Venture funds eye recovery in 2024, but capital remains tight

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Markets may be looking better for venture funds and startups seeking capital, but money is still tighter than the last bull cycle, industry insiders told Cointelegraph. 

Investors are looking for compelling stories and strong metrics before investing in 2024. According to Carlos Pereira, partner at BitKraft Ventures, funds have been paying more attention to liquid or pre-launch opportunities in startups:

“Which means capital isn’t abundant for VC deals and we expect some divergence between public and private markets.”

A divergence between these markets means that investor interest may be moving in different directions. While public markets — formed by stocks, bonds and securities — might continue to attract investment, private markets, like venture capital funds, might see a reduction in available funding.

BitKraft, for instance, raised $220.6 million for its second token fund in 2023, below its target of $240 million, according to records from the Securities and Exchange Commission. The capital is expected to be deployed in the information technology and gaming sectors.

“Web3 gaming has been a strong segment in the Q4 2023 recovery with positive launch activity, both recently and expected for 2024,” commented Pereira, adding that the gaming industry represents a $330 billion market.

Venture capital invested in crypto-Web3 startups in 2023. Source: DefiLlama.

However, a number of additional challenges may still lie ahead for startups, specially for early-stage ventures. Adam Struck, founder of VC firm Struck Capital, explains that funds tend to look for businesses with proven models that are ready to grow in the coming months.

“I think that the Series A and growth stage fundraising markets will continue to thaw, as startup leaders have become increasingly more rational in their company-building after the frenzy of 2021.”

Struck also predicts a positive year for the gaming industry, as well as for the decentralized finance space, since more institutional capital is projected to flow on-chain. “I expect Web3 gaming to break out as dozens of innovative games with seamless integrations to blockchains go live,” he commented.

“With looming rate cuts and more real-world assets moving on-chain, I expect the total value locked in DeFi to grow substantially this year.”

Data from DefiLlama reveals at least $5.7 billion in capital had been allocated to crypto businesses in 2023.

One of the crypto startups that received funding last year is Lolli. The company offers shoppers Bitcoin and cash-back rewards through retailers such as Ulta Beauty, Groupon, and Booking.com. Bitkraft Ventures led an $8 million Series B round in the startup, joined by backers such as Serena Williams’ Serena Ventures.

Lolli’s CEO, Alex Adelman, believes startups can still thrive in the current environment. “The crypto market downturn over the last year has, in a way, helped differentiate companies that have sustainable business models from those that do not.”

For startups seeking funds, Adelman advises avoiding excessive or overly costly funding. “Many startups will raise an excessive amount of capital when the markets are strong, simply because the money is available,” he noted, adding that:

“While more capital may seem like a good thing at the moment, raising too much can lead to unsustainable spending habits, future down rounds, working with investors that are misaligned on the company’s vision, and diluting the equity shares of key stakeholders.”

Adelman recommends startups raising in 2024 to be strategic in “bringing in only the amount of money that they need to reach their next phase of growth.”