Crypto startups raise more VC funding amid digital asset market slowdown

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A Pitchbook report revealed that crypto startups raised more funds despite closing fewer deals in Q2. Crypto startups reportedly attracted $2.7 billion in venture capital across 503 deals. Pitchbook highlighted that this is a 2.5% increase compared to Q1. 

Crypto startups reportedly recorded more venture capital investments between April and June this year than in January and March. According to Pitchbook, crypto startups finalized 503 deals, a 12.5% decline from the first financial quarter. Berachain and Monad were reported as the top investors in crypto startups in Q2.

Crypto startups funding grows by 2.5% in Q2 

Pitchbook’s emerging technology research revealed that crypto startup deals declined 12.5%, while venture capital funding rose 2.5%. In an August 9 report, the analyst stated that the increased funding could mean positive investor sentiment returning to the market.

Pitchbook’s analysis highlighted the increased funding suggested that investors are more focused on the long-term benefits of blockchain technology than short-term profits. The report also indicated that venture funding could surpass the $10.8 billion mark if the trend continues into Q3 and Q4.

Pitchbook highlighted in the report that:

“With positive investor sentiment returning to crypto and barring any major market downturns, we expect the volume and pace of investments to continue increasing throughout the year.’’

The data also revealed that infrastructure projects dominated most Q2 funding. Pitchbook noted in the report that the Layer 1 platform Monad, designed to improve ETH’s scalability, was among the top Web3  investors in Q2.

DeFi-specific Layer 1 platform, Berachain, designed to improve Bitcoin’s use case as a security, was also highlighted as the second-largest crypto fundraiser in the second quarter. Babylon, a Bitcoin staking platform, was also a notable Venture Capital fundraiser in the second quarter, according to Pitchbook.

Pitchbook also noted that decentralized social media and gaming platforms were among the biggest fundraisers in Q2. Decentralized social media protocol Farcaster raised a $150 million Series A round, while Zentry, a Blockchain-based gaming platform, raised $140 million. 

Pitchbook’s Q2 report suggests shifts in funding rounds 

The report noted that compared to 2023, the valuations were higher at the seed and early stages and relatively lower for the late stage. Pitchbook specified that the pre-money valuation at the seed stage was $23 million, while the early stage was $63.8 million. 

The later stage recorded a pre-money valuation of $23 million, a 36% decline from 2023. The analysis suggested the valuation numbers indicate that investment rounds had become more competitive in the earlier stages in line with the border venture market. 

Pitchbook emphasized in the report that crypto startup funding has consistently slowed down since the market peak in 2021 and 2022. The report highlighted that the market peak saw over $29 billion in investments in crypto firms. In 2023, the total capital raised amounted to $10.1 billion.

According to DefiLlama, the crypto industry has attracted approximately $102 billion in investment across 5000+ rounds since June 2014. Venture capital firms Pantera Capital and Paradigm previously announced their intentions to raise over $1 billion and $850 million in crypto funds, respectively. 

If successful, Pantera’s $1 billion investment would be the largest amount raised since 2022, when Andreessen Horowitz raised approximately $4.5 billion in crypto startup investment.

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