By Jacquelyn Melinek
Translated by Luffy, Foresight News
Tom Schmidt, a partner at Dragonfly Capital, told TechCrunch that if 2023’s crypto venture capital landscape was a pot of cold water, then the first quarter of 2024 is when bubbles start forming just before it begins to boil.
He wasn’t wrong. According to PitchBook data, the cryptocurrency and blockchain sectors raised $2.52 billion in Q1 2024—about 25% higher than the $2.02 billion raised in Q4 2023.
“It’s an unusually busy period now—it feels like 2021 again,” said David Nage, portfolio manager at Arca. “Back in 2021, fundraising felt like someone had a gun to your head—you had no choice but to do it. That feeling is back.” Nage said his firm tracked over 690 cross-stage funding rounds in the first quarter, about 30% to 40% higher than the lows seen in 2023.
Alex Felix, co-founder and CIO of CoinFund, noted: “In Q1, the fundraising outlook for crypto venture capital turned cautiously optimistic, as companies emerged from the fundraising drought of the past two years.”
Felix added that although venture investment and crypto fundraising declined significantly year-over-year in 2023 (by around 65%), deal activity has clearly increased.
Why the recovery now?
The warming of the crypto VC market is partly due to positive impacts from last year’s legal victories for Ripple and Grayscale, along with bullish sentiment around DeFi on Solana. Additionally, demand for Bitcoin has increased following the SEC’s approval of spot Bitcoin ETFs.
“Another thing impacting the market is that we’re still alive,” Nage said. “I know that sounds funny, but after the collapses of LUNA, BlockFi, FTX, and the banking crisis, people thought we were done. But we’re not.”
When viewed against the broader macro backdrop, this trend in crypto may not stop anytime soon. Mike Giampapa, general partner at Galaxy Ventures, said: “With favorable macro conditions such as the launch of crypto ETF products, the Bitcoin halving, and expected rate cuts ahead of the U.S. presidential election, crypto investing will continue heating up. We’re also seeing institutional interest in crypto begin to translate into actual action.”
For example, BlackRock is launching tokenized money market funds on the Ethereum blockchain, which could increase competitive pressure on traditional financial institutions and drive further adoption.
Where deals are flowing
Overall, financing across multiple sectors—from DeFi to SocialFi to Bitcoin L2s—is rebounding. “We’re seeing 30 to 40 deals per week, which is up 10% to 20% from last quarter,” Nage said.
Giampapa noted that both new startups and established firms that struggled during the bear market are resuming fundraising. “The 2024 market will be a story of the ‘haves’ and the ‘have-nots’—new companies will follow hot narratives and raise at high valuations, while many others will fail,” he added.
Currently, SocialFi—which primarily refers to decentralized social media within Web3—is extremely popular. Bi.social recently raised $3 million, and Mask Network’s fund secured $100 million to further support similar applications. Some success in the space can be attributed to decentralized social app networks like Farcaster, which is using Web 2.0 techniques to attract new users. Web3 gaming is also expanding rapidly, with hundreds of new games expected to launch later this year.
Schmidt said anything related to crypto and AI, blockchains, or zero-knowledge tech is “all very hot right now.”
“Given the massive expectations around AI’s potential impact on the global economy, we expect this trend to continue for the foreseeable future,” said Tekin Salimi, founder of dao5.
For instance, modular blockchains integrated with AI—such as 0G Labs, which raised $35 million in a seed round—are attracting attention from VCs.
A founder-friendly market
Salimi said competition among venture firms is creating an environment where founders have more leverage in fundraising negotiations. Michael Anderson, co-founder of Framework Ventures, said, “Recently, the market hasn’t lacked for greedy capital.”
Marthe Naudts, partner at White Star Capital’s digital assets fund, said, “This is favorable for founders, as investors are now reverse-pitching their value in oversubscribed funding rounds.” This means some investors must demonstrate why founders should choose them. “Founders now have choice and the ability to set terms.”
But Felix said power hasn’t truly shifted from investors to founders—instead, there’s a “perfect balance” between the two. “Founders benefit from more urgent fundraising rounds and slightly recovered valuations from recent lows, while VCs gain more protective and favorable deal structures.”
Notably, valuations vary widely depending on team and sector quality, Schmidt said. Some startups that raised successfully in the last market cycle are repricing through down rounds or delayed financings, while others are new entrants.
Schmidt pointed out that pre-seed valuations for consumer-focused crypto projects typically stay under $10 million, whereas sectors like crypto-AI can reach $300 million or more. For example, according to Messari, AI prediction market PredX raised $500,000 at a $20 million post-money valuation. Meanwhile, Web3 AI social network CharacterX raised $2.8 million in a seed round at a $30 million post-money valuation.
For seed rounds, Nage expects pre-money valuations of $25 million to $40 million, with several startups hitting $80 million. Schmidt said average seed valuations range between $30 million and $60 million.
“Valuations have surged dramatically—even larger, more mature companies that have already raised find themselves with many options,” Anderson said. “Considering we’re still early in this cycle, some of the valuations we’re seeing are already a bit absurd.”
Schmidt noted that since funding announcements are often made months or even a year after the actual raise, market participants relying solely on headlines may misunderstand current private market conditions.
“Last year, even high-quality teams took months—or failed entirely—to raise; now, it takes weeks or less, and under better terms for founders,” Schmidt said. “Teams that wasted time and money during the bear market are still doing bridge raises, but new teams are starting strong with larger amounts and higher valuations.”
