Wolfgang Rückerl
These days, a blockchain startup founder should expect to navigate challenging waters. Even in the best of times, founders must both prepare for a bull market and be ready for possibly bearish territory.
Having a solid roadmap, real-world use cases and a war chest are only a small part of a blockchain startup’s survival strategy. Founders also need to be aware that while non-crypto startups can offer useful and transferrable launch strategies, the road to achieving success in the blockchain industry is paved differently.
Here are tips every blockchain founder should consider before launching.
Bear the market conditions in mind
Bear markets appear more attractive to blockchain businesses looking to launch. But before suiting up for winter, founders must assess whether it’s worth waiting to launch until market conditions are better.
Evaluate your startup with the same criteria investors use during a bear market. Investors want to see a strong roadmap with deadlines and benchmarks that don’t simply come and go with no activity, as this is a signal to investors that a slow rug pull is underway.
Evidence of a diversified war chest that you can draw from is pivotal, especially when providing returns on locked assets is the main impetus for attaining liquidity. In addition, analyze the market situation from a technical standpoint: The bear market is an attractive time to launch, but it’s also a time to go heads-down and focus on building your product.
Regardless of market conditions, make use of your reward programs for loyal community members by offering staking rewards, airdrops and giveaways without needing to raise additional capital, similar to the traditional business world.
Opt for longer vesting schedules
In the non-crypto startup scene, it’s common to include compensation packages as an incentive for employees to perform well. Blockchain startups do this during the presale period of an initial coin offering using a method called vesting, where they lock and release assets (usually in the form of tokens) over a certain period. In so doing, they give their team, investors and advisers the right to certain assets such as retirement and stock options.
If you choose this path, set up the token metrics and the vesting period for the gradual release of these tokens in a way that doesn’t put too much pressure on the token itself. Many crypto projects unlock and distribute their tokens every three months, and they’re finding private investors dumping them on the market, which is bad for the team and the community. In turn, retail investors also begin selling up front because they know a dump is coming.
Opt for longer vesting schedules — between three and five years — to show that you have a financial incentive to continue project development. Split the release of the tokens: Release the private sale investor tokens one month, the adviser tokens the next month and the team tokens a month later. If it’s all in one month, the risk for retail investors will be too high.
Don’t underestimate crypto regulations
You’ll need external legal counsel with prior crypto experience. It’s risky and time-consuming to work with counsel unfamiliar with crypto, especially since you’ll need guidance on how to navigate legal boundaries if you’re setting up initial coin offerings (ICOs) and ensure compliance with anti-money laundering (AML) and know-your-customer (KYC) standards. KYC protects projects by filtering out bad actors and it protects your investors as they provide highly personal information.
To get ahead of AML hurdles, blockchain startups should automate the verification process. This will minimize mistakes, postal delays and general workplace apathy. It also decreases time spent on compliance tasks by 70% and lowers costs by 40%. Segmenting customers based on risk profiles and tailoring verification flows by splitting the onboarding process into levels will also decrease drop-offs during onboarding.
Tap your network to find a high-quality lawyer with skin in the game. You can search for crypto attorneys on databases such as The Blockchain Litigation Database (BLD) or Linklaters, or you can reach out to vetted third-party providers like OnFido, FacePhi and OnBoard.
Educate yourself on crypto banking and tax rules
The crypto space suffers from a lack of regulation, consistency and clarity regarding taxation. Separate rules govern the taxation of cryptocurrencies and utility tokens, and laws vary between jurisdictions.
The best way to limit both tax risk and exposure is to consult your accountant and create a watching brief to track developments in legislation and monitor tax guidance. While key tracking information will be stored on the blockchain, take advantage of handy scanner tools to retrieve data more efficiently.
A crypto-compliant corporate bank account is another essential resource, but it can sometimes present a hurdle. With the situation in Russia and Ukraine, banks saw many people moving money around the globe via crypto, leading to more caution and more anti-money laundering regulations. Virtual currencies are considered high risk, and AML laws require banks to understand a business’ source of funds, source of wealth, ultimate beneficial owners (UBOs), operations, counterparties and security processes.
You’ll need to hire a government-authorized trustee to move your funds from an exchange to your bank account. Storing money is also getting more complicated. Depending on where you are, some banks will want you to have a custody provider to hold your money in a ledger for you.
Grow your community without resorting to vague hype
In the Web 2.0 world, it’s par for the course to sell a product once it’s fully built. But in the web3 world of horizontal technologies, you’ll be running against the wind if you wait to build relationships until you’ve built a technology.
Be honest about the progress of product development, challenges and release timelines for the launch on the testnet and mainnet. It’s equally important to task reputable third-party companies with running security audits to ensure the security of funds when launching the product on mainnet.
Don’t simply boast about your vision. Instead, show your community that they’re part of your decision-making process and make their opinions count by following through with suggested improvements. Post regular updates about development progress as well as what’s next on your roadmap. In addition, show your community that you can back up your ideas by confronting your critics and their criticisms head-on. Tuning out questions from your toughest crowd won’t make them go away.
Surround yourself with a supportive team that can connect the project to all the necessary players in the market. Your team needs to have experience in crypto marketing and understand related media formats and channels like Twitter, Telegram, Reddit, Steemit, Notion and Discord. Use techniques like code reviews, pair programming, shared boards and channels, and backlog refinement meetings to ensure transparency and the proper flow of information.
Explore all your funding options
Blockchain startups have standard funding methods at their disposal such as crowdfunding, angel investment, venture capital funding, incubators and accelerators. However, there are also blockchain-specific funding methods, such as token sales, that use an ICO strategy.
Founders can connect with experienced investors by accessing open source databases of different blockchain investment companies and attending blockchain meetups and events. But before expecting to garner investor interest, perfect your elevator pitch and monitor blockchain press for investors expanding into blockchain structures.
At minimum, have a prototype ready before you start pitching investors to show that you already have capable programmers. Prior to any fundraising efforts, you should establish a formal advisory board and have official partnerships in place. Partners and advisers lending their credibility shows investors that people are already taking your project seriously.
Major investors have watchlists. They’re interested in how blockchain connects with other technologies or sectors, and they want a clear vision of the reasons your business needs to exist, the risks involved and the protections you can provide. Use your pitch deck to offer detailed data and forecasts. Include rating criteria for your team, the founders, market potential, how innovative your product is, token allocation and source of yield.
Tout the valuable functions your startup can perform that wouldn’t be possible without blockchain technology and why you can’t use a cheaper alternative. Identify factors that will cause the value to increase. Don’t shy away from openly discussing the pain points. This will create a layer of trust with investors.
Most importantly, when reaching out to investors, you should pique their interest by explaining how they will make money if your business succeeds.
No sign of slowing down
The rapidly changing and unpredictable nature of the blockchain industry makes it challenging to navigate. Innovators in the space face a unique set of demands, but they have the opportunity to transform industries across the board. The bar has no doubt been set much higher, and the perfect place for every founder to begin is by establishing a stable foundation.
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