Each round of funding for your blockchain startup project may require you to seek different types of financing or at least adjust your approach depending on the stage of the company or project. What may have worked during the pre-seed funding stage may not necessarily entice investors during seed funding, the first official equity funding stage or subsequent rounds.
With various approaches to secure funding for your blockchain project, it can be challenging to determine which one is the ideal route for your company. You can opt for the standard routes that work across various industries or some that are more specific to the blockchain technology space.
No matter your approach, you’ll have to convince investors that they’ll receive a return on their investment (ROI) within a reasonable time. Let’s delve into some ways that crypto projects can receive funding.
Angel investors have become a popular option in the startup space within the past decade. In fact, blockchain angel investors have more than doubled the deal count from 2015 to 2019, according to a report from CB Insights.
So, what are angel investors? If you don’t already know, an angel investor, also known as a seed investor, private investor, or angel funder, is a high-net-worth individual who offers financial support, generally in the seed stage, to startups or entrepreneurs in exchange for ownership equity within the company.
Choosing an angel investor will ultimately depend on what stage the company is at during this round of funding. If you believe your blockchain startup project is at a point where you can give up equity to secure funding, this may be an ideal option.
Here are a few things to consider if you choose the angel investor approach for funding your blockchain startup project:
- Identifying angel investors: Finding angel investors to finance your startup may be easier than you realize. There are a plethora of online resources like AngelList, or you can go the more traditional route by networking with other industry professionals to identify an angel investor whose portfolio would benefit from investing in your startup.
- Pitching your project: When pitching your project to an angel investor, it’s important to ensure that all expectations are aligned between both parties. You should be prepared to answer questions honestly regarding what kinds of returns the investor may expect and on what type of timeline. Since the initial meeting is a discussion about a potential long-term business relationship, you should ask questions regarding the amount they’re willing to invest and how they view their involvement in the project after the primary funds are invested.
- Be flexible: Angel investors are different from venture capitalists because it’s just them and their money rather than a pool of funds. Dealing with an angel investor may mean you’ll need to adjust to their schedule and how they may conduct business when investing their own money.
Blockchain incubators and accelerators
No matter what stage you’re at with your blockchain startup, incubators and accelerators are viable options to consider because they are not restricted to solely raising capital. Other benefits of blockchain incubators and accelerators include networking opportunities and the ability to get your project in front of potential customers.
Here are some things to consider if you decide to use blockchain incubators and accelerators as a tactic to raise capital:
- Research and determine a program: New blockchain incubators and accelerators appear daily. You’ll need to determine which program is an ideal fit for your startup. A great place to start researching is online through platforms like incubator list. This platform allows users to browse active programs to determine if their project fits within a specific incubator.
- Make sure you have all the necessary information before applying: The process to join an incubator may vary depending on the one you choose. However, most well-known incubators require an application for acceptance to the program. You’ll want to ensure you’re ready to pitch your project and answer specific questions regarding your startup.
- Hit the ground running once accepted: After you get accepted to a program, you’re opened to a world of benefits that many other startups can’t use. It’s advantageous to your project to use the tools you have at your disposal, such as networking with investors and advisors, learning new skills from the community, etc.
Another funding source comes from venture capital or investment funds with numerous venture capital firms dealing directly with blockchain technology. Data collected from Crypto Fund Research shows more than 865 active blockchain investment funds, with assets ranging from $10 million to more than $100 million.
Here are a few things to consider if you opt for venture capital to fund your blockchain project:
- Identifying potential investors: Before you reach out to potential investors, it’s essential to review their existing portfolio because it will give you a good indication of the types of companies they are interested in.
- Create an elevator pitch and reach out: After you’ve determined which firms may align with your project, you’ll want to create a simple elevator pitch outlining why the opportunity benefits both parties. However, the issue with connecting with investment firms is that you may need someone to help get your foot in the door. Venture capital firms generally rely on references to determine if the opportunity is worth pursuing. To get in front of one of these firms, you may want to reach out to your network to see if there is a connection.
- Understand the importance of term sheets: Term sheets are non-binding agreements that outline an investment's essential terms and conditions. It’s important that you understand how this document may be used during your negotiation with an investment firm.
As you move through each round of funding, you may find it more and more challenging to obtain more and more money. However, by adjusting your pitch to new investors with larger pockets, you may be able to entice them to join you on your journey to creating a successful business. Once you’ve surpassed pre-seeding, you may consider using angel investors, blockchain incubators, accelerators or venture capital firms to help finance additional rounds.
Want to learn more about venture capital financing in the crypto industry? Check out a recent blog post, “Venture capital financing: A beginner’s guide to VC funding in the crypto space.” Also, make sure to take a look at the benefits of becoming a Cointelegraph Innovation Circle member or contact us directly.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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