Venture capital is starting to increase as the crypto market recovers from its most severe bear market.
Industry watchers say that infrastructure projects still need funding. Startups focusing on the intersection between AI and Blockchains will also attract investment.
There were 444 disclosed private financings during the first three months of 2024, according to a report by crypto advisory firm Architect Partners — amounting to $3.1 billion raised.
The capital raised and number of loans increased by 36% each quarter.
The current rate of $12,4 billion would still be 50% less than the total crypto-financing capital seen in 2021 or 2022.
Architect Partners managing partner Eric Risley said he expects the first quarter bump in crypto venture capital funding to persist throughout 2024 and beyond — barring a crypto market crash or regulatory challenges.
“Crypto has recently emerged from a challenging phase marked by fraud, inadequate risk management and instances of irrational exuberance,” He told Blockworks. “Architect Partners is optimistic that enduring lessons have been learned from this period, shaping ongoing best practices as we move into the path to maturity.”
Though the quarter’s number of early-stage financings (seed and Series A) was more than double those seen in the fourth quarter of 2023, the amount of late-stage equity financings rose at a slower rate — by 32% from the prior quarter.
“It’s common for early-stage financing to lead late-stage financing,” Risley added. “In this case, late-stage crypto investors have been adversely impacted by downward reset valuation marks, the outright exit of investors such as Coatue and Tiger, and crypto-focused growth funds like 1RoundTable currently focused on fundraising.”
The money follows you
KPMG executive wrote that in its first quarter Venture Pulse Report, venture capital investors are showing a greater interest in blockchain technology as a backbone to other activities.
As a result of the resurgence in funding for blockchain and crypto projects, several companies have achieved unicorn status.
Polyhedra Network received a valuation of $1 billion from its $20 million fundraising round last month, led by Polychain Capital.
Monad Labs raised $225 million earlier this month as part of a Series A round led by Paradigm — giving it a roughly $2 billion valuation, according to Pitchbook data.
HashKey Group is a provider of crypto financial services in Asia. In January, the company raised $100 million as part a series A funding round valued at $1.2 billion.
Also notably, Eigen Labs’ development studio — responsible for creating Ethereum staking-focused startup EigenLayer — raised $100 million in Series B funding from Andreessen Horowitz in February.
According to Pitchbook analyst Robert Le, infrastructure-based projects could be one of the sub-sectors within crypto which receives more funding in this cycle.
“I still think infrastructure is still underdeveloped,” He cited prices that he had seen at Base. “There’s no way that we can say infrastructure [and blockchains are] mature when you pay $5 to sign a transaction.”
The money he expects to spend on layer-1s will be limited, but he could see some funds going toward layer-2s. “see a lot of capital go into that space.”
ByBit’s report on institutional spending shows that a good chunk of the funds have already been spent in infrastructure projects.
“These projects span a wide range of sectors, from hardware wallets to blockchain data providers, offering essential solutions to address various industry challenges and facilitate innovation,” The report stated.
ByBit’s report highlights, outside of infrastructure projects, two new trends. These are those that leverage AI as well as those built on top of Bitcoin’s blockchain ecosystem.
In February, Exohood Labs — a start-up leveraging AI technology — raised $112 million at a valuation of $1.4 billion.
“Likely the hottest area of investment in the space is [and] will be models that include an overlap of blockchain and AI,” Conor Moore is the Global Head of KPMG Private Enterprise. He spoke to Blockworks. “Also, companies focused on the Lightning Network are getting attention.”
The rise of decentralized network Bittensor and The Render Network — focused on the blockchain-fueled rendering of 3D graphics — exhibit the possibilities of combining blockchain and AI, ByBit’s report notes.
“These technologies’ rapidly evolving natures, combined with regulatory uncertainties, presents both opportunities and risks,” It adds. “As the AI sector continues to expand and evolve, the synergy between these two areas of technological advancement is expected to fuel further innovation and growth in the cryptocurrency space.”
We’re not back…yet
Le warned against getting too excited about the bull market just yet. He told Blockworks that he’s not seeing enough data to firmly say the overall market — much less the VC landscape — is there yet, though the money is coming back.
In a report published on Thursday, Crunchbase noted that three of the largest rounds in last quarter were below $300 million.
KPMG’s Venture Pulse first quarter report stated that the funding of crypto venture capital could continue to grow through the second half of 2018.
Early in the second-quarter, there were some significant raises. Andreessen Horowitz, for example, announced that it had raised $7.2 billion to invest in gaming-related venture funds.
Bloomberg reports that despite a number of smaller transactions, there is a bright future for larger deals. Start-ups such as Citadel’s Hidden Road Partners are looking at raising founding rounds exceeding $100 million. This potential raising follows the $100 million raised by Berachain in early this month.
“The regulatory landscape is still somewhat of an inhibitor to exits,” Moore, from KPMG. “And with so many global elections in the next 12 months, things may get more uncertain on that front.”
KPMG’s executives say that while due diligence on crypto- and blockchain related investment opportunities may delay the influx of funds, venture capital firms have increased their staff to focus specifically on this.
“Due diligence involves a lot, including size of total addressable market, technology ownership and protection…and regulatory concerns, to name a few,” Moore says
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