Galaxy Q2 VC Report: Total Investment Up 30% QoQ, Bitcoin L2 Projects Proliferate
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Galaxy Q2 VC Report: Total Investment Up 30% QoQ, Bitcoin L2 Projects Proliferate
Although sentiment in crypto venture capital has improved, it remains far below the bull market levels of 2021–2022.
Navigating Web3 tides with focused insightsAuthors: Alex Thorn & Gabe Parker
Translation: TechFlow
Introduction
After a strong first quarter for Bitcoin and other liquid cryptocurrencies, the market has cooled slightly but remains significantly higher year-over-year. The rebound in crypto venture investment observed in Q1 appears to be continuing. However, as of July 1, data still falls slightly short of broad market expectations. Founders and investors broadly report that fundraising conditions are more active than in previous quarters.
The number of deals declined slightly quarter-over-quarter, falling from 603 in Q1 to 577 in Q2, while invested capital rose from $2.5 billion in Q1 to $3.2 billion in Q2. Median deal size increased modestly from $3 million to $3.2 million, but median pre-money valuations surged dramatically to near all-time highs, rising from $19 million to $37 million. This suggests that despite available investment capital remaining below prior peak levels, the crypto market recovery over the past few quarters has led to notable competition and investor "fear of missing out" (FOMO).
Deal Count and Invested Capital
In Q2 2024, venture capital invested $3.194 billion into companies focused on crypto and blockchain (up 28% quarter-over-quarter), across 577 deals (down 4% quarter-over-quarter).
Invested Capital and Bitcoin Price
The long-standing correlation between Bitcoin price and capital invested in crypto startups has broken down. Since January 2023, Bitcoin has risen sharply while venture activity has struggled to keep pace. Although investment capital has increased since the beginning of the year, it remains far below levels seen when Bitcoin traded above $60,000 during 2021–2022. Factors such as Bitcoin ETFs and native crypto catalysts like restaking, modularity, and Bitcoin L2s—combined with pressures from startup bankruptcies, regulatory challenges, and macroeconomic headwinds (interest rates)—have collectively contributed to this significant divergence. With the resurgence of liquid cryptocurrencies, investors may be preparing a serious return, potentially leading to increased venture activity in the second half of the year.
Venture Capital by Stage
In Q2 2024, 78% of capital was allocated to early-stage companies, compared to 20% for later-stage companies. While crypto-focused early-stage venture funds still have capital raised during 2021 and 2022, larger generalist VCs have either exited the space or significantly reduced their activity, making it harder for later-stage startups to raise funding.
In terms of deal count, seed rounds saw a slight decline in share but remain above levels from previous market cycles.
Valuations and Deal Size
Valuations for VC-backed crypto companies dropped significantly in 2023, reaching their lowest median pre-money valuation since Q4 2020 in Q4 2023. However, valuations rebounded in Q1 2024 and surged in Q2 to $37 million (up 94% quarter-over-quarter), marking the highest level since Q4 2021. It should be noted that delayed reporting and lack of detailed public valuation data may cause these figures to fluctuate significantly as more data becomes available. We strive to provide timely insights shortly after each quarter ends, so our data is always subject to revision—though this surge remains signal-rich. Median deal size increased modestly (+7%) to $3.2 million and has remained largely flat over the past five quarters. The rise in valuations stems from improved market sentiment; despite no significant increase in available capital, founders have leveraged existing interest and competition among investors.
Investments by Category
In Q2 2024, companies and projects under the “Web3/NFT/DAO/Metaverse/Gaming” category raised the largest share of crypto venture capital, accounting for 24%—or $758 million in total VC funding. The two largest deals in this category were Farcaster, which raised $150 million, and Zentry, which raised $140 million.
Infrastructure, trading, and Layer 1 companies received 15%, 12%, and 12% of capital investment respectively. Notably, the Layer 1 category’s share of capital investment increased more than sixfold due to deals from Monad and Berachain, which raised $225 million and $100 million respectively. Bitcoin L2s raised $94.6 million in Q2 2024, a 174% increase quarter-over-quarter ($34.7 million in Q1 2024).
Deal Count by Category
In terms of deal count, Web3 led with 19%, driven by an increase in decentralized social media and gaming-related deals. Despite a reduction in the number of restaking-related crypto startups in Q2 2024, the infrastructure category ranked second in deal volume this quarter at 15%.
Trading and DeFi-related crypto companies followed closely behind with 11% and 9% of deals completed in Q2 2024 respectively.
Investments by Category and Stage
Breaking down capital investment and deal count by category and stage provides clearer insight into the types of companies raising funds within each category. In the Web3, Layer 1, and infrastructure categories, the vast majority of funding went to early-stage companies and projects. In Q2 2024, trading-focused companies received a greater share of venture capital in later-stage rounds.
Analyzing the share of capital invested by stage across categories offers insight into the maturity level of each investment segment.
Deal count follows a similar trend. Across nearly all categories, the majority of completed deals involved early-stage companies and projects.
Analyzing the share of deals by stage across categories reveals the different development stages within each investment category.
Investments by Geography
In Q2 2024, over 40% of deals involved companies headquartered in the United States. The UK accounted for 10%, Singapore 8.7%, UAE 3.13%, and Hong Kong 2.78%.
U.S.-headquartered companies attracted 53% of all venture capital investment, a 23.5% increase quarter-over-quarter. The UK accounted for 12.78%, Singapore 4.6%, and the UAE 4.39%.
Investments by Founding Year
In Q2 2024, the vast majority of deals and capital raised involved companies founded between 2021 and 2023.
Key Takeaways
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Despite improved crypto venture sentiment, activity remains well below 2021–2022 bull market levels. With BTC and ETH up approximately 50% year-to-date, invested capital rose 28% quarter-over-quarter while deal count remained flat. If this trend continues through year-end, 2024 will rank third-highest in both capital invested and deal count, behind only 2021 and 2022.
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Web3 and Layer 1s received substantial investment. The Web3 category led with around $750 million in funding, driven by Farcaster ($150M) and Zentry ($140M). Layer 1s ranked fourth with $371 million in funding, led by Monad ($225M) and Berachain ($100M).
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Median valuations surged significantly, reaching their highest level since Q4 2021—the peak of the prior bull market. As generalist VCs remain largely on the sidelines due to 2022’s challenges and macroeconomic headwinds, crypto-native VCs find themselves in a more competitive environment, giving founders greater leverage in term negotiations. Note that this median is based on data available as of July 1 and may be updated as more Q2 deal information is reported, potentially adjusting the median downward.
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Bitcoin L2s continue to attract significant investment. Bitcoin Layer 2 companies and projects raised $94.6 million, a 174% increase quarter-over-quarter. Investor excitement remains high about the emergence of more composable blockspace within the Bitcoin ecosystem, which could bring DeFi and NFT models back to Bitcoin. Our internal research shows at least 65 projects self-identifying as “Bitcoin Layer 2s.”
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Early-stage deals led in the quarter. Early-stage investments captured nearly 80% of invested capital, with pre-seed deals accounting for 13% of all deals. Sustained interest in early-stage ventures bodes well for the long-term health of the broader cryptocurrency ecosystem. While some later-stage companies face fundraising difficulties, entrepreneurs are finding willing investors for new, innovative ideas.
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The U.S. continues to dominate the crypto startup ecosystem. Although the U.S. maintains a clear lead in both deal volume and capital, regulatory headwinds may push more companies overseas. If the U.S. wishes to remain a center for technological and financial innovation in the long run, policymakers should recognize how their actions—or inaction—could impact the crypto and blockchain ecosystem.
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