Valuation shifts are also driven by crypto market sentiment, so Bitcoin hitting all-time highs, Solana breaking $200, and Ether approaching $4,000 represent a “massive sentiment shift,” Nage said.
For founders, seed rounds remain the easiest, as many small funds and angel investors are willing to write first checks with low barriers, Felix said. “However, I don’t expect A-round completion rates to improve immediately—they’ve dropped from over 20% to around 15%. Raising more than $10 million will still be quite challenging.”
Many VCs are still cautious about falling into overhyped, high-valuation traps, yet recognize they can’t afford to sit idle. Thomas Tang, investment vice president at Ryze Labs, said: “It’s quite common for a funding round to be oversubscribed within days, with investments being rejected or pushed to higher-priced subsequent rounds.”
Tokenomics making a comeback
Nage said he’s been hearing since late 2023 that companies and peers are working on tokenomics designs for 2024. As a result, there’s renewed growth in token launches, with many of Arca’s portfolio companies aiming to launch tokens this year. He added this differs from mid-2022 after the Terra/LUNA crash, when most seed deals were funded via SAFEs or warrants.
“We’re entering a new phase of token launches—a period of dramatic valuation shifts,” Nage said.
Tang said this dynamic is pushing VCs to accept “high valuations in private rounds, as they anticipate significant upside when tokens trade publicly.”
That doesn’t mean SAFE financings are gone, Schmidt said—the market has evolved around priced equity rounds and token structures “as a way to protect investors while offering flexibility to teams.”
Clay Robbins, co-founder of accelerator and VC Colosseum, said teams pursuing traditional business models face greater fundraising difficulty. He added that crypto-native VCs see token deals and early liquidity as key drivers, giving them a strong bias in this area, while other investors remain skeptical of the market.
On this point, Naudts said the long-term performance of these tokens remains to be seen. Her firm, White Star, approaches tokens that serve both as speculative assets and payment methods with caution. “But we’re seeing a lot of experimentation with tokenomics models, which definitely excites us about the innovation happening here.”
What comes next
Robbins said early-stage fundraising will continue heating up for the remainder of the year. “Given the relatively weak IPO market, lack of fundamental underwriting for growth-stage crypto companies, and the ongoing trial between the SEC and Coinbase, I expect conditions for growth-stage crypto firms to remain inconsistent,” he said.
April will be a critical month for crypto market sentiment. With the quadrennial Bitcoin halving approaching, there’s much uncertainty about how it will affect the industry. Past halvings boosted Bitcoin’s price, but historical data doesn’t always predict the future.
“While short-term market corrections may be coming, we expect the next three quarters of 2024 to be highly optimistic,” Salimi said. “Historically, financial markets perform positively in election years. Moreover, we anticipate macro conditions beginning to improve later this year, starting with rate cuts.”
Compared to last year, many VCs are confident that barring major fraud cases, lawsuits, or negative regulatory developments, the market will continue seeing VC highs similar to Q1 over the coming quarters. “Regulation remains the wildcard—it could be the catalyst that pushes the market higher or hinders growth,” Giampapa said.
Robbins said that if there are positive regulatory developments, strong on-chain momentum, more institutionally focused product launches, and continued improvement in overall macro conditions, we could see a “crazy amount of capital deployment.”
“There will be more activity, more deals—and most importantly, funds are raising capital,” Nage said. Last year, many firms couldn’t raise from LPs because the industry “was seen as finished, and LPs had zero interest.”
As the industry recovers from the FTX fallout, LPs are returning, though some are starting to distinguish between “crypto” and “crypto venture capital,” potentially leading them to invest only in Bitcoin, Schmidt said.
“Traditional VCs or crossover funds aren’t diving headfirst into crypto, but they’re slowly trying more deals,” Schmidt said. “As larger market participants return and crypto funds re-enter the market, regaining capital from LPs, the entire space is becoming more institutionally attractive again. I wouldn’t be surprised if frothiness increases once more.”
Regardless, sentiment has shifted dramatically from last quarter, and as sentiment continues improving, it should positively impact the venture market, Nage added. “If companies can raise over the next two or three quarters, they won’t hold back capital like they did last year. As that pressure eases, you’ll see more checks written.”
Last year, most funds did one or two deals per month, or a few per quarter, Nage said. “Now, things have changed drastically. In December alone, we closed six or more deals.”
In contrast, CoinFund completed 17 deals in 2023 and only four in Q1 2024, Felix said.
PitchBook data shows the entire crypto and blockchain industry raised $10.18 billion last year. When I asked each firm how much they expect to raise by end of 2024, most estimates were above $10 billion, with some forecasting as high as $20 billion.
Felix believes venture investment in Web3 could account for over 10% of global fundraising totals, meaning based on PitchBook’s 2023 figures, it could reach as high as $16.2 billion by year-end. Either way, this would still fall short of the nearly $30 billion raised by crypto startups in 2022 and over $33 billion in 2021.
“Current market conditions sit somewhere between the frenzy of 2021–2022 and last year’s slump,” Robbins said.
While Giampapa also believes many managers will accelerate deployments and go fundraise within the next 6 to 12 months, there’s a caveat: in the last bull run, major capital deployers included firms like FTX and Three Arrows Capital, which are now defunct. “Without these players, it’s hard to imagine capital deployed into crypto VC returning to 2021–2022 levels.”
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