The new pattern of crypto financing in 2024: In addition to infrastructure, DePIN and consumer applications have become dark horses

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

Author: Tiffany Monteverde

Compiled by: Deep Wave TechFlow

For the past two years or so, I have been helping venture capital (VC) find high-quality deal flow and assisting startups in completing financing. Starting in early 2023, I began to systematically organize data related to venture capital and startup financing. Initially, this was just a personal management tool and I did not analyze it in depth because real-time interaction with startups and VCs already gave me an intuitive understanding of the market.

However, after reviewing over 1,000 startups in 2024, I gathered a wealth of valuable data. With the new chart function of Notion, I was able to visualize these data and review the market trends this year.

Popular areas

Among all financing transactions reviewed, Infrastructure remains the most popular financing area, followed by Decentralized Finance (DeFi). Compared with 2023, the financing enthusiasm of Data Analytics and Tooling has dropped significantly, while DePIN (decentralized physical infrastructure network), gaming and consumer-oriented applications have performed better this year. Strong growth.

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

In addition, it is important to note that start-up costs vary widely in different fields. For example, infrastructure and DeFi projects tend to require higher capital investment, including not only technology development and liquidity guidance funds, but also expenses such as marketing and business development, especially before the Token Generation Event (TGE), which requires additional cost to generate market interest and build strong community support.

It’s important to stress that not all startups are suitable for seeking VC funding (more on that here). Today, as infrastructure tools continue to improve, startups can more easily launch prototypes and test them through iterative optimization. This approach is particularly popular in Telegram applets (discussed further later).

top subfield

Driven by the rise in BTC prices in the first quarter, investment focus remained on the infrastructure sector, while the Bitcoin Ecosystem also attracted more attention. Increased demand for specific use cases such as staking, cross-chain liquidity, etc. caused the number of startups in this space to grow significantly in the second quarter. This trend reflects the follow-on effects of venture capital attention.

It is worth mentioning that market prices (such as BTC) often show a certain correlation with the deployment of venture capital, which further affects the amount of financing and valuation of startups (will be discussed in detail later).

recurring patterns

This pattern appears again and again, with increases in deal flow closely tied to the direction in which venture capital is deployed within a given sector. For example, the number of transactions on the Telegram/TON ecosystem grew significantly in Q3, directly related to Pantera's investment announcement in May . Today, Telegram has become a popular platform for quickly launching projects, testing user needs, and building community engagement.

One area that continues to attract attention is the intersection of crypto and AI. The number of deals in the AI/ML space continues to increase, and even in 2023, startups in this space have managed to attract strong interest from VCs and users (both crypto and non-crypto users) in the growing AI field.

Another trend worth noting is that although the market was relatively calm during Q2 to Q3, the number of transactions increased significantly in September. This is mainly due to the market's expectation that the bull market will arrive at the end of 2024 or early 2025, and many projects hope to take advantage of this expectation to launch tokens at the best time.

"When will the coins be issued?"

Affected by bull market expectations, the fourth quarter of 2024 has become the most popular token issuance time for projects, followed by the third quarter of 2024 and the first quarter of 2025.

Successfully launching a token comes with high costs, including attracting community interest, gaining attention through marketing campaigns, building strong partnerships, and working with market makers and liquidity providers. Therefore, many startups will open private placement/pre-sale rounds and KOL financing rounds before the token generation event (TGE) to raise sufficient funds.

Looking at the pre-TGE financing schedule, most startups will open their financing rounds a quarter in advance to ensure that they can reach their fundraising goals in time. However, data for Q3 and Q4 of 2024 indicate that many projects have planned TGE dates that overlap with the opening of funding rounds. This may be because some startups failed to complete their fundraising in time and ended up having to postpone their TGE date to ensure that all preparations were in place.

Based on my experience since 2022, although the deployment of venture capital has increased, the overall recovery is slow and the growth from 2023 to 2024 is not significant. This is also reflected in deal entry dates versus planned TGE dates, with many startups postponing TGE due to funding difficulties.

changes in valuation

Analyzing deal volume data and sectoral changes related to venture capital deployment and TGE trends reveals a downward trend in average valuations across funding rounds throughout the year.

The average valuation is usually related to the stage of the financing round (such as seed round, private equity round, pre-sale round, etc.) and reflects the maturity of the project and whether it has a financing history.

In my data set, 45% of projects are in seed rounds, 32% are in private placement/pre-sale rounds, 18% are in pre-seed rounds, and the remainder are OTC, Series A, and Series B rounds.

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

1. Venture Capital Deployment and Investment Willingness

The deployment of venture capital in 2024 will not increase significantly compared with 2023 (refer to Galaxy's report ), and is closely related to market prices (especially the fluctuations of BTC). This makes it harder for many startups to raise money and meet their funding goals.

2. How ordinary users react to public token offerings

Lackluster market sentiment, coupled with the historical trend of high fully diluted valuations (FDV) when tokens are issued, dampened retail investor enthusiasm. Many retail investors believe that venture capitalists obtain tokens in advance at a discount, but they have to buy at high valuations, resulting in lower return expectations. Most of the projects that issued tokens earlier this year failed to maintain the FDV at the time of their issuance, and token prices generally fell.

In order to restore the confidence of retail investors, many startups choose lower valuations when raising funds to avoid overpricing during TGE, thereby ensuring more sustainable market dynamics.

Conclusion

While historical data and patterns cannot accurately predict the future, it is still very meaningful to understand the dynamics between markets, VCs, and startups and how they interact with each other.

In this industry full of unknowns, the only thing that is certain is that the crypto world is always full of surprises - this "Wild West" will always bring unexpected changes.