2024 New Landscape of Crypto Financing: Beyond Infrastructure, DePIN and Consumer Applications Become Dark Horses

Original Title: "Crypto VC Deal Flow | 2024 Data Insights"

Author: Tiffany Monteverde

Compiled by: Shenchao TechFlow

For more than two years, I have been dedicated to helping venture capitalists (VCs) find quality deal flow and assisting startups in securing funding. Since the beginning of 2023, I began systematically organizing relevant data on VC and startup financing. Initially, this was just a personal management tool, and I did not conduct in-depth analysis, as real-time interactions with startups and VCs had already given me an intuitive understanding of the market.

However, after reviewing over 1,000 startups in 2024, I collected a wealth of valuable data. With the new charting features in Notion, I was able to visualize this data and reflect on the market trends of the year.

Hot Areas

Among all the reviewed financing deals, Infrastructure remains the most popular financing area, followed by Decentralized Finance (DeFi). Compared to 2023, the financing enthusiasm for Data Analytics and Tooling has significantly decreased, while DePIN (Decentralized Physical Infrastructure Networks), Gaming, and consumer-facing applications have shown strong growth this year.

This change is primarily driven by market sentiment. When the market warms up and on-chain activity surges, consumer-facing applications tend to attract more attention.

Additionally, it is important to note that the startup costs vary greatly across different sectors. For instance, Infrastructure and DeFi projects often require higher capital investment, which includes not only technical development and liquidity provision but also marketing and business development expenses. Particularly before Token Generation Events (TGE), additional costs are needed to spark market interest and build strong community support.

It is essential to emphasize that not all startups are suitable for seeking VC funding (for more details, see here). Nowadays, with the continuous improvement of infrastructure tools, startups can more easily launch prototypes and test them through iterative optimization. This approach is particularly popular in Telegram mini-programs (which will be discussed further later).

Top Subfields

Driven by the rise in BTC prices in the first quarter, investment focus remains concentrated in the infrastructure sector, while the Bitcoin Ecosystem has also attracted more attention. The increased demand for specific use cases (such as Staking, cross-chain liquidity, etc.) has led to a significant growth in the number of startups in this field in the second quarter. This trend reflects the follow-up effects of VC funding interest.

It is worth mentioning that market prices (such as BTC) often show a certain correlation with the deployment of VC capital, which further affects the number of startups' financing and valuations (to be discussed in detail later).

Recurring Patterns

In specific fields, the increase in deal flow is closely related to the direction of VC capital deployment, and this pattern has repeatedly emerged. For example, the number of transactions in the Telegram/TON ecosystem significantly increased in Q3, which is directly related to Pantera's announcement of investment in May . Today, Telegram has become a popular platform for quickly launching projects, testing user demand, and building community engagement.

A continuously captivating area is the intersection of crypto and AI. The number of transactions in the AI/ML field has been steadily increasing, and even in 2023, startups in this area successfully attracted VCs and users (including both crypto and non-crypto users) to the evolving AI landscape.

Another noteworthy trend is that, despite the market being relatively calm between Q2 and Q3, the number of transactions surged in September. This is mainly due to market expectations that a bull market will arrive by the end of 2024 or early 2025, with many projects hoping to launch tokens at the optimal time based on this anticipation.

"When to Launch Tokens?"

Influenced by the expectations of a bull market, Q4 2024 has become the most popular time for projects to issue tokens, followed by Q3 2024 and Q1 2025.

Successfully launching a token requires high costs, including attracting community interest, gaining attention through marketing campaigns, establishing strong partnerships, and collaborating with market makers and liquidity providers. Therefore, many startups will open private sales/pre-sales and KOL financing rounds before the Token Generation Event (TGE) to raise sufficient funds.

Observing the financing timeline before the TGE, most startups will initiate financing rounds a quarter in advance to ensure they can meet their fundraising goals in time. However, data from Q3 and Q4 2024 indicates that the planned TGE dates for many projects overlap with the start of their financing rounds. This may be because some startups failed to complete their fundraising on time and ultimately had to postpone their TGE dates to ensure all preparations were in place.

Based on my experience since 2022, although the deployment of VC capital has increased, the overall recovery has been slow, and the growth from 2023 to 2024 is not significant. This is also reflected in the comparison between the transaction entry dates and the planned TGE dates, as many startups have delayed their TGE due to fundraising difficulties.

Valuation Changes

After analyzing transaction volume data and changes in fields related to VC capital deployment and TGE trends, it can be observed that the average valuation of financing rounds throughout the year shows a downward trend.

Average valuations are typically associated with the stage of the financing round (such as seed round, private round, pre-sale round, etc.), reflecting the maturity of the project and whether it has a history of financing.

In my dataset, 45% of projects are in the seed round, 32% are in the private/pre-sale round, 18% are in the pre-seed round, and the rest are in OTC, Series A, and Series B financing.

The main reasons for the decline in valuations are as follows:

1. VC Capital Deployment and Investment Willingness

   The deployment of VC capital in 2024 has not significantly increased compared to 2023 (see Galaxy's report ), and it is closely related to market prices (especially the volatility of BTC). This has made it more challenging for many startups to raise funds and achieve their financing goals.

2. Retail Investors' Response to Public Token Issuance

   The market sentiment is low, coupled with the historical trend of high Fully Diluted Valuation (FDV) during token issuance, which has weakened retail investors' enthusiasm. Many retail investors believe that VCs acquire tokens at discounted prices in advance, while they have to buy at high valuations, leading to reduced return expectations. Most projects that issued tokens earlier this year failed to maintain their FDV at the time of issuance, with token prices generally declining.

   To restore retail investors' confidence, many startups choose lower valuations during fundraising to avoid high prices at TGE, thereby ensuring more sustainable market dynamics.

Conclusion

Although historical data and patterns cannot accurately predict the future, understanding the dynamics and interrelations between the market, VCs, and startups remains highly meaningful.

In this industry full of uncertainties, the only certainty is that the crypto world is always full of surprises—this "Wild West" will always bring unexpected changes.