A Cautious Hope for Crypto VC Funding in 2024

The year 2023 was a turbulent one for crypto VC funding. After hitting record highs in 2022, investments plummeted by 68%, reaching $10.7 billion compared to the previous year’s $33.3 billion. While this marks a significant drop, it is important to note that 2023’s total still surpasses investments during pre-2022 bear markets.

However, even now, when investors seem to be still cautious, things seem to be improving for crypto VC funding and startups. Investors seem to be focusing on strong business plans and proven potential before making investment decisions in 2024. This means startups with clear stories and solid metrics are more likely to get funding, especially those in the early stages.

Crypto VC Funding Past Performance

Most of the action took place in the first half of 2023, followed by a decline in the second half. Interestingly, early-stage funding (pre-seed, seed, and Series A) saw an increase relative to mid and late-stage deals, indicating a shift towards nurturing young startups with promising potential.

In terms of sectors, NFT/gaming, infrastructure, and web3 emerged as the top contenders, attracting the most deal count. Data, trading, and enterprise, on the other hand, had fewer investments.

The significant drop in 2023 can be attributed to a myriad of factors. These include a challenging macroeconomic environment, lingering regulatory uncertainties, and the scars left by recent crypto failures. As Abhishek Saxena, principal lead at Polygon Ventures, aptly put it, the funding lag served as a much-needed correction as it moved the industry to contemplate and shift focus on critical priorities.

Looking Ahead to 2024

Despite the 2023 slowdown, there are definite reasons for optimism. With recent price shifts and anticipated bullish trends in the crypto markets, VC firms are expecting a surge in funding and deals in 2024.

However, the landscape for startups looking for funding will likely remain cautious. Investors are focusing on compelling stories, strong metrics, and liquid or pre-launch opportunities. According to Carlos Pereira from BitKraft Ventures, this implied that capital might not be available in abundance for VC deals, and they expected some variance between the private and public markets.

Finding Opportunities amidst the Dip

Despite the tight capital environment, opportunities are there for those who can adapt and show resilience. Adam Struck, founder of Struck Capital, is of the view that funding for established startups is expected to gradually become more available as companies have adopted a more cautious and sustainable approach to growth. He also predicts a strong year for DeFi and web3 gaming, primarily due to potential inflows of institutional capital.

For successfully navigating the current environment, Alex Adelman, CEO of Lolli, offers valuable advice. He emphasizes avoiding excessive or costly funding, stating that taking on more funding than needed can tempt companies to spend beyond their means, making it harder to survive long-term. Instead, startups should strategically secure the necessary funds to reach their next stage of growth.

To sum it up, while 2023 witnessed a significant drop in crypto VC funding, the year also laid the groundwork for potential recovery in 2024. As the industry moves forward, adaptability, strong fundamentals, and prudent financial strategies will be key for both VC firms and startups trying to succeed, given the current dynamics. 

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