Galaxy Digital Q2 Crypto Venture Capital Report: Significant year-on-year growth, still far behind the previous bull market

Compiled by: Yangz, Techub News

Compared to the strong performance of Bitcoin and liquid cryptocurrencies in the first quarter, the market in the second quarter cooled slightly, but there was still significant growth compared to the same period last year. The crypto VC rally seen in the first quarter appears to be continuing. The performance of industry founders and investors in the second quarter means that the financing environment is more active than in previous quarters. However, as of July 1, the data performed slightly worse than the prevailing market sentiment.

The number of industry venture capital deals in the second quarter dropped slightly from 603 in the first quarter to 577 in the second quarter, while investment capital increased from US$2.5 billion in the first quarter to 32 in the second quarter. One hundred million U.S. dollars. The median deal size increased slightly from $3 million to $3.2 million, but the median pre-money valuation increased from $19 million to $37 million, near all-time highs. The data suggests that the cryptocurrency market’s recovery over the past few quarters has created intense competition and FOMO among investors, despite a lack of available investment capital compared to previous peaks.

Deal Number and Invested Capital

In Q2 2024, VCs invested $3.194 billion in cryptocurrency and blockchain companies (up 28% quarter-on-quarter), involving 577 deals (down 4% quarter-over-quarter).

INVESTMENT CAPITAL AND BITCOIN PRICE

The multi-year correlation between Bitcoin price and capital invested in cryptocurrency startups has broken down. Bitcoin has surged since January 2023, while venture capital activity has not kept pace. While Bitcoin has surged this year and invested capital has risen, it is still well below levels seen in 2021-2022 when Bitcoin tops $60,000. Crypto-native catalysts such as Bitcoin ETFs and emerging areas (e.g. restaking, modular, Bitcoin L2), as well as pressure from crypto startup bankruptcies and regulatory challenges, coupled with macroeconomic headwinds (interest rates), have led to Such a clear divide. Now, with the resurgence of liquid cryptocurrencies, VCs are preparing to return, with increased VC activity in the second half of the year.

Stage division of venture capital

In the second quarter of 2024, 78% of funds were allocated to companies in the early stages of financing, and 20% were allocated to companies in the later stages of financing. While early-stage crypto-focused VC funds are active and have reserves left over from 2021 and 2022, large integrated VC firms appear to have exited the industry or significantly scaled back activity, leaving late-stage startups more vulnerable Difficulty raising funds.

In terms of transaction volume, the share of Pre-Seed round transactions has declined slightly, but is still higher than the previous market cycle.

Valuations and Deal Sizes

Venture capital-backed cryptocurrency company valuations fell significantly in 2023, falling to the lowest median pre-money valuation since Q4 2020 in the fourth quarter. However, by the first quarter of 2024, valuations of venture-backed cryptocurrency companies began to rebound, surging to $37 million in the second quarter (a 94% sequential increase), reaching their highest level since the fourth quarter of 2021. It's important to note that reporting delays and a lack of public valuation data can cause these numbers to fluctuate significantly as more data becomes available. We strive to provide this information in a timely manner after the quarter ends, so the data is subject to revision, but this spike is still a signal. Additionally, the median deal size increased slightly quarter-over-quarter (+7%) to $3.2 million, which was essentially the same as the past five quarters. The increase in valuations stems from improving market sentiment; although there has been no significant increase in investment capital, founders have captured interest and competition from the existing investor base.

Investment Categories

In the second quarter of 2024, cryptocurrency companies and projects in the "Web3/NFT/DAO/Metaverse/Games" category raised a total of $758 million in crypto venture capital, across all categories The largest proportion (24%). The two largest deals in this category were Farcaster and Zentry , which raised $150 million and $140 million respectively.

Following closely are companies/projects related to infrastructure, transactions and L1, accounting for 15%, 12% and 12% of investments respectively. Notably, the market share of investment capital in the L1 category grew more than 6x as Monad and Berachain raised $225 million and $100 million respectively. Additionally, Bitcoin L2 raised $94.6 million in Q2 2024, a 174% sequential increase ($34.7 million in Q1).

