The crypto venture capital landscape is showing signs of a significant shift, with a clear focus emerging on specific sectors attracting the most funding.
Benzinga talked to crypto venture capitalists and uncovered a newfound focus highlighting the industry’s changed priorities.
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Crypto VC Funding Is Bouncing Back
Gone are the days of memecoin mania and generalized NFT hype.
Investors are now prioritizing projects with real-world utility and long-term potential.
Tom Schmidt, general partner at VC firm Dragonfly describes the early 2024 venture capital scene as the precursor to an imminent takeoff, noting a gradual yet promising increase in private valuations.
This cautious optimism is echoed by the gradual re-engagement of traditional VCs and crossover funds in the crypto space.
Schmidt anticipates a more vibrant and institutionally attractive crypto market landscape. As larger players re-enter the fray venture capital interest is surging and focusing on new sectors.
Anand Iyer, managing partner at Canonical Crypto, frames this resurgence in terms of a cultural evolution from meme-driven investments to a focus on utility and technological innovation, particularly in the AI-meets-crypto sector.
“Casino culture is graduating to computer culture. Meme coins are like the NFTs of this vintage, but given all the advancements in scalability and interoperability, we are starting to see true utility and manifestation of blockchain technology, starting with AI-related crypto,” he says.
This shift signifies a deeper maturation within the industry, moving beyond speculative investments to projects with tangible utility and long-term potential. AI-related cryptocurrencies like Bittensor (CRYPTO: TAO), Near Protocol (CRYPTO: NEAR), Fetch (CRYPTO: FET) and Render (CRYPTO: RNDR) are tipped to surge further during this cycle.
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Where Crypto Venture Capital Is Flowing
Both experts highlight the AI-meets-crypto intersection and Layer-2 solutions as sectors experiencing significant funding influxes, underscoring the industry’s pivot towards technological sophistication and scalability.
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Infrastructure projects, especially those centered around zero-knowledge proofs (ZK) and restaking, are also attracting considerable interest and investment.
“Crypto and AI, L2s, infrastructure (especially around restaking), and anything ZK-related are red hot right now. NFTs and GameFi have cooled off a lot compared to previous years, in part because NFT volumes and valuations have trailed the rest of the market during this rebound,” according to Schmidt.
While restaking projects on Ethereum (CRYPTO: ETH) have not yet captured major mindshare among market participants, the launch of EigenLayer could kickstart interest.
Conversely, NFTs and GameFi, once the darlings of the crypto investment world, have seen a notable decline in funding, reflecting a market realignment towards projects with broader utility and potential for impact beyond collectibles and gaming.
Particularly Solana (CRYPTO: SOL) had been tipped to become the prime destination for GameFi projects but investor interest on the blockchain has focused mostly on meme coins in 2024.
The move towards more sophisticated market participants and a consensus around funding structures reflects a maturing ecosystem.
Schmidt points out the shift towards a more protective investment approach, allowing teams the flexibility to innovate while ensuring investor interests are safeguarded.
Iyer emphasizes the growing prioritization of utility in investment decisions, indicating a more deliberate and discerning venture capital environment.
How Much Crypto VC Firms Are Spending
Valuations and capital raise sizes exhibit a wide range due to the divergent paths of different sectors and the quality of project teams.
Schmidt notes a significant variance, with seed rounds in hot sectors like the AI/crypto intersection reaching valuations upwards of $300 million.
Iyer, on the other hand, discusses the unique approach of working with founders from incubation stages, focusing on early engagement and fostering innovation from the ground up.
“I like working with founders before they have decided they want to start a company. These look like incubations and since we are going in quite early, our typical valuation ranges tend to be quite a bit different than where the market is at a given moment,” Iyer says.
As the crypto venture capital landscape continues to evolve, these insights form a crucial part of the broader dialogue on digital assets.
The upcoming Benzinga’s Future of Digital Assets conference on Nov. 19 promises to delve deeper into these trends, offering participants a comprehensive understanding of where venture capital is flowing within the crypto space and the emerging sectors poised for growth.
Read Next: Google Sues Alleged Crypto Scammers, Seeks Damages Over $75,000
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