原文作者:Jacquelyn Melinek
原文来源:TechCrunch
原文标题：Nine crypto VCs on why Q1 investments were so hot and how it compares to previous bull market
编译：Luffy，Foresight News
Tom Schmidt, a partner at Dragonfly Capital, told TechCrunch that if the crypto venture capital landscape in 2023 is a pot of ice-cold water, the first quarter of 2024 is when bubbles begin to form before the water boils.
He's not wrong, according to PitchBook, in the first quarter of 2024, a total of $2.52 billion was raised in the cryptocurrency and blockchain space. This is about 25% higher than the $2.02 billion in the fourth quarter of 2023.
David Nage, Portfolio Manager at Arca, said: "It's an exceptionally busy time and it feels like 2021. Funding in 2021 was like being shot to the back of the head and you had to do it, and that feeling returned. Nage said his firm tracked more than 690 cross-stage financings that occurred in the first quarter, which is about 30% to 40% higher than the 2023 low.
Alex Felix, Co-Founder and Chief Investment Officer of CoinFund, said: "In the first quarter, the funding outlook for crypto VCs was cautiously positive, and the company emerged from the funding woes of the previous two years. 」
Felix added that despite a significant year-on-year decline in venture capital and crypto funding in 2023 (around 65%), there has been a significant increase in trading activity.
Why the recovery now?
Part of the reason for the crypto venture capital market heating up is the positive impact of last year's Ripple and Grayscale lawsuit victories, as well as positive sentiment toward DeFi on Solana. In addition, the demand for Bitcoin has also increased after the SEC approved spot Bitcoin ETFs.
"The other thing that affects the market is that we're alive," Nage said, "I know it's funny to say that, but after the collapse of LUNA, BlockFi, FTX and the banking crisis, people thought we were going to die, but we didn't. 」
Combined with the macroeconomic backdrop, this trend in cryptocurrencies may not stop anytime soon. Mike Giampapa, General Partner at Galaxy Ventures, said: "Crypto investment will continue to heat up against a tailwinding macro backdrop such as the launch of crypto ETF products, the Bitcoin halving, and the expected interest rate cut ahead of the U.S. presidential election. "We're also seeing institutional interest in crypto start to translate into action. 」
BlackRock, for example, is launching a tokenized money market fund on the Ethereum blockchain, which could increase competitive pressure on traditional financial institutions and lead to more adoption.
Where deals poured in
Overall, funding for crypto startups across multiple sectors, from DeFi to SocialFi to Bitcoin L2, is picking up. "We're seeing 30 to 40 transactions a week, which is a 10 to 20 percent increase from the previous quarter," Nage said.
Giampapa said there has been an increase in the number of new companies and established companies that have been underperforming during the bear market to restart fundraising. "The market in 2024 will be a story of 'rich' and 'poor', with new companies evolving to follow a popular narrative and getting financing at high valuations, while many others will fail," he added.
Currently, SocialFi is very popular in the Web3 world, which mainly refers to decentralized social media. Bi.social recently closed a $3 million funding round, and the fund of decentralized social networking protocol Mask Network raised $100 million to further support other similar applications. Some of the success in this space can be attributed to decentralized social application networks such as Farcaster, which is using Web 2.0 technologies to reach new audiences. Web3 gaming is also expanding rapidly, with hundreds of new games expected to hit the market later this year.
Cryptocurrencies and artificial intelligence, blockchain, and anything related to zero-knowledge "are all big hits right now," Schmidt said.
Tekin Salimi, founder of dao5, said: "Given the high expectations for the potential of AI to impact the global economy, we expect this trend to continue for the foreseeable future. 」
For example, blockchains that modularize and integrate AI, such as 0G Labs, which raised $35 million in a seed round, are also attracting the attention of venture capitalists.
Founder-friendly marketplace
According to Salimi, competition among venture capital firms is creating an environment where project founders have more leverage in financing negotiations. Michael Anderson, co-founder of Framework Ventures, said, "Lately, there has been no shortage of greedy capital in the market."
Marthe Naudts, partner at White Star Capital's digital asset fund, said: "This is good for the founders because investors are now backselling their value in an oversubscribed funding round. This means that some investors have to show the founders why they should be chosen. "Founders now have the option and the ability to set terms. 」
But Felix said power wasn't really transferred from investors to founders, but rather a "perfect balance" was struck between the two sides. "Founders have benefited from more pressing funding rounds and valuations have recovered slightly from recent troughs, while venture capital firms have been given a more protective and favourable deal structure. 」
It's worth noting that valuations vary greatly depending on the quality of the team and the industry, Schmidt said. Some startups that successfully raised funds in the last market cycle are repricing through markdown funding or deferred financing, while others are new faces.
Schmidt noted that before the seed round, projects in the consumer crypto space were typically valued at less than $10 million, but industries such as crypto and artificial intelligence could be valued at $300 million or more. For instance, according to Messari, the AI prediction marketplace PredX raised $500,000 and was valued at $20 million after investment. Separately, CharacterX, a Web3 AI social network, raised $2.8 million in a seed funding round and was valued at $30 million after the investment.
For the seed round, Nage expects a pre-investment valuation of $25 million to $40 million, with several startups having a seed round valuation of $80 million. Schmidt said the average seed round valuation is between $30 million and $60 million.
"Valuations have risen substantially, and founders still have a lot of options even if larger, more established companies have raised funds," Anderson said. "Considering we're in the early stages of this cycle, some of the valuations we're seeing are already a bit outrageous. 」
Schmidt said that because funding announcements are typically issued months to a year after the actual fundraising, market participants can misinterpret the latest private market situation if they judge the state of the private market based solely on news headlines.
