Entrepreneurs looking to dive into the cryptocurrency industry should look into the traditional routes to fund blockchain ventures. The infancy stage and extreme volatility of this business vertical are not deterrents to conventional investors.
Venture capitalists, angel investors, crowdfunding platforms, and banks are keenly interested in exploring the possibility of earning rich returns. Mainstream adoption by institutional investors has also resulted in the blockchain sector attracting interest as a less risky investment opportunity.
The blockchain and cloud applications market worldwide was valued at $17.57B in 2023, with projections of a CAGR of 59.9%. By the year 2030, it will have touched the $469.49 billion mark.
Several accelerator and incubator programs are emerging to support and invest in upcoming startups. They offer not just training and assistance with product and business development. But also access to funding sources that entrepreneurs can tap.
The Ultimate Guide To Pitch Decks
To name a few examples, Mastercard has a global accelerator program that invites and trains crypto and blockchain startups. If you’re seeking out VCs, consider options like Shima Capital, Orange DAO, and CoinFund, which have invested millions.
Wellfound, previously known as AngelList Talent, has an impressive list of blockchain startups it has backed. Some of the top names include Futureswap, RabbitHole, Injective Labs, CoinAlpha, and Ox.
Founders typically consider industry-specific crypto capital as funding sources, including Initial Coin Offerings (ICO) and security token offerings (STO). Initial DEX offerings (IDO) and initial exchange offerings (IEO) are also preferred options for Distributed Ledger Technology (DLT) startups.
But don’t pass up on traditional routes to fund blockchain ventures. Read ahead to learn more.
Exploring Traditional Routes to Fund Blockchain Ventures
When exploring appropriate funding sources, you’ll consider several criteria, including the startup’s stage and short-term and long-term goals. Also, work out the degree of control you want to retain over the company’s decision-making and the resources you need.
You’ll want access to investor networks to fund future rounds. So, work out the equity you’re willing to cede to the investors. Most importantly, your core funding needs must balance expected rewards, risk factors, and the venture’s projected growth.
Accordingly, you’ll approach venture capitalists, accelerators, incubators, or angel investors. Also, explore network-supported funds, crowdfunding platforms, government grants, and bank loans. Weigh their pros and cons before making the final decision for this particular funding round.
Keep in mind that in fundraising, storytelling is everything. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
Acquiring Venture Capital for Blockchain Startups
Venture capital has significant contribution to entrepreneurial and intrapreneurial blockchain projects, even if the startups have low valuation. Although ICOs have been the preferred fundraising strategy, this option is now subject to more regulations because of the risk.
Essentially, venture capital funds are a group of investors who pool their money and spread their investments across several startups. But, they tend to invest according to a specific specialization strategy rather than diversify across various sectors.
Interestingly, traditional VCs and crypto-focused VCs occupy almost the same funding market share at 25.5% and 24.5%, respectively. Further, several blockchain networks support and fund upcoming startups to expand the sector’s reach.
As a rule, VCs are careful investors, with managers methodically reviewing applications before picking out viable projects to back. VCs are also short-term funding options, and their focus is on selling their equity, making quick profits, and exiting quickly.
However, VCs are now recognizing the potential presented by blockchain startups, not necessarily crypto unicorns. This is why you can consider reaching out to venture capitalists to secure funding.
VCs are open to investing in crypto-related companies that provide supporting services to blockchain ventures. Like, for instance, cryptocurrency charting software, crypto tax reporting startups, crypto mining, crypto consultancy, and crypto courses.
Whatever may be the stage your business is at, you can approach VCs for funding. They provide pre-seed and seed capital and are open to funding startup capital and early-stage startups. Growing ventures poised for rapid expansion right up to the IPO stage can rely on VCs for support.
Advantages of Acquiring VC Support
Traditional routes to fund blockchain ventures like venture capital come with a broad range of pros for startups:
- Having attracted venture capital funding, startups gain credibility in the market. Further funding rounds are likely to be far more successful, with retail investors also offering money.
- To get funding by launching ICOs, startups only need to release a white paper. However, VCs tend to do their due diligence to evaluate the viability of the project before investing in it. They also research the community and marketplace to assess its profitability. Getting their support reassures founders that they have a winning business concept on their hands.
- VC funds employ expert managers who have technical knowledge about the particular sector. It’s their job to screen applications for suitability.
- In case the company were to fold, the founders would not be liable to repay the investment amount. This factor alleviates some of the pressures they face when scaling the business.
- VCs are open to taking carefully measured risks, indicating that the startup has value.
Crowdfunding as a Traditional Method for Crypto Funding
Entrepreneurs looking for funding for their startups can consider crowdfunding as an option. The key difference here is that, as opposed to funding from other sectors, blockchain investors receive an equity stake. This is why crypto startups apply for and acquire equity crowdfunding.
Advantages of Raising Equity Crowdfunding
Raising equity crowdfunding from accredited funds brings you a range of advantages, such as:
- Startups get access to a broader range of backers, including venture capitalists and angel investors. Should you sign up with funding platforms like SeedInvest and Wefunder, you’ll reach high annual income and net worth investors. Think entities with an annual income of $200,000 and above or a net worth of $1M or higher.
- Once your campaign is live on the crowdfunding platform, its information is available to any person searching for viable investment opportunities. Having a presence on the platform gives you added visibility and higher chances of getting funding.
