How Crypto Projects Are Raising Capital in 2021?
Ten years ago, blockchain-focused startups had to fight tooth and nail to win the funding necessary to accelerate their vision. These days, it’s a whole different ball game thanks to a preponderance of incubators and grants programs, not to mention fundraising avenues like STOs, IEOs and IDOs.
It’s fair to say that most of the capital flowing into the cryptosphere comes from private equity firms. Last year, less than a quarter of investments in startups had no VC involvement, indicating the dominance of marquee investors such as family offices and hedge funds.
Although there are still a few months left of 2021 to go, crypto and blockchain start-ups have raked in a record $19 billion so far this year, a consequence of the sizzling NFT market and decentralized finance (defi) more generally. Clearly the volatile nature of crypto-assets is not dissuading financiers from backing promising startups to the hilt.
Much of the frenzy can be traced to simple investor FOMO; no-one wants to miss out on getting a piece of the next OpenSea, Dapper Labs or BlockFi. What’s more, many asset managers are bullish on the industry’s long-term prospects, and believe that a rising tide propelled by Bitcoin and Ethereum will lift all boats. Whatever the reason, projects with a good idea, viable route to market, and talented developer team can secure incredible deals.
Community Grant Programs and Incubators
Acquiring funding doesn’t necessarily mean surrendering a chunk of equity to deep-pocketed financiers. In recent years, a number of grants have become available to promote the creation of tools and applications in a certain blockchain ecosystem.
The Web3 Foundation, for example, is dedicated to funding development and research in the field of decentralized software protocols. Closely tied to the Polkadot network, the Foundation has bootstrapped over 300 projects in 50+ countries.
The NEAR and Solana Foundations have similar aims, providing access to funding as well as ongoing technical support. The largest dedicated blockchain development studio, ConsenSys, supports several layer-2 networks and adjacent protocols although it is most closely associated with Ethereum. ConsenSys has distributed grants and directly financed countless startups over the years, and even raised $65 million in its own right earlier this year, with input from J.P. Morgan, Mastercard and UBS AG.
Although there are more grants programs than ever, acquiring funding can be an onerous process. Which is why many projects prefer to get their house in order, develop a native asset, and conduct a token offering.
From ICO to IDO
Several fundraising vehicles are available to crypto startups in need of capital. During the 2017 boom, initial coin offerings (ICOs) proved particularly popular. Ostensibly, these gave investors an opportunity to own a stake in a project by laying their hands on its native token. However, the market quickly soured as unscrupulous ventures – the sort who raised money based on “shitcoin whitepapers written in coffee shops” according to Cameron Winklevoss – failed to deliver on their promises.
Fast-forward to 2021, and new token offering models have come to the fore, not least IDOs – initial DEX offerings. Typically conducted on third-party launchpad platforms, this form of decentralized crowdfunding provides near-instant access to liquidity and trading, making it a popular choice for crypto startups desperate to launch an asset and quickly receive funds.
Of course, the clear and present danger is that native tokens are dumped on the market when investors have had their fun. This fear has given rise to solutions like social mining, wherein token-holders can be categorized according to how much support they offer the project.
Even if an IDO goes well and no dumping occurs, though, startups can run into financial trouble due to their own strict vesting schedules. With an IDO complete, and ventures expected to meet investor expectations, the freezer can very quickly run out of steaks during lock-up periods.
Waggle Network: A Win-Win for Investors and Startups
Which is where Waggle Network comes in useful. A soon-to-launch multi-chain marketplace open to all retail investors, Waggle was created to help crypto projects unlock liquidity from post-IDO tokens. The type that would ordinarily be off-limits due to strict emission schedules.
Although such schedules protect the value of tokens, and ensure that all stakeholders’ interests are aligned, they can often cause startups to lose momentum amid a liquidity crunch. Through its decentralized marketplace, Waggle allows everyday investors to buy into projects they believe in via the trading of locked tokens at a discount price.
Backed by the likes of GBV, Genesis Block Capital, and Spark Digital, Waggle believes it’s concept is a win-win for startups and investors: while the former receive crucial mid-stage funding without resorting to a seed round, the latter gain exposure to promising primary market investments.
As with the best IDO launchpads, Waggle conducts due diligence on all projects, assessing the feasibility of their roadmaps, scrutinizing their tokenomics, and running the rule over their partnerships. At present, the Network is building on Binance Smart Chain, ERC20 and Solana, though there are plans in place to expand to layer 1 chains such as HECO, Harmony, Enjin, and Avalanche.
Crypto funding has come a long way, and before the year is out, it’s feasible that blockchain-centric startups could blast past the $25 billion mark. As for investors, they’ll continue to seek out the next unicorn.