Category division of transaction volume

In terms of transaction volume, the "Web3 / NFT / DAO / Metaverse / Game" category is far ahead with a ratio of 19%, which is mainly due to decentralized social media and games Increase in related transactions. While the number of restaking-related crypto startup financings declined in Q2 2024, the infrastructure category ranked second in terms of deal count during the quarter at 15%.

Following them are cryptocurrency companies/projects related to trading and DeFi, accounting for 11% and 9% of the total number of completed transactions in Q2 2024 respectively.

Venture Capital by Stage and Category Breakdown

Breaking down invested capital and deal volume by stage and category gives a clearer picture of what types of companies in each category are raising funds. In Q2 2024, the vast majority of funding in the Web3, L1, and Infrastructure categories went to early-stage companies and projects, while venture capital in the Deals category went more toward companies in the later stages of funding.

By studying the share of capital invested in each category at each stage, you can gain insights into the maturity of each type of investable capital.

Furthermore, the number of transactions also tells a similar story. A significant portion of completed deals across nearly all categories involved early-stage companies and projects.

Gain insight into the various stages of each investable category by studying the share of deals completed at each stage within each category.

Investments by geography

In terms of investment volume, in the second quarter of 2024, more than 40% of venture capital investment went to companies headquartered in the United States. The UK accounts for 10%, Singapore 8.7%, the UAE 3.13% and Hong Kong 2.78%.

In terms of investment amount, companies headquartered in the United States attracted 53% of venture capital, a month-on-month increase of 23.5%. The UK accounts for 12.78%, Singapore 4.6% and the UAE 4.39%.

Investments by Groups

The vast majority of VC investment in Q2 2024 went to companies founded between 2021 and 2023.

Summary

Crypto VC sentiment continues to improve, but levels are still significantly lower than the 2021-2022 bull run. With Bitcoin and Ethereum up about 50% this year, invested capital is up 28% month-on-month, while the number of transactions is essentially flat. If this growth rate continues through the end of the year, 2024 will rank third behind 2021 and 2022 in terms of investment capital and deal volume.

Investments in the Web3 and L1 categories are compelling. The Web3 category leads the way with around $750 million in total funding, driven by Farcaster ($150 million) and Zentry ($140 million). L1 ranked fourth with $371 million, driven by deals like Monad ($225 million) and Berachain ($100 million).

The median valuation of venture-backed cryptocurrency companies has surged, reaching its highest value since Q4 2021, the peak of the previous bull market. Affected by the bear market and macroeconomic adverse factors in 2022, most general venture capital institutions are currently still on the sidelines, while venture capital institutions focusing on cryptocurrency are in an environment of increased competition, providing more negotiations for project founders chips. It’s important to note that the median is based on available data as of July 1, and the median may be updated and potentially adjusted downwards as second-quarter transaction information becomes available.

Bitcoin L2 continues to receive significant investment, with related companies and projects raising a total of $94.6 million, a 174% month-on-month increase. Investors are still highly enthusiastic that the Bitcoin ecosystem will have more combinable block space and attract models such as DeFi and NFT to return to the ecosystem. Our internal research shows that there are at least 65 projects claiming to be “Bitcoin L2.”

Early-stage deals dominated Q2, receiving nearly 80% of invested capital, with Pre-Seed rounds accounting for 13% of all deals. The continued focus on early-stage transactions bodes well for the long-term health of the broader cryptocurrency ecosystem. While some later-stage companies struggle to raise capital, entrepreneurs are finding willing investors for new innovative ideas.

The United States continues to dominate the cryptocurrency startup ecosystem. While the U.S. maintains a clear lead in deals and capital, regulatory headwinds could force more companies to relocate elsewhere. If the United States wants to remain a center of technological and financial innovation over the long term, policymakers need to be aware of how their actions or inactions may impact the cryptocurrency and blockchain ecosystem.

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