"Last year, even high-quality teams needed months or no funding at all, but now it's just a few weeks or less, and the founders are on better terms," Schmidt said. 」
The shift in valuations was also driven by sentiment in the crypto market, so Bitcoin hit new all-time highs, Solana broke above $200 and Ether approached $4,000, which was a "huge shift in sentiment," Nage said.
Seed funding is still the easiest for founders, as many small funds and angel investors are willing to sign the first check with the lowest threshold, Felix said. "However, I don't expect an immediate improvement in the Series A completion rate, which has dropped from over 20% to around 15%. Raising more than $10 million in funding will still be a rather challenging task. 」
Many venture capitalists are still struggling to avoid falling into the trap of high valuations due to overhype, while also realizing that they can't just sit back and wait. Thomas Tang, VP of Investments at Ryze Labs, said: "It's fairly common for a funding round to be oversubscribed within a few days, and investments to be rejected or moved to subsequent funding rounds with higher valuations. 」
The token economy is making a comeback
Nage said that since the end of 2023, he has been hearing that the company and peers are working on the design of the token economy in 2024. As a result, there has been a new growth in token offerings, and many of Arca's portfolio companies are working to achieve this this year. He added that this is different from the era after the Terra/LUNA crash in mid-2022, when most seed round deals were financed through Future Equity Simple Agreements (SAFEs) or warrants.
"The new token offering phase that we're about to enter is one of drastic changes in valuation," Nage said.
Tang said this dynamic has prompted VCs to accept "high valuations in private rounds, as they expect the token to rise significantly in public trading."
That doesn't mean there are no more SAFE financings, with Schmidt saying the market has revolved around pricing equity rounds and token structures "as a way to protect investors while also providing flexibility for the team".
Clay Robbins, co-founder of accelerator and venture capital fund Colosseum, says it's more difficult for teams with traditional business models to raise money. He added that crypto-native venture capitalists believe that token trading and early-stage liquidity are the driving forces behind it, so they have a serious bias in this regard, while some other investors don't quite believe in the market yet.
In this regard, Naudts said that the long-term performance of these tokens remains to be seen. Her company, White Star, is wary of tokens that can be used both as a speculative asset and as a means of payment. "But we've seen a lot of experiments here with tokenomics models, and that definitely makes us excited about the innovations in it. 」
What happens next
Robbins said the early funding round will continue to heat up for the rest of the year. Given the "relative weakness of the IPO market, the lack of fundamental underwriting for growth-stage crypto companies, and the trial between the SEC and Coinbase, I expect the picture to be inconsistent for growth-stage crypto companies." 」
April will be an important month for cryptocurrency market sentiment. With the Bitcoin halving, which only happens every four years, on the horizon, there is a lot of uncertainty about how this will affect the crypto industry. Past halving events have driven Bitcoin's price up, but historical data doesn't always predict the future.
"While a short-term market correction may be imminent, we expect the next three quarters of 2024 to be very positive," Salimi said. In addition, we expect the macro environment to start to improve later this year, starting with interest rate cuts. 」
Compared to last year, many venture capitalists are confident that the market will continue to see the same VC surge in the coming quarters as it did in the first quarter without large-scale fraud cases, lawsuits, or negative regulatory impacts. "Regulatory uncertainty remains a catalyst that could drive the market higher again or hinder growth," Giampapa said.
Robbins said there could be a "frenzied deployment of funds" if there are positive developments on the regulatory front, real on-chain momentum is strong, more institution-based products are launched, and the overall macro environment continues to improve.
"There will be more activity, more deals, and most importantly, the fund is raising money," Nage said. Many companies were unable to raise money from LPs last year because the industry "has come to an end and LPs have no interest in it." 」
Schmidt said that as the industry recovers from the FTX incident, LPs are also starting to return to the space, but some people are also starting to distinguish between "crypto" and "crypto ventures", which may lead some people to choose to invest only in Bitcoin.
Traditional venture capital firms or crossover funds aren't "diving headfirst into crypto, but they're slowly experimenting with more deals," Schmidt said. "With the return of those larger market players and the return of crypto funds to the market and regain capital from limited partners, the whole space has become more institutional attractive again. I wouldn't be surprised if the bubble intensified again. 」
In any case, sentiment has changed dramatically in the last quarter, so as sentiment continues to improve, it should also have a positive impact on the VC market, Nage added. "If companies can raise capital in the next two to three quarters, they won't keep money like they did last year. As this eases, you'll see more checks. 」
Last year, most funds made only one or two trades per month, or a few trades per quarter, Nage said. "The situation has changed dramatically. In December alone, we closed six or more transactions. 」
In comparison, CoinFund completed 17 transactions in 2023 and four transactions in the first quarter of 2024, Felix said.
PitchBook data shows that the entire cryptocurrency and blockchain industry raised a total of $10.18 billion last year. I asked each company how much they expected to raise by the end of 2024, with most estimating above $10 billion, but some even projecting as much as $20 billion.
Felix believes that venture capital investment in Web3 could account for more than 10% of total global funding, so according to PitchBook's 2023 funding data, that figure could be as high as $16.2 billion by the end of the year. In any case, this figure is expected to be lower than the nearly $30 billion raised by crypto startups in 2022 and the more than $33 billion raised in 2021.
"The current market conditions are somewhere between the frenzy of 2021, 2022 and the downturn of last year," Robbins said. 」
While Giampapa agrees that many managers will accelerate their deployment and go out to raise capital in the next 6 to 12 months, there is one thing to be wary of. In the last bull run, some of the big capital deployers were companies like FTX and Three Arrows Capital, which are no longer in business. "Without these players, it's hard for me to imagine that the money deployed into crypto ventures would be back to the levels of 2021-2022. 」