Crypto Fundraising Special Report: Q4 2023-January 2024

In Q4 2023, the crypto venture capital landscape experienced a notable downturn, with the fewest number of new crypto venture capital funds launching since 2020 and a 30% year-over-year decline in average crypto venture fund size. However, despite this, 2023 was still the fourth largest year for crypto VC by both deal count and capital invested, with numerous projects securing nine digit fundraising rounds. Our view is that despite the market turmoil caused by the headline-grabbing collapses of 2022 still contributing to investor caution, the diversity and innovation that have been hallmarks of the industry have not been stifled, as capital continues to infuse promising projects that aim to transform payments, banking, consumer experiences, community, and more. 

In particular, January 2024 saw a shift in investor sentiment towards a more optimistic view for a market recovery and major industry turmoil having passed. Overall, based on our analysis, we think that 2024 will be a reasonably higher year-over-year fundraising environment versus 2023, due to the maturation of protocol infrastructure and the need for applications to enable end user cases and crypto consumer startups to introduce new methods of engagement.

As part of our analysis reviewed in this report, we reviewed overall 2023 trends in crypto and technology fundraising, with a special focus on Q4 of 2023 and Q1 of 2024. The reviewed dataset included approximately 500 companies that had raised capital in Q4 ‘23 and Q1 ‘24. Our broadest category divided crypto companies by “infrastructure” and “application”. In our view, infrastructure companies provide the foundational elements, underlying frameworks, and tools, often being B2B business models, supporting the development and scalability of the greater crypto industry. By contrast, application-based companies are consumer-focused, and develop products and services tailored to end users, aiming to make crypto more user-friendly, accessible, and fulfilling unique value propositions.

We look forward to making this first of a recurring series dedicated to the analysis of fundraising trends in crypto/web3 as a leading indicator for market sentiment, investor confidence, investment opportunities, and the challenging or amenable regulatory environment that make innovation and growth in the industry possible or difficult.

Of the four months in the observation period, October 2023 had the lowest total dollar amount raised, but the highest proportion of application companies completing rounds versus their infrastructure counterparts (63.2% vs. 36.8%). This division reversed in November, with nearly 80% of the total dollars raised coming from infrastructure companies, and continued throughout December and January (58.6% and 74.8% capital raised from infrastructure), although without the Wormhole and Phoenix Group megadeal/listing in November that spread was much smaller, with 57.6% of capital raised from infrastructure companies.

By stage based on the total number of deals, seed funding rounds led with 47.3% of all deals falling in this stage, followed by pre-seed’s 17.3%. By dollar amount, however, Series A stage raises represented 34.3% vs seed stage investments at 32%. The popularity of seed investments in crypto venture capital can partially be attributed to the initial need for crypto projects’ capital outlay for product development costs to enable them to reach Series A growth levels, the desire for investors to join at attractive valuations, and the potential for crypto companies to disrupt other industries.