- The most important pro of getting equity crowdfunding is the validation you acquire. Investors are likely to view the startup as a viable opportunity, which makes future funding rounds more successful. And easily executed.
- While you do have to give up some amount of equity, the final amount is likely to be far lower than with other investors. This factor ensures that you retain complete control over the startup and decision-making. Investors won’t have a seat on the board of directors, nor will you be accountable for how you run the company.
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Founders who prefer not to give up equity can instead go for rewards-based crowdfunding. This option allows you to raise funding for the venture without ceding equity or taking loans or debt. Here’s what you need to know:
- Since you aren’t offering equity, the rewards should be compelling to have enough value to compensate investors for the risk. Work out the pricing accordingly.
- Run promotional campaigns to raise awareness for your project on platforms like social media and email marketing. Also, consider placing banner ads on reputable crypto publications.
- Pick out an appropriate crowdfunding platform relevant to your niche. Also, read up on their terms and conditions and expected fees before signing up.
- Calculate a realistic funding amount you hope to raise. Work out the expected fundraising costs like overheads, fees, and rewards you’re offering and factor them into the final amount you’ll receive. Make sure you don’t end up ceding equity or taking on debt.
- Provide updated information to your backers about the campaign’s progress and the funding you get. Strategies like these build investor engagement and trust.
Approaching Angel Investors for Crypto Funding
If you are not approaching high-net-worth entities via crowdfunding platforms, you can also reach out to them directly. Angel investors typically look for exciting concepts to back, and their focus is more on the founder and their mission.
Angel investors may not necessarily require equity in the startup, nor are they looking for quick exits. However, they are looking to profit from their investments even if the risk factor is high.
Strategies for contacting angel investors start with identifying entities that are specifically interested in blockchain technology. Check their portfolios for similar projects they have backed in the past. Next, you’ll use networking channels to connect with them and build a close relationship.
Be ready with an elevator pitch and communicate your intentions without wasting their time. Answer questions honestly and be clear about the asking amount and the anticipated returns you can provide.
You’ll also check with them for the involvement they’re expecting in their investment and the timeline for maintaining their funding before wanting to exit. Acquiring investment from angel investors is unlike any other of the traditional routes to fund blockchain ventures.
Your success rate primarily depends on the impression you can create and your ability to convince the investors.
Accelerators & Incubators for Blockchain Startups
Incubators and accelerators play a crucial role in nurturing upcoming startups in the blockchain ecosystem. They help bridge the gap between innovative, industry-disruptive ideas and the resources needed to transform them into marketable products.
Their efforts lead to strategic collaborations between founders, industry experts, veteran executives, investors, and other stakeholders. In this way, they help support the rapid growth in this business landscape.
More so because getting backing from an accelerator or incubator program adds credibility to the startup. This validation opens up doors for future funding rounds and effective marketing. Customers are more likely to be impressed by the products they develop and market.
A critical advantage of signing up with a great program is the legal and regulatory training you can access. Since the blockchain is a rapidly evolving vertical, regulations can be complex.
Founders get information about how to secure the Intellectual Property they ideate and the regulatory frameworks they must comply with. Addressing these issues early in the startup phase ensures more streamlined fundraising, thanks to the company passing due diligence checks by investors.
Check out these leading incubator and accelerator programs supporting DLT startups in the US.
- Y Combinator
- XRC Labs
- Boost VC
- Wavemaker Labs
- Blockchain Founders Fund
- Alchemist Accelerator
- dlab Programmatic Venture Capital
Incubators are typically sponsored by government organizations, academic institutions, and other agencies committed to community development and progress. Corporate entities looking to promote their sector by supporting new ideas and innovations also fund incubators.
Although incubators don’t provide much funding, they more than make up for the industry-specific expertise they make available. Founders with exciting business blockchain concepts can rely on them for assistance in developing Minimum Viable Products (MVP).
Expert mentoring, guidance, well-equipped workshops, and access to investor networks are only some of the advantages of incubators. Founders can also collaborate with like-minded entrepreneurs and build foundations for profitable partnerships down the line.
Finding the right funding sources for your fledgling company can be a long and difficult road. Check out this video where I have addressed your concerns about how to find investors for your startup.
Similar to incubators, founders must look for accelerator programs specific to their industry. These programs focus on offering strategic support to startups wanting to accelerate growth quickly.
Similar to incubators, they offer founders opportunities like training sessions, seminars, lectures, and workshops where they learn more about blockchains. Business strategies, marketing, education, and funding opportunities specific to DLT startups are part of their program
Blockchain Grants As Funding Sources
Several organizations back blockchain startups with grants. Blockchain Association is one example that offers grants of up to $50,000. You could also consider contacting The Ethereum Foundation, which supports ventures with grants of up to $100,000.
Considering the rapid growth of the crypto sector, more traditional routes to fund blockchain startups are opening up. Investors are interested in the potential for attractive profits, which can offset the risk of investing in this nascent industry.
Although cryptocurrencies are the go-to funding option, founders must explore conventional sources that offer a lot more than just money. You can access training, technical expertise, veteran executive training, and guidance with navigating regulations and compliance.
Leveraging these advantages can give your startup that critical edge that ensures its long-term success, scalability, and sustainability.
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