The financial market crash this year has had a unique effect on the web3 industry. Web3 companies are the newest members of the fintech ecosystem, and the current downturn marks the first major “hit” for the industry.
Fundraising can be hugely challenging in times like these, and it’s an essential lifeline for web3 companies intent on withstanding this downturn. The major difference between web3 companies and their counterparts in more established industries is that the latter accept cryptocurrencies (as opposed to only fiat) as a form of investment. This gives web3 deals the potential to close faster.
Still, in order to even get those deals on the table, there are a number of strategies web3 companies can and should lift from their forebears. Ultimately, it’s a delicate balance of gauging the various fundraising options available and knowing which practices to embrace or avoid along the way.
Don’t count traditional VCs out as investment and connection opportunities.
Explore all your sources
When seeking out sources of funding, start small and work your way up. Reach out to individual accredited investors within the crypto space.
Many angel investors held a lot of Ethereum when it was under $100 and rode it all the way to $4,500. These investors are already convinced; every $10,000 they invested in Ethereum has eventually become worth $450,000. That said, do your due diligence and research investors and VCs.
Keep accelerators and incubators in mind as well; many companies in their infancy (including mine) have secured funding through them. Accelerators such as Y Combinator used to serve a more preparatory purpose, providing courses to supplement entrepreneurs’ business education, but they’ve since become an invaluable means of connecting entrepreneurs with a network of investors.
When fundraising in any climate, and especially this one, connections are king.
Show investors your skills in and beyond web3
So, what do investors look for in a pitch from a web3 company?
First and foremost, they want a qualified leader who not only represents the company well but bridges the gap between conventional and industry-specific skills. The web3 space demands that its entrepreneurs be savvy both in business as a whole (SEC rules, corporate etiquette, etc.) as well as in crypto, blockchains, NFTs or whatever their individual technology is.
This isn’t an easy balance to strike, but it’s necessary for fundraising. Listing too heavily to one side or the other can put off potential investors.
Investors also want traction and a market size that they deem significant. They’re always looking for product-market fit and the amount of revenue that can be generated. It’s worth noting that most investors will adjust if you’re lacking in one of these three areas. In your pitch, don’t treat web3 as an inevitability. Demonstrate how you intend to actively realize it.
Pursue everything — DeFi and TradFi
There are fewer crypto companies pitching today than was the norm in the past couple of years, but that’s par for the course given the state of the market. Nevertheless, a founder should continue to pitch regardless of the state of the industry. Pitching is a full-time job: The more you pitch, the better your chances of being rewarded.
You never know who is going to bite when you cast. Don’t count only on crypto investors who built their wealth on coins — traditional VCs are often tenacious enough not to jump ship during a bear market of any kind.
TradFi investors don’t scare easily: They will raise fiat no matter what. They don’t personally select which coin to buy, meaning they are far less caught up in the panic of a downturn than some DeFi investors can be. Be sure not to count them out as investment and connection opportunities.
Expect a slow but steady comeback
Web3 companies might be tempted to try to overcompensate for the current downturn. Companies may raise too much money, thereby giving away too large a share for a nominal price or hoard too much of the company for themselves, obsessing over the percentage they’ve given away in the initial valuations.
These companies, particularly the small startups just at the beginning of their journey, should bear in mind that any turnaround from a recession will be slow. Many companies fail because they do not plan to scale during major downturns.
Again, start small and work your way up. Don’t let anxiety call the shots. This too shall pass, but don’t waste the moment.