Investors are increasingly warming to crypto start ups after a tough environment for raising money since the crash of late 2022.

“Flow and volume picked up a lot in Q1 and Q2,” said Tom Schmidt, general partner at crypto venture fund Dragonfly. Founders who were on the fence about raising money, thought the venture market was too cold or were scared off in 2023 have come back to market, he said. 

The average valuation and capital raise size is creeping back up, although it’s still some way off the 2021 peak. Schmidt believes it’s in part because we haven’t seen generalist funds and crossover funds get back into the space – it’s still crypto-native investors who are deploying capital. 

Schmidt said they’re seeing average seed rounds range from $20 million - $50 million, post-money valuation. Series A rounds range from $100 million - $500 million, post-money valuation. “The good news is it feels more in line with the public market,” he added. 

Crypto deal values returned to 2021 levels in the first quarter of the year, with $2.4 billion in capital raised. The median deal size was $3.6 million, according to the PitchBook Q1 2024 Crypto Report. 

With the Bitcoin exchange-traded product being the most successful ETF launch in history, the likely approval of a spot Ether ETF and regulatory tailwinds in the United States, it turned out to be a very good quarter for crypto. 

Dragonfly’s sole mandate is to do everything and anything crypto. Its portfolio includes projects and protocols such as MakerDAO, ConsenSys, Cosmos and Polygon. 

Schmidt says infrastructure investments continue to do well, “especially as the U.S. market becomes more institutional and people in the post-FTX world want separation between custody and execution.” 

Privacy, decentralized perpetual futures and consumer applications have also been getting a lot of attention. He cited a “crypto consumer renaissance,” which is less about specific applications like Farcaster or Lens, and more a focus on onboarding people in a way that abstracts crypto out in the background. 

“We’re bullish on this idea of hybrid models using crypto to enhance some sort of financial component of an application but not saying you need to self-host your own wallet or leaning into the crypto maxi angle,” he said. 

Less cash-grabby, more maturation 

Some teams have a view that the market is a monolith, and that it’s either going up or down, Schmidt said. “In practice, there’s dispersion. Some projects have been able to find success and receptiveness in the public markets.”

He said there’s less room for projects that feel copy-and-paste or cash grabby, which shows a sign of maturity and refinement for the crypto industry. 

David Pakman, managing partner and head of venture investments at CoinFund, said he expects a steady march of new projects that gain adoption because of the growing acceptance for blockchain technology.  

“The ETFs prove that digital assets are going to exist,” Pakman said. “This implicates a whole bunch of other needs such as custody, wallets, security, tax preparation, cross-chain bridging, stablecoins and staking. All these things will exist because digital assets exist.”

Pakman also cited increased investment activity over the past year, with more entrepreneurs coming into the market, though he’s yet to see VC investment in crypto from traditional mainstream venture capitalists. He believes this will change with more regulatory clarity in the United States. “We’re seeing on the order of 200 – 400 new completed investments in a quarter, which is up from the crypto winter of 20 – 50 per quarter,” he added. 

Pakman is seeing the most activity with infrastructure, layer 2 blockchains, layer 3 tooling, data availability, cross-chain bridging and aggregation, stablecoins, wallet infrastructure and the consumer experience – such as Telegram launching their own blockchain, TON. 

“They’re providing wallets on a rollout basis to all of their users, so we’re seeing the most used consumer blockchain emerging,” Pakman said. “There are games being built on those and lightweight consumer experiences. A lot of us are watching this and there are new companies being funded around that ecosystem.”