States continues to dominate the crypto startup ecosystem. While the U.S. maintains clear leads in deals and capital, regulatory headwinds could force more companies to move abroad. Policymakers should be conscious of how their actions or inactions could impact the cryptocurrency and blockchain ecosystem if the U.S. is to remain the center of technological and financial innovation over the long-term.
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