Original Title: "Crypto VC Deal Flow | 2024 Data Insights"
Author: Tiffany Monteverde
Compiled by: TechFlow
Over the past two years, I have been dedicated to helping VCs find quality deal flow and assisting startups in securing funding. Starting from early 2023, I began systematically organizing data related to VC and startup funding. Initially, this was just a personal management tool, as I did not delve deeply into analysis, as my real-time interactions with startups and VCs already gave me an intuitive understanding of the market.
However, after reviewing over 1,000 startups in 2024, I have collected a wealth of valuable data. With the new charting capabilities of Notion, I was able to visualize this data and review the market trends over the past year.
Hot Sectors
Among all the funding transactions reviewed, Infrastructure remains the most popular funding sector, followed by DeFi. Compared to 2023, the funding enthusiasm for Data Analytics and Tooling has declined significantly, while DePIN (Decentralized Physical Infrastructure Networks), Gaming, and Consumer-facing Applications have shown strong growth this year.
This change is mainly driven by market sentiment. When the market rebounds and on-chain activity surges, consumer-facing applications tend to attract more attention.
It is also worth noting that the startup costs vary greatly across different sectors. For example, Infrastructure and DeFi projects often require higher capital investment, not only for technical development and liquidity mining, but also for marketing and business expansion, especially before the Token Generation Event (TGE), where additional costs are needed to generate market interest and build a strong community.
It is important to emphasize that not all startups are suitable for VC funding (more details can be found here). Nowadays, with the continuous improvement of infrastructure tools, startups can more easily launch prototypes and test through iterations. This approach is particularly popular in Telegram mini-programs (more on this later).
Top Sub-Sectors
Driven by the rise in BTC prices in the first quarter, the investment focus remains on 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 increase in the number of startups in this sector in the second quarter. This trend reflects the follow-on effects of VC capital deployment.
It is worth mentioning that market prices (such as BTC) often have a certain correlation with the deployment of VC capital, which in turn affects the funding amount and valuation of startups (more on this later).
Recurring Patterns
In specific sectors, the increase in deal flow is closely related to the deployment of VC capital, and this pattern has repeatedly emerged. For example, the transaction volume on the Telegram/TON ecosystem grew significantly in Q3, which is directly related to Pantera's investment announcement in May. Telegram has now become a popular platform for quickly launching projects, testing user demand, and building community engagement.
One area that continues to attract attention is the intersection of Crypto and AI. The transaction volume in the AI/ML sector has been steadily increasing, and even in 2023, startups in this field have successfully attracted VC and user interest (both crypto and non-crypto) in the rapidly evolving AI landscape.
Another notable trend is that although the market was relatively calm from Q2 to Q3, the transaction volume in September saw a significant increase. This is mainly due to the market's expectation of a bull market arriving by the end of 2024 or the beginning of 2025, and many projects hope to leverage this expectation to launch their tokens at the optimal time.
"When to Launch Tokens?"
Influenced by the bull market expectation, Q4 2024 has become the most popular token launch period for projects, followed by Q3 2024 and Q1 2025.
Successful token launches require significant costs, including attracting community interest, gaining attention through marketing campaigns, building strong partnerships, and collaborating with market makers and liquidity providers. Therefore, many startups will open up private/pre-sale rounds and KOL funding rounds before the Token Generation Event (TGE) to raise enough capital.
Observing the funding timeline before TGE, most startups will initiate a funding round one quarter in advance to ensure they can meet their fundraising goals on time. However, the data for Q3 and Q4 of 2024 shows that the planned TGE dates of many projects overlap with the opening of their funding rounds. This may be because some startups were unable to complete their fundraising in a timely manner 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 deal entry dates and the planned TGE dates, where many startups had to delay their TGEs due to fundraising difficulties.
Changes in Valuation
After analyzing the transaction volume data and the changes in sectors related to VC capital deployment and TGE trends, it can be observed that the average valuation of funding rounds across the year has shown a downward trend.
Average valuations are typically related to the funding round stage (e.g., seed, private, pre-sale, etc.), reflecting the project's maturity and whether it has a funding history.
In my dataset, 45% of the projects are in the seed funding stage, 32% are in the private/pre-sale funding stage, 18% are in the pre-seed funding stage, and the remaining are in OTC, Series A, and Series B funding.
The main reasons for the decline in valuations are:
VC Capital Deployment and Investment Appetite
The deployment of VC capital in 2024 has not increased significantly compared to 2023 (refer to Galaxy's report), and it is closely related to market prices (especially the volatility of BTC). This has made it more difficult for many startups to raise funds and meet their fundraising goals.
Retail Investor Reaction to Public Token Launches
With the market sentiment being low and the historical trend of high Full Diluted Valuation (FDV) at token launches, the enthusiasm of retail investors has been dampened. Many retail investors believe that VCs have obtained tokens at discounted prices in advance, while they have to purchase at high valuations, leading to lower return expectations. Most of the projects that launched tokens earlier this year have been unable to maintain their FDV at the time of issuance, and token prices have generally declined.
To restore the confidence of retail investors, many startups have chosen lower valuations during fundraising to avoid excessively high prices at TGE, ensuring a more sustainable market dynamic.
Conclusion
Although historical data and patterns cannot accurately predict the future, understanding the dynamics and mutual influences between the market, VCs, and startups is still very meaningful.
In this industry full of unknowns, the only certainty is that the crypto world is always full of surprises - this "Wild West" will always bring unexpected changes.
