Should Your Crypto Startup Accept Venture Capital

FinanceFeeds Editorial Team

Should your crypto startup accept venture capital funding? It’s a simple question, but one laced with a web of considerations. The best ideas can’t be realized on a shoestring: the money to form a team, develop a proof of concept, and bring a consumer-ready product to market has to come from somewhere.

If not from VCs, where? Most founders don’t have pockets deep enough to self-fund, while public token sales are dependent on two things: a token and a product the mass market can get behind. That instantly rules out a significant proportion of all projects including B2B, most middleware, and those that lack an onchain component altogether such as crypto marketing or apparel.

Deciding whether to take the VC pill or shun it altogether is one of the toughest decisions a startup will face. Whatever their choice, it’s one that will have lasting ramifications.

To VC or Not to VC?

While 2022 will go down as a bad year for crypto, with every meaningful industry benchmark a fraction of its 2021 high, venture capital still flowed. The Block reports $31 billion of industry investment last year, $8B of which went into NFTs and GameFi. The report also claims that 78% of all blockchain venture funding occurred within the last two years. It’s clear that for a significant proportion of crypto projects, accepting venture funding was never in question. Not all web3 startups have followed that well-trodden route however.

Peer is a blockchain and metaverse company working at the convergence of mixed reality and spatial computing. It proposes using AR to embed digital objects into physical spaces, allowing NFTs to be “buried” anywhere in the real world. It’s not just Peer’s tech that’s novel, however: so’s its funding route.

Founder Tony Tran was able to cover the initial costs himself before raising $14M via a private sale of Peer’s L1 coin, PMC, to friends and family. This was done via a Reg D offering to meet the SEC’s filing requirements. While this approach has proven successful for Peer, which is following its private round with a public token sale, not all founders have the fortune of an inner circle of HNW individuals.

Given the choice between accepting VC funding and abandoning the project, picking the former is a no-brainer. The trick is in determining how much of your company to give away – and to whom.

Know Your Venture Capitalists

VCs are meant to be in it for the long haul. When they’re accepting equity, they have little choice but to support the companies they’ve funded until the time comes to exit, which could arrive years down the line – if ever. When accepting tokens, however, as is often the case with crypto startups, VCs are only bound by the lock-up period. When venture capital firms are aligned with the startup’s goals, they have little interest in market dumping their allocation at the earliest opportunity. But when the entire market heads south, as was the case last year, less scrupulous VCs are prone to selling everything they can get their hands on.

Dumping on retail isn’t the only crime VCs stand accused of; they can also impair a project by being too overbearing. There’s a fine line between incubating a startup and throttling it. When a lead investor shares your vision, and works with you to realize it, it can feel more like a partnership; conversely, when VCs attempt to micro-manage or steer the ship, it can suck the life out of a project.

So what’s the solution? If you can’t bring your product to market without millions of dollars, venture capital is almost inevitable. That’s assuming your concept is good enough to whet their appetite of course; during bear markets, VCs become understandably picky about the checks they write.

While not every startup can attract a16z, they can weed out the firms that are only in it for a quick flip. Study the landscape, talk to other teams who obtained private funding, and learn from their experience, be it good or bad. VCs often get a bet rep, with Cobie claiming that they “basically do nothing post-cash. They give no feedback, don’t participate in governance, don’t even talk to the project founders after the round is closed.”

The reality is more nuanced. Just as VCs are compelled to invest wisely, startups should accept investment wisely. VCs can be the lifeblood of a new venture. Pick the right venture capitalists and everything that follows next should fall into place.

  • Read this next

    Digital Assets

    Binance Broadens Its VIP Invitation Program for Traditional Asset Traders

    Step Into the Future of Trading: Binance Invites Traditional Asset Traders to Join Its Exclusive VIP Program

    Digital Assets

    Algotech Presale Revolutionizes DeFi Scene, Surpassing $1 Million Raised in Just Weeks

    Emerging Cryptocurrency trading platform Algotech (ALGT) known to be famous with its cutting-edge features. The TradFi platform features advanced algorithms to provide a competitive edge to traders. 

    Fintech

    Revolut enables direct transfers from Singapore to Bangladesh and Kenya

    British fintech firm Revolut has broadened its array of services with the introduction of the “Mobile Wallets” feature in Singapore, facilitating direct money transfers to Bangladesh and Kenya.

    Digital Assets

    SBF claims “zero loss” to FTX customers, 100-year sentence is “grotesque”

    Sam Bankman-Fried, the former FTX CEO who was found guilty of fraud charges last year, is facing his sentencing next month. But before that day arrives, he’s making a plea for what he considers a fair shake.

    Digital Assets

    Bitcoin nears $62,000, sparking retail buying frenzy

    Bitcoin dashed past the $61,000 barrier on Wednesday, a peak it hadn’t touched since the waning days of November 2021.

    Market News

    OPEC+ Extension of Oil Output Cut Causes Rally

    The dynamics surrounding crude oil are indeed fascinating, given its unique role as both a globally traded commodity and a vital energy source deeply influenced by the OPEC+ alliance’s decisions.

    Institutional FX

    DKK reports 226% growth in 2023 with eyes on African expansion

    “Our numbers are beginning to show how we are powering, the growth required by emerging markets, and we plan for the success of our strategies to continue to thrive in 2024.”

    Industry News

    ‘WTF’ as in ‘What The Fraud?’, Sumsub’s new podcast on digital fraud

    “We found a lack of informative podcasts talking about digital fraud threats and prevention for business owners. So, we decided to dive in and share our expertise along with industry top minds in the ‘What The Fraud?’ podcast.”

    Digital Assets

    Coin Metrics integrates market data from Cboe Digital

    “We are pleased to work with Coin Metrics and believe that having quality and timely data, and systems to analyze that data, will help crypto markets mature as well as evolve to become a core component of a diversified investment portfolio. We are focused on providing access and solutions to the spot and derivatives crypto market in a way which mirrors an investor’s experience with traditional markets.”

    <