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Crypto firms raised $2.5 billion in the first quarter, representing a 29% quarterly increase.
Galaxy reported a slew of venture capital investment data, including nearly $2.5 billion invested in the first quarter May 3.
Crypto firms attracted funding across 603 deals during the period, representing 29% growth in dollar value and 68% growth in the number of deals on a quarterly basis.
The growth represents the first increase in both measures in three quarters, though Galaxy stressed that future quarters will show whether the trend can continue.
Late venture capital investment
Galaxy described the increase in invested capital as “modest” and listed several factors that could limit cryptocurrency investments.
First, he commented on cryptocurrency prices and their recent recovery from 2023 lows. He noted that despite higher cryptocurrency prices, VC investments are “lagging behind” previous bull runs where investment amounts in VC were highly correlated with cryptocurrency prices.
He attributed the modest activity to a high-interest environment, the bankruptcy of crypto companies in 2022 and the lack of later-stage companies capable of accepting large investments.
Galaxy also suggested that Bitcoin ETFs could put pressure on both funds and startups. Galaxy said ETFs could be an alternative that satisfies the investment itch, while also admitting that the two options are “not identical.”
Three categories dominated
Galaxy found that crypto companies across three categories raised the most funding, while acknowledging the breadth of the categories.
Infrastructure companies, including companies involved in staking, re-staking, platform tools, sequencing services and tools, accounted for 24% of the overall funds raised. Web3 companies accounted for 21%, while commercial companies accounted for 17%.
The same three categories dominated the deal count. Infrastructure companies accounted for 24% of deals, web3 companies 15% and trading companies 12%.
Outside of the top three categories, DeFi companies have shown a notable discrepancy. Companies in the category raised 6% of capital but accounted for 10% of all deals.
Galaxy has also highlighted significant investments in Bitcoin Layer-2 projects, a trend it says is being driven by Sort them and related standards. However, the Layer 2 category attracted only 7% of capital and 6% of deals.
Early-stage companies have led the trend
Galaxy’s report highlighted that early-stage deals played an important role in the first quarter, with companies in the category attracting 80% of funding.
The report indicates that investment activity has focused on companies founded in recent years. Startups founded between 2021 and 2023 attracted the most deals, while startups founded between 2020 and 2022 attracted the most funding.
Galaxy suggested that cryptocurrency-focused funds have significant funding for early-stage companies, while large generalist VC firms have exited the cryptocurrency sector or reduced their exposure.
Both factors could cause fundraising difficulties for later-stage crypto startups.