Why VCs are investing billions in crypto start-ups despite slowdown
What's the story
Despite a challenging period for the digital asset market, cryptocurrency start-ups have successfully secured an increased amount of venture capital (VC) funding in the recent quarter. Data from PitchBook reveals that VC investment in these companies reached $2.7 billion during the three months ending June, marking a 2.5% increase from Q1 of this year. However, this figure represents a 9.8% decrease compared to the same period last year when crypto prices were soaring due to US's approval of Bitcoin ETFs.
Deal downturn
Deal closures decline amid market challenges
The number of deals closed during April to June experienced a 12.5% decrease from the first quarter, reflecting the challenging times faced by the crypto market. Rob Hadick, a general partner at crypto venture fund Dragonfly, stated that "VC investing in crypto reached somewhat of a fever pitch in March and April." However, as the market turned later in April and into May, the VC market slowed again.
Market resilience
Continued institutional adoption could boost fundraising
Despite the market slowdown, the total investment value has seen its third consecutive quarterly increase. Robert Le, senior analyst at PitchBook, suggested that continued institutional adoption of digital assets and recovery in token prices could lead to increased fundraising. Jason Kam, founder of crypto venture firm Folius Ventures, noted that project valuations rose during Q2 as founders sought to capitalize on a more optimistic secondary market.
Investment focus
Infrastructure projects dominate investment landscape
Investment remained concentrated on infrastructure projects such as new blockchains, with venture capitalists showing caution toward consumer-focused applications. Shuyao Kong, co-founder of blockchain startup MegaETH, raised $20 million in seed funding in June. Kong stated that this fundraising occurred while the market remained "hungry" for high-performance blockchains. The only significant funding round for a crypto application during Q2 was social media platform Farcaster's $150 million raise in May.
Market trends
Exit activities surge, indicating market maturity
Exit activities, where investors sell their stakes in a company to realize returns, increased to the highest level since Q1 2022 with 26 exits in April-June quarter. This included the acquisition of Bitstamp by Robinhood Markets Inc. PitchBook anticipates that exit activities could continue throughout the year, with expectations of further consolidation among crypto exchanges, custodians, and infrastructure providers as the market matures.