How web3 startups can raise investment: comparing strategies
Crypto market § Reading time: ~5 minutes
How to get investment for development and scaling is a challenge every web3 startup faces at some point. There are different capital raise strategies in the world of blockchain projects and crypto startups. They can be divided into two groups: classic methods borrowed from the web2 industry, and specific methods used only in web3 due to their decentralized nature. Let's take a look at both. We'll see the differences and what you need to know if your startup chooses either strategy. Classic Fundraising: Grants, Seed Funding, Accelerators Grants Grants, often provided by established companies and organizations, offer vital financial support without equity dilution. These are typically extended to startups at the inception stage, based on a compelling idea addressing a crucial market need. While grantors generally don't seek a share of future profits, meeting their conditions and documentation requirements is crucial. This avenue is particularly suitable for startups in their nascent stages, offering a valuable opportunity to solidify an idea. Seed Funding Seed funding in web3 closely mirrors its web2 counterpart. Investors, including venture capitalists, institutions, angel investors, and crowd funders, provide capital in exchange for equity. In the web3 context, equity is often represented by native tokens, entailing unique utilities and experiences. Investors can choose to exit their initial investments when the token's value reaches a favorable point. To succeed in securing seed funding, startups must meet certain fundamental criteria. This includes having a well-structured whitepaper, clear tokenomics, a realistic roadmap, an engaged community, a reliable code base, and a robust go-to-market strategy. In turn, within seed funding, which is considered to be the earliest stage of investing, there are methods that we discuss below. Venture сapital funds Venture capitalists play a critical role in nurturing startups. They acquire a stake in the venture with the intention of profiting when the project goes public or is acquired by a corporation. In the web3 context, their compensation often includes a portion of the project's tokens as equity. Angel Investors Angel investors are pivotal in providing early-stage funding, along with mentorship and resources. Their support can significantly impact a startup's trajectory. It's essential for startups to demonstrate revenue-generating potential, enhancing their attractiveness to angel investors. Accelerator/Incubator Programs Given the novelty of web3, founders often face challenges in attracting investments due to a lack of experience in creating compelling pitches and business plans. Accelerator and incubator programs tailored to the web3 space provide invaluable training, resources, and specific guidance. While they may not directly provide funding, these programs equip founders with essential skills, ensuring they're well-prepared for the subsequent stages of raising investments. Web3 Crowdfunding Web3 introduces a novel perspective on crowdfunding approach, aligning it with the decentralized nature of the space. Web3 crowdfunding platforms use smart contracts and token-based systems to promote transparent and inclusive fundraising campaigns. For example, Crypton Studio has developed crowdfunding platforms to assist blockchain projects and crypto startups in securing funding. One such project is Samurai Starter , a leading early-stage crowdfunding platform incentivizing community participation in cutting-edge crypto projects. Let's take a closer look at what crowdfunding models exist for raising investment in the crypto world. Decentralized Autonomous Organizations (DAOs) Funding Within a DAO, decisions regarding funding and governance are collectively determined by token holders. DAOs eliminate centralized decision-making, affording participants a direct influence on the project's trajectory. Funding within DAOs typically transpires through proposals, wherein individuals present their concepts to the community. Upon approval, they receive financial backing from the organization's treasury. The ascent of DAOs has democratized the funding landscape, enabling individuals worldwide to contribute to projects they wholeheartedly support. Nevertheless, the efficacy of DAOs hinges on robust governance mechanisms and active community involvement. Initial Coin Offering (ICO) In this crowdfunding model projects mint new tokens, exchanged for established cryptocurrencies like Ethereum or Bitcoin. The structure of web3 smart contracts automates the process, calculating total sales and distributing tokens to investors. While ICOs bypass certain regulatory hurdles, they require strategic marketing and a robust whitepaper to succeed. It's critical to consider the legal status of ICOs in relevant jurisdictions, as many countries have imposed bans. Security Token Offerings (STOs) STOs emerged in response to the regulatory challenges faced by ICOs. They involve issuing tokens classified as securities, subject to regulatory compliance. STOs aim to provide a legally compliant way for projects to raise funds while maintaining some advantages of token sales. These offerings are subjected to regulatory scrutiny, providing investors with a certain level of protection and transparency. STOs aim to bring legitimacy to the blockchain fundraising space, but they are still evolving within the complex regulatory landscape. Initial DEX Offering (IDO) An Initial DEX Offering (IDO) is a funding method that involves everyday investors. It operates on a decentralized exchange (DEX) using liquidity pools and smart contracts. IDOs serve as an alternative to Initial Coin Offerings (ICOs), enabling new cryptocurrency projects to introduce their tokens on a DEX platform. Both ICOs and IDOs permit anyone to join the crowdfunding process by contributing liquidity to the pool and receiving tokens in exchange. IDOs are known for their emphasis on decentralization, user-friendliness, accessibility, and liquidity provision. What’s next? After choosing your fundraising method, the next crucial step is presenting your project effectively. Whether it's to venture funds, grantors, or the community, clarity is key. You must thoroughly understand your target audience's needs, differentiate your solution from existing ones, outline the timeline for implementation, specify the steps involved, and justify the budget allocation. Avoid guesswork or vague plans. Investors need a clear rationale for why your project is worth their investment and how you've estimated costs. This necessitates robust R&D, a pre-launch research phase to identify your product's uniqueness, roadmap, strengths, limitations, and feasibility. Achieving quality R&D demands expertise in the crypto market, a deep grasp of market demands, and familiarity with numerous blockchain projects. If needed, seek out experienced companies like Crypton Studio for reliable support. If you're ready to engage investors, a compelling pitch and prototype are vital. A prototype offers an interactive preview of your product's interface, showcasing the concept and general idea. An attractive design and user-friendly experience tailored for blockchain or crypto projects are paramount. Leverage our design team's expertise, specialized in crafting exceptional prototypes for blockchain ventures. Feel free to reach out for a free consultation . We're here to guide you through this process!