Galaxy reported an assortment of VC investment data, including nearly $2.5 billion invested in the first quarter, on May 3.
Crypto firms attracted funding across 603 deals during the period, representing 29% growth in dollar value and 68% growth in deal count quarter-over-quarter.
The growth represents the first increase by both measures in three quarters, though Galaxy emphasized that future quarters will show whether the trend can continue.
Delayed VC investment
Galaxy described the increase in invested capital as “modest” and listed several factors that could limit crypto VC investment.
First, it commented on crypto prices and their recent recovery from 2023 lows. It noted that despite higher crypto prices, VC investments are “lagging” compared to past bull runs in which VC investment amounts were highly correlated with crypto prices.
It attributed the modest activity to a high-interest environment, crypto company failures in 2022, and a lack of later-stage companies that can accept large investments.
Galaxy also suggested that Bitcoin ETFs could put pressure on funds and startups alike. Galaxy said that ETFs could serve as an alternative that satisfies investment appetite while also admitting that the two options are “not identical.”
Three categories dominated
Galaxy found that crypto companies in three categories raised the most funding while acknowledging the broadness of the categories.
Infrastructure companies — including firms involved in staking, re-staking, platform tools, sequencing services, and tooling — accounted for 24% of the overall funds raised. Web3 companies accounted for 21%, while trading companies comprised 17%.
The same three categories dominated deal counts. Infrastructure firms accounted for 24% of deals, web3 companies accounted for 15%, and trading firms accounted for 12%.
Outside of the top three categories, DeFi companies exhibited a noticeable discrepancy. Companies in the category raised 6% of capital but accounted for 10% of all deals.
Galaxy also highlighted significant investments in Bitcoin Layer-2 projects, a trend that it said is driven by Ordinals and related standards. However, the Layer 2 category only attracted 7% of capital and 6% of deals.
Early-stage firms led trend
Galaxy’s report emphasized that early-stage deals played a major role in the first quarter, with companies in the category attracting 80% of funding.
The report indicated that investment activity focused on firms founded in the last few years. Startups founded between 2021 and 2023 attracted the majority of deals, while startups founded between 2020 and 2022 attracted the most funding.
Galaxy suggested that crypto-focused funds have significant funding for early-stage companies, while large generalist VC firms have exited the crypto sector or reduced their exposure.
Both factors could cause fundraising challenges for later-stage crypto startups.
