Venture capital financing for cryptocurrency and blockchain ventures has recently shown an uptick in the first quarter of 2024, marking the first increase since 2021 as per the latest data from Crunchbase.
During Q1 2024, startups in the Web3 space managed to secure nearly $1.9 billion through 346 transactions, representing a notable 58% surge from the previous quarter. However, the overall trend of declining interest from crypto venture capitalists persists, with a 17% drop compared to the same quarter last year, and the deal volume halved.
Recent capital deployment has been observed predominantly from investors embracing a more long-term perspective on Web3, in stark contrast to the trend-chasing “tourist investors” prevalent in recent years, as noted by Chris Metinko, the author of the report. Metinko highlighted that these investors are likely more focused on AI-related ventures.
The current investment landscape is shifting towards the fundamental infrastructure of a decentralized internet, emphasizing investments in the foundational elements of Web3 rather than crypto wallets and lending platforms that previously attracted significant funding during the peak from 2021 to 2022.
Noteworthy is the scarcity of substantial funding rounds in Q1, with the top three rounds collectively amounting to less than \(300 million. Exohood Labs led the pack with a \)112 million seed round, merging AI, quantum computing, and blockchain technologies, commanding a valuation of \(1.4 billion. EigenLabs, facilitating developers to "restake" Ether tokens, secured \)100 million in a Series B round led by a16z crypto, while Freechat, a decentralized social network leveraging blockchain, raised $80 million in a Series A.
Additionally, there has been a surge in valuations, with four new unicorns emerging in the Web3 sector following a lull in Q4. These include Exohood Labs, Ethereum L2 Berachain, Io.net, and Polyhedra Network, all contributing to the evolving landscape of Web3 infrastructure.
Looking ahead, the forthcoming quarters are poised to provide insights into the trajectory of Web3. While investors anticipate a resurgence in investment as the decentralized internet matures, this rebound may take time to materialize as the venture landscape stabilizes post the exuberant period of 2021.
The delay between fundraise closures and documentation often impacts the market dynamics. With the recent approval of U.S. spot Bitcoin exchange-traded funds and the impending Bitcoin halving, the prices of Bitcoin and Ether have surged significantly, hinting at potential long-term cryptocurrency appreciation that may not yet be fully reflected in the venture market.
Notably, Monad Labs recently secured the largest Web3 funding round of the year, totaling \(225 million and led by Paradigm. Monad operates as a layer-1 blockchain compatible with Ethereum, offering faster transaction processing capabilities. This funding round echoes the trend seen during the golden era of crypto in 2021-2022 when L1 projects attracted substantial venture capital, exemplified by Aptos Lab’s \)150 million funding round.
Metinko speculates that this recent development could signal a resurgence of significant funding in the near future, potentially paving the way for a new wave of substantial investments in the Web3 space.