Venture capital funding for cryptocurrency and blockchain projects has recently seen an uptick in the first quarter of 2024, marking the first increase since 2021, as per the latest data from Crunchbase.
In Q1 2024, startups in the Web3 space managed to secure nearly $1.9 billion through 346 deals, showcasing a significant 58% surge from the previous quarter. Despite this positive development, the overall trend in crypto VC interest has been on a downward trajectory, with figures from a year ago showing a 17% decline and the deal count halved.
The current trend indicates that investors with a more long-term perspective regarding Web3 are actively deploying capital. This shift contrasts with the previous influx of “tourist investors” driven by hype in recent years, as highlighted by Chris Metinko, the author of the report. Metinko noted that these investors are now likely more focused on AI investments.
The recent investments are primarily directed towards the foundational infrastructure of a decentralized internet, moving away from crypto wallets and lending platforms that previously attracted substantial funding during the peak of 2021 to 2022. The emphasis is now on investing in the core components of Web3, akin to the concept of ‘picks and shovels’ in the context of the gold rush.
While significant funding rounds were scarce in Q1, the top three rounds amounted to less than \(300 million. Notable investments include a \)112 million seed round for Exohood Labs, a company integrating AI, quantum computing, and blockchain technologies, with a valuation reaching \(1.4 billion. EigenLabs secured \)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 round.
The quarter also witnessed a rise in valuations, with four new unicorns emerging in the Web3 space. These include Exohood Labs, Ethereum L2 Berachain focusing on financial applications, Io.net offering blockchain services for GPU sales, and Polyhedra Network, a startup in the Web3 infrastructure domain.
As highlighted in the report, the upcoming quarters are crucial in determining the trajectory of Web3. Although investors anticipate a resurgence in investment as the decentralized internet matures, this rebound might take some time to materialize as the venture market stabilizes post the exuberant period of 2021.
The delay between fundraise closures and documentation often impacts the market trends. With the recent approval of U.S. spot Bitcoin exchange-traded funds and the imminent Bitcoin halving, the prices of Bitcoin and Ether have surged significantly. This suggests that the venture market might not yet fully reflect the potential long-term growth and sustainability in cryptocurrency values.
Recently, Monad Labs secured the largest Web3 funding round of the year, amounting to \(225 million and led by Paradigm. Monad operates as a layer-1 blockchain compatible with Ethereum but with enhanced transaction processing capabilities. This funding round echoes the funding trends observed during the golden era of crypto in 2021-2022, characterized by substantial investments in L1 solutions like Aptos Lab’s \)150 million funding round.
Metinko hinted that this significant funding round could signal a resurgence of substantial investments in the Web3 space, potentially paving the way for more high-value funding rounds in the future.