On May 3, Galaxy released a compilation of venture capital (VC) investment data, revealing that nearly $2.5 billion was invested in the first quarter.

During this period, crypto firms garnered funding across 603 deals, marking a 29% increase in dollar value and a 68% surge in deal count compared to the previous quarter. This growth signifies the first simultaneous rise in both measures in three quarters. However, Galaxy cautioned that subsequent quarters will determine whether this trend can be sustained.

Galaxy characterized the uptick in invested capital as "modest" and outlined several factors that could potentially curtail crypto VC investment. Firstly, it mentioned crypto prices and their recent rebound from lows in 2023. Despite higher crypto prices, VC investments are currently "lagging" compared to previous bull runs, where VC investment amounts correlated closely with crypto prices. This subdued activity was attributed to a high-interest environment, failures of crypto companies in 2022, and a shortage of later-stage companies capable of accommodating substantial investments.

Galaxy also speculated that Bitcoin Exchange-Traded Funds (ETFs) might exert pressure on both funds and startups. While ETFs could serve as an alternative investment avenue, Galaxy acknowledged that the two options are not identical.

Three primary categories dominated in terms of funding raised by crypto companies. Infrastructure companies, including those involved in staking, platform tools, and sequencing services, accounted for 24% of total funds raised. Web3 companies and trading firms followed closely, comprising 21% and 17% of funds raised, respectively.

These three categories also led in deal counts. Infrastructure firms accounted for 24% of deals, followed by web3 companies (15%) and trading firms (12%). Additionally, DeFi companies exhibited a notable discrepancy, raising 6% of capital but accounting for 10% of all deals.

Galaxy highlighted significant investments in Bitcoin Layer-2 projects, driven by Ordinals and related standards. However, the Layer 2 category only attracted 7% of capital and 6% of deals.

The report underscored the significance of early-stage deals in the first quarter, with companies in this category securing 80% of funding. Investment activity primarily targeted firms founded in the last few years, with startups established between 2021 and 2023 capturing the majority of deals and funding.

Galaxy suggested that crypto-focused funds possess substantial funding for early-stage companies, while large generalist VC firms have either exited the crypto sector or reduced their exposure, potentially posing fundraising challenges for later-stage crypto startups.