Crypto VC Investments Show Strong Growth in Q1: Galaxy Report

Galaxy Digital, a leading blockchain investment firm, released a comprehensive report on May 3, detailing the state of venture capital (VC) investments in the crypto sector. According to the report, the first quarter saw nearly $2.5 billion invested across 603 deals, indicating significant growth compared to the previous quarter.

The data revealed a 29% increase in dollar value and a remarkable 68% growth in deal count quarter-over-quarter, marking the first simultaneous increase in both measures in three quarters. While this growth is promising, Galaxy emphasized that future quarters will determine whether this trend can be sustained.

Factors Limiting VC Investment in Crypto

Galaxy described the increase in invested capital as “modest,” highlighting several factors that could potentially limit crypto VC investment. Despite the recent recovery of cryptocurrency prices from their 2023 lows, VC investments are lagging compared to past bull runs. 

The report attributed this modest activity to a high-interest environment, the failures of crypto companies in 2022, and a shortage of later-stage companies capable of accepting large investments. 

Additionally, the emergence of Bitcoin Exchange-Traded Funds (ETFs) could divert funds and attention from startups, although Galaxy acknowledged that ETFs and startups serve different investment appetites.

Three Dominant Categories

According to Galaxy’s findings, three main categories in the crypto sector attracted the most funding in the first quarter, although it noted the broadness of these categories. 

Infrastructure companies, including those involved in staking, platform tools, and sequencing services, led the way with 24% of the overall funds raised. Web3 companies accounted for 21%, and trading firms comprised 17%. These same categories dominated deal counts, with infrastructure firms accounting for 24% of deals, web3 companies for 15%, and trading firms for 12%.

DeFi companies showed a noticeable discrepancy, raising 6% of capital but accounting for 10% of all deals. Galaxy also highlighted significant investments in Bitcoin Layer-2 projects, driven by Ordinals and related standards. However, the Layer 2 category only attracted 7% of capital and 6% of deals.

Early-Stage Crypto Firms Lead the Trend

Galaxy’s report emphasized the importance of early-stage deals in the first quarter, with companies in this category attracting 80% of funding. 

The majority of investment activity focused on startups founded in the last few years, particularly those founded between 2021 and 2023. This trend is attributed to the significant funding available for early-stage companies from crypto-focused funds, while larger generalist VC firms have either exited the crypto sector or reduced their exposure.