Blockchain Startup Funding: A Simple Guide
By Vitthal Ramakrishna
Blockchain has emerged as a transformative technology that acts as a driving force for several businesses. Although the technology is still in its infancy, its development and use continues to evolve. Its potential has already been recognized, and a number of organizations and technology companies have found its specific use cases and methods to create value. To satisfy their needs, several startups have also emerged with tailor-made solutions that help businesses harness the full benefits of the distributed ledger (DL).
Over time, investors have also shown interest in these blockchain startups and they have become commonplace for investment. Despite some headwinds the sector has faced in recent times, investors remain optimistic about the growth of blockchain startups. They are investing heavily in the blockchain industry, which may be due to fear of missing out (FOMO) or a recognition of its enormous potential. Therefore, if you are an entrepreneur looking for funding, you may need to meet certain criteria to get funds.
Fundraising: What Must Blockchain Startups Do?
A blockchain startup today has many opportunities to secure funding and access a variety of funding options. Investors pay out their money in exchange for equity, which includes an ownership stake in the startup and the right to share in any future profits. But since investors are always at risk, they tend to analyze a startup critically before making an investment. Therefore, it is crucial for an entrepreneur to be clear about their motivations for raising capital in order to mitigate potential risks.
Consider the subject: The startup must determine why funding is needed and the appropriate amount to raise. They should create a milestone-based plan with specific timelines for what they want to achieve over the projected timeline. Taking into account expected sales data as well as market and economic indicators, together with a financial forecast over a certain period of time, is necessary for startups to access the subject.
Investment readiness: While it is important to consider capital requirements, blockchain startups also need to understand whether their startup is ready to raise funds. An investor will consider the financing if they are convinced of the return and projections of the venture. They will look for the revenue growth potential, USPs, time to break even, vision and so on before providing the necessary funds.
Once a startup has assessed their motives and analyzed their investment readiness, they are ready to know the investor’s mindset.
Knowing the investor’s vision: What are they looking for in a startup?
Investors consider the startup’s past financial choices as well as the team’s credentials and experience. This is done to ensure that the startup’s claims about market size and growth can be verified and to ensure that the investor can detect questionable practices in advance. But more importantly, they look for the company’s goals and vision.
The main goal: Any startup should differentiate its offering to meet a clear customer need or problem. They must demonstrate patented concepts (if any) or products that provide investors with significant growth potential.
Management: To take the company forward, the passion, experience and skills of the founders are as important as that of the management team. Investors especially look to see if the company will be able to handle the capital or not.
Scalability and Sustainability: Startups should demonstrate their ability to scale quickly, as well as a viable long-term business strategy. They should also validate information on expansion plans, growth rates, imitation costs and barriers to entry.
Financial assessment: a thorough financial business plan showing cash flows over time, necessary investments to reach key milestones, break-even points and growth rates. At this point, the assumptions should be reasonable and explicitly stated.
A new way to raise money
Out of the existing funding ideas, blockchain startup founders can use incubators, accelerators, angel investments, venture capital funding, crowdfunding and more to raise funds. While others have remained largely unchanged, some have changed in specific ways to adapt to their environment. In addition, some strategies are extended by blockchain-specific funding mechanisms such as DAOs (decentralized autonomous organizations).
As the demand for funding has increased, several communities and fundraising platforms have emerged that facilitate the funding of these new blockchain startups. They are the middlemen who connect VCs, HNIs and angel investors with promising startups, among others. If the investors believe that the startup has potential, they can choose to invest in it without problems in exchange for equity capital. The choice now lies with the business owners whether they want to use more modern fundraising platforms or opt for conventional methods of obtaining funding.
The author is the founder and CEO, POD World
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