Startup funding falls, crypto funding surges: what’s driving this divergence?

How
do
the
investment
trends
in
Q1
2024
differ
between
traditional
startups
and
crypto
projects?

Global
startup
funding
has
experienced
a
notable
decline
recently.
According
to

Crunchbase,
despite
an
improvement
over
Q4
2023,
first-quarter
startup
investment
in
2024
reached
its
second-lowest
point
since
2018.

For
context,
in
Q1
2022,
global
startup
funding
was
$171.4
billion.
By
Q1
2023,
this
figure
had
plummeted
to
$82.4
billion.
The
decline
continued
into
Q1
2024,
with
funding
dropping
further
to
$66.1
billion. This
decline
translates
to
a
52%
drop
from
2022
to
2023
and
an
additional
19.7%
decline
from
2023
to
2024.

The
downward
trend
is
particularly
evident
in
North
America,
the
largest
market
for
startup
investments,
reflecting
a
broader
slowdown
in
venture
capital
activities. 

Despite
the
broader
tech
sector
experiencing
funding
slumps,
the
story
is
different
in
the
crypto
sector. 

Data
from

PitchBook
shows
that
in
Q1
2024,
crypto
startups
raised
$2.4
billion
across
518
deals.
This
marks
a
40.3%
increase
in
invested
capital
and
a
44.7%
rise
in
deal
volume
compared
to
Q4
2023. 

Interestingly,
while
crypto
venture
capital
flows
peaked
at
$11.1
billion
in
Q1
2022,
the
sector
faced
seven
consecutive
quarters
of
decline,
hitting
a
low
of
$1.7
billion
in
Q4
2023.
The
recent
uptick
suggests
renewed
investor
confidence
in
the
crypto
space.

This
begs
the
question:
why
is
there
a
growing
interest
in
crypto
while
traditional
startup
investments
are
dwindling?
Is
this
a
temporary
shift
or
an
indication
of
a
longer-term
trend?
Let’s
delve
deeper
to
find
out.

A
deep
dive
into
Q1
2024’s
investment
trends

In
the
first
quarter
of
2024,
crypto
funding
has
been
notably
focused
on
innovative
and
infrastructure-driven
projects. 

London-based
Exohood
Labs,
for
example,
raised
$112
million
in
a
seed
round
for
an
AI
project
utilizing
quantum
computing
and

blockchain,
valuing
the
company
at
$1.4
billion. 

Similarly,
Together
AI,
which
develops
an
open-source,
decentralized
cloud
platform
for
large
foundation
models,
secured
$106
million
in
an
early-stage
round
led
by
Salesforce
Ventures,
with
a
pre-money
valuation
of
$1.1
billion.

Infrastructure
startups
have
also
been
successful
in
securing
funding.
EigenLayer,
based
in
Seattle
and
specializing
in
an
Ethereum
(ETH)
restaking
platform,
raised
$100
million
in
a
Series
B
round. 

Zama,
a
platform
focused
on
fully
homomorphic
encryption
(FHE)
development,
secured
$73
million
in
a
Series
A
round.

Valuations
across
all
stages
in
the
crypto
sector
have
surged
compared
to
full-year
2023. 

The
median
pre-money
valuation
for
pre-seed/seed
stages
reached
$21.8
million,
marking
an
85.5%
year-over-year
increase.
Early-stage
valuations
soared
by
148.3%
to
$72.0
million,
while
late-stage
valuations
saw
a
more
modest
increase
of
7.6%,
reaching
$51.1
million.
Interestingly,
early-stage
deals
are
now
commanding
higher
valuations
than
late-stage
ones.

Deal
sizes
have
also
increased,
with
median
figures
at
$2.7
million
for
pre-seed/seed
stages,
$5.0
million
for
early
stages,
and
$5.8
million
for
late
stages.
These
represent
increases
of
24.9%
and
25.0%
for
pre-seed/seed
and
early
stages,
respectively,
although
late-stage
deals
saw
a
9.7%
decrease.

Crypto
Koryo,
a
prominent
crypto
analyst,
noted
a
shift
in
the
sources
of
funding.
Unlike
previous
quarters,
where
banks
and
non-crypto
venture
capital
firms
led
the
investments,
Q1
2024
saw
a
surge
of
interest
from
crypto-focused
venture
firms. 

Top
investors
this
quarter
included
prominent
crypto-native
venture
capital
firms
such
as
Andreessen
Horowitz
Crypto
(a16z),
OKX
Ventures,
Multicoin
Capital,
Paradigm,
and
Polychain.

The
buzz
in
the
crypto
investment
circles

The
first
quarter
of
2024
has
injected
a
sense
of
optimism
into
the
crypto
venture
capital
market,
reminiscent
of
the
bustling
pace
seen
in
2021,

according
to
David
Nage,
portfolio
manager
at
Arca. 

Nage
mentioned
that
his
firm
tracked
over
690
deals
during
Q1,
marking
a
30
to
40%
increase
from
the
lows
of
2023.

Alex
Felix,
co-founder
and
chief
investment
officer
at
CoinFund,
described
the
Q1
2024
situation
as
“cautiously
optimistic,”
marking
a
rebound
from
the
challenging
fundraising
environment
of
the
past
two
years. 

Despite
a
65%
year-over-year
decrease
in
both
VC
and
crypto
funding
in
2023,
there
is
now
a
noticeable
uptick
in
deal-making
activity,
Felix
added.

Several
factors
have
contributed
to
this
resurgence.
Legal
victories
by
Ripple
(XRP)
and
Grayscale
in
2023,
along
with
positive
sentiments
around
decentralized
finance
(DeFi)
on
Solana
(SOL),
have
played
a
role. 

Additionally,
approving

spot
Bitcoin
ETFs
in
the
U.S.
has
boosted
demand
for
crypto
assets,
further
stimulating
investor
interest.

Mike
Giampapa,
general
partner
at
Galaxy
Ventures,
predicts
continued
growth
in
crypto
venture
capital,
driven
by
a
bullish
macroeconomic
backdrop. 

He
expects
the
launch
of

crypto
ETF
products,
the

Bitcoin
halving,
and
projected
rate
cuts
in
the
U.S.
ahead
of
the
upcoming
presidential
election
to
further
fuel
this
growth.

PitchBook
anticipates
that
with
positive
investor
sentiment
returning
to
crypto
and
barring
any
major
market
downturns,
the
volume
and
pace
of
investments
will
continue
to
increase
throughout
the
year.

Meanwhile,
stakeholders
and
crypto
projects
are
optimistic
about
the
future,
with
many
expecting
total
capital
raised
in
2024
to
exceed
the
$10
billion
range
and
potentially
reach
as
high
as
$16.2
billion.