Markets may be looking better for venture capital funds and startups seeking capital, but there is still less money available than during the last bull cycle, industry insiders told Cointelegraph.
Investors are looking for compelling stories and strong performance before investing in 2024. According to Carlos Pereira, partner at BitKraft Ventures, funds are placing more emphasis on liquidity or pre-seed opportunities in startups:
“This means there is not enough capital available for venture capital deals and we expect some divergence between the public and private markets.”
The divergence between these markets means that investor interest may be moving in different directions. While public markets consisting of stocks, bonds and securities may continue to attract investment, private markets such as venture capital funds may see a reduction in available funding.
BitKraft, for example, raised $220.6 million for its second token fund in 2023, below its $240 million goal, according to Securities and Exchange Commission filings. The capital is expected to be allocated to the information technology and gaming sectors.
“Web3 gaming was a strong recovery segment in the fourth quarter of 2023, with positive launch activity both recently and expected in 2024,” commented Pereira, adding that the gaming industry represents a $330 billion market.
However, startups, especially in the early stages, may still face a number of additional challenges. Adam Struck, founder of venture capital firm Struck Capital, explains that funds typically look for businesses with proven models that are poised for growth in the coming months.
“I think the Series A fundraising and growth stage markets will continue to thaw as startup leaders become more rational in building their companies after the craziness of 2021.”
Strack also predicts a positive year for the gaming industry as well as the decentralized finance space as more institutional capital is predicted to flow onto the chain. “I expect Web3 games to take off with dozens of innovative games that seamlessly integrate with blockchains,” he commented.
“With rate cuts looming and more real assets moving on-chain, I expect the total value locked in DeFi to rise substantially this year.”
Data from DefiLlama shows that at least $5.7 billion of capital was allocated to the cryptocurrency business in 2023.
One of the cryptocurrency startups that received funding last year is Lolli. The company offers customers Bitcoin rewards and cashback through retailers such as Ulta Beauty, Groupon and Booking.com. Bitkraft Ventures led the $8 million Series B round, joined by backers such as Serena Williams' Serena Ventures.
Lolli CEO Alex Adelman believes startups can still thrive in the current environment. “The downturn in the cryptocurrency market last year has in some ways helped differentiate companies that have sustainable business models from those that don’t.”
For startups seeking funding, Adelman advises avoiding excessive or prohibitively expensive funding. “Many startups raise excessive amounts of capital when markets are strong, simply because money is available,” he noted, adding that:
“While raising capital may seem like a good thing at the moment, raising too much can lead to unsustainable spending habits, future downturns, dealing with investors who are not aligned with the company's vision, and dilution of key stakeholders.”
Adelman recommends that startups raising funds in 2024 should pursue a strategy of “raising only the amount of money they need to achieve the next stage of growth.”