Venture capitalists showed a preference for quality startups in the second quarter, as reported by PitchBook. The number of deals in the crypto sector decreased by 12.5%, but the total fundraising amount increased by 2.5% to reach $2.7 billion across 503 deals in Q1.
Robert Le, PitchBook’s senior analyst for emerging technology, highlighted that investors are focusing their capital on fewer opportunities, indicating a flight to quality. This trend of concentrated investment has been observed over the past year, with a shift away from spreading investments across the entire space.
Some of the major deals in Q2 included funding rounds for companies like Monad ($225.0 million Series A), Berachain ($100.0 million Series B), Babylon ($70.0 million early-stage round), Farcaster ($150 million Series A), and Zentry ($140 million early-stage round). The majority of fundraising in Q2 went towards infrastructure, particularly in scaling and financial services.
Looking ahead, Le predicts that overall fundraising for 2024 will increase by 20% or more compared to the previous year, reaching an estimated $12-$14 billion. He anticipates a period of consolidation in blockchain networks, with three to five blockchains likely to host the majority of developer and user activity in the future.
Le also emphasized the growing importance of DePIN (decentralized physical infrastructure) as a strong narrative in the current cycle, particularly due to its appeal to non-native crypto users. He noted that while there are currently over 150 layer 1s and layer 2s in operation, only a few will remain viable in the long term. Projects like Solana, Bitcoin, Optimism, Arbitrum, and Base are expected to emerge as the winners in the space.
In terms of future trends, Le pointed out that DePIN could become one of the standout sectors due to its potential to attract non-native users to the crypto space. This shift towards catering to a broader user base marks a departure from previous cycles focused primarily on crypto-native users.
Overall, the cryptocurrency industry continues to attract significant attention and investment, with a focus on quality startups and promising projects. As the sector evolves and consolidates, it will be interesting to see which blockchains emerge as the dominant players in the ecosystem.