Venture capitalists are warming up to funding blockchain and crypto projects, ready to fuel the next wave of innovations.
After two years of hardship, crypto entrepreneurs are now seeing a potential shift in fortunes, with Bitcoin’s surge of over 30% in the past month reigniting interest in funding opportunities within the industry.
While still low compared to previous highs, VC investment in crypto startups edged up in Q4 2023, suggesting renewed interest in the sector, PitchBook data published this week showed.
Crypto Projects Score Big as VCs Pour Millions into Funding Initiatives
The funding figures are remarkable. VC giant Andreessen Horowitz announced this week that it injected $100m into crypto restaking startup EigenLayer. Additionally, Hack VC disclosed raising a $150m fund dedicated to supporting projects focused on decentralizing the internet.
Phillip Shoemaker, executive director of decentralized ID verification startup Identity.com, said he wishes VCs would be more cautious about investing in digital assets. But he doesn’t see any signs of that happening.
“It’s more a [Fear of Missing Out] thing, and this is standard for VCs,” he told Cryptonews. “There’s just so much VC money out there and they are going to continue to throw money around to see if something sticks. I don’t see any difference now when compared to previous cycles.”
1. Dream Big, Think New
One of the best ways for a startup to stand out is to present something new that the industry needs, said David Kemmerer, CEO of crypto tax software firm CoinLedger.
In his experience, one effective method to make an impact is to approach crypto from a more inclusive standpoint as “it can be an industry many people find confusing.”
Kemmerer believes startups that offer informative and inclusive approaches might attract more investments because they can be more profitable by appealing to a broader audience.
2. Fusing Passion with Potential
Brian Evans, CEO of Web3 advisory firm BDE Ventures, attributed the growing momentum in the VC space to a combination of factors, including a broader tech rebound and the crypto market moving past scandals like FTX’s collapse.
According to Evans, the ability to address real-world problems is crucial for a startup seeking funding. He noted that many VCs have become more cautious following the boom and subsequent bust of numerous projects in the digital asset realm over the past few years.
“We’re clearly rising again now, but VC capital is much more careful about where they invest,” he said. “There are so many aspects to the digital asset space that are growing fast, including DeFi, gaming, DePIN and other sectors. But it’s critical that VCs look at a project’s value proposition.”
Key checklist items for a startup looking for funding include: the need to check if the project tackles a real issue, assess the founders’ dedication, and see if their backgrounds match the project’s needs, Evans said.
3. Focused Target Market
Anthony Georgiades, general partner at Innovating Capital, suggests pinpointing a specific target market for a use case. He also highlighted the need for good technology.
As the digital asset space continues to grow, the industry will see a lot of VCs coming into the market with little experience in the industry, he said. So there is a risk of VC FOMO happening again, as it happened during the last cycle.
Projects with a clear value proposition and a defined target market, or those solving problems for real people, will stand out in the long run, Georgiades said.
4. Turning Connections into Catalysts
Don’t underestimate the power of your network. People genuinely want to offer support when they can.
Getting introduced to investors through mutual connections is often more effective than reaching out to them directly without any prior connections, according to Maksym Repa, an analyst at crypto-native fund Symbolic Capital.
“It’s about making those personal connections that can really open doors for your startup,” he said.
Repa suggested crafting a pitch that’s a one-two punch: clear and captivating. Imagine it as your elevator ride with an investor – you have seconds to hook them. Focus on the core value and leave them wanting more.
5. Put Trust Into Practice
Following a series of bankruptcies that impacted the crypto industry in 2022, it’s evident that VCs will prioritize transparency and honesty regarding internal operations.
Ramy Bekhiet, senior advisor at PDX Global, said crypto startups must be transparent and undergo thorough due diligence for Web3 venture capitalists to regain confidence in the market.
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