Funding Strategies for Blockchain Startups
Blockchain startups raise funds from a vibrant ecosystem
Wellfound, formerly AngelList Talent, recently released another overview of rapidly scaling blockchain startups. Some names you may recognize, while others are just breaking into the space: Gemini, Injective Labs, Fold, RabbitHole, Futureswap, 0x, CoinAlpha. These startups are part of a growing ecosystem of entrepreneurial and intrapreneurial projects, each using blockchain technology to address a slightly different challenge.
A wider community helps entrepreneurs launch these types of projects. Although the road to building a profitable business seems expensive, founders rarely finance their ideas alone: they receive support from companies, venture capitalists, blockchain protocols and governments. Mastercard invites crypto and blockchain startups into its global accelerator program. Cryptocurrency exchange Binance is running programs to expand its blockchain ecosystem. Venture capital firms CoinFund, Orange DAO and Shima Capital are each investing millions of dollars in crypto and web3 startups.
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Venture capital funding for blockchain startups
One of the best ways blockchain entrepreneurs fund their projects is through venture capital (VC) funding. Although initial coin offerings (ICOs) once represented a primary source of funding for blockchain projects, intense regulatory scrutiny of ICOs has shifted the balance of power. As shown in the chart below, venture capital plays a significant role in entrepreneurial and intrapreneurial blockchain projects, even during periods of depressed valuation.
Evaluate alternatives in addition to risk capital
But venture capital is not the only source of funding for blockchain startups. Since the blockchain space is highly decentralized and community-driven, blockchain entrepreneurs have a few more options than those in other fields. For example, many blockchain networks will fund or support projects to expand the network’s reach. As a result, blockchain startups can access more VC options, such as accelerators, incubators, and network-backed grants.
Alternative sources of funding for blockchain startups
- Accelerators offer funding combined with strategic support. Although not the most common method of fundraising in the blockchain industry, popular accelerators such as DeFi Alliance, GBV Capital, Binance Labs, Tribe Accelerator, and Impossible Finance provide blockchain startups with valuable recognition and opportunities for mentorship.
- Incubators provide the opportunity to build, network and collaborate with industry experts. Unlike accelerators, incubators often don’t fund startups, but they do offer strategic guidance and high-profile networks. Many of these incubators are linked to authorities, universities and companies. For example, Singapore’s government supports LongHash Ventures, enterprise technology provider R3 provides a venture development program, and Telangana, an Indian state, recently announced that it will partner with the Indian School of Business and IIIT-Hyderabad to launch a new incubator for blockchain startups.
- Network-supported funds (grants) support projects that focus on a specific blockchain network. Borderless Capital funds projects that get users to adopt the Algorand blockchain, Dash Investment Foundation funds traditional businesses through the Dash DAO, and Gitcoin funds projects in Ethereum. These grant programs help start up new projects while expanding the network’s community. If you already intend to use a specific blockchain protocol, research the community to see if it offers a similar scholarship program.
Choose a funding source
Between venture capital, ICOs, accelerators, incubators and network-backed funds, there is no right solution. As with any startup, funding sources vary depending on the startup stage, and more nuanced funding strategies often combine multiple funding channels to balance risk, reward and growth.
To select one or more initial funding sources, review the startup’s short- and long-term goals. Ask yourself if you need connections, resources, control over the project or a mix of all three. Then map out your core funding needs.
Funding your blockchain startup
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