Early-Stage Crypto Startup Guide to Fundraising Success
By Nathan Kay, CEO of Mempool Ventures
According to 2021 reports by Pitchbook and other market analysts, crypto and blockchain sector start-ups are attracting higher levels of VC and angel investment than any other sector. Yet many of these investors struggle to pick the winners in this new high-risk, high-reward decentralized company ecosystem. Crypto investing is characterized by new business models, tokens and token economies, digitized value, and all important community dynamics that don’t exist in the conventional VC world.
Similarly, many blockchain start-ups are in the dark trying to navigate a complex maze of the investor ecosystems for equity investment, token launches, and exchange listings to find the right investors and partners required to scale their companies. As a project founder, how can you tick the various boxes needed to attract investors that can not only offer you the capital needed, but the specific advice to take your innovative project to the next level of company growth?
At Mempool Ventures we have deep experience fundraising, building and advising early-stage companies in the blockchain space. As a crypto VC and advisory firm ourselves, we are seeing a growing number of companies looking to secure funding for next-generations project use cases. If you fit this description, this article is for you. Similarly if you are a conventional investor embarking on the learning curve to understand this new disruptive sector, then read on for ideas to consider.
Here’s some of the tools and some tips early-stage project founders need to launch a successful fundraising campaign and set your project up for success from the get-go.
Getting Started: the Planning Stage
Before venturing out into the world, you’ll want to ensure that all your internal documents and procedures are in order so you can start with a clear strategy and unified team. This is where initial planning and strategy come into play. You will need the basics of company registration, cap tables, legal docs and any compliance requirements covered. Some rough notes on the key metrics and milestones you want to achieve with your business are also a good start and will result in a much easier time scaling and attracting aligned investors. No matter how good your idea is, without a proper plan of attack, you will invariably struggle when bringing it to life.
Your business plans should be carefully considered and written in the sophisticated format that investors expect. You will require a series of documents, reports and metrics to articulate your customer or user traction or evidence of future traction when approaching potential investors. To streamline the creation of these documents, you’ll want to set up your tech stack of software and automation tools.
Our portfolio companies use SaaS tools to help track, share and manage the business and KPIs. These are the specific tools that have helped us succeed, but we would recommend looking around to find the best tools to serve your needs.
- G-Suite (Google Drive, G-Mail, Google Meets, Google Forms): for corporate documentation storage, meetings, and email
- A CRM such as Pipedrive: for tracking investor communications and business leads
- Project management tools such as Jira by Atlassian: for planning purposes, dividing projects into separate flows, bug tracking and progress tracking
- Slack: for team communication and private discussions
- Marketing Automation: tools for managing campaigns, social channels, web traffic, and sales funnels to monitor user, engagement and community growth metrics.
- milestoneBased: for milestone descriptions and achievement tracking for investors and community
Once your business is equipped with the right SaaS tools, you’ll want to document some standardized protocols for how you and your team should use them. If you’re a CEO, take some time to compose corporate policies for your team to follow; it will be much easier to plan activities, analyze progress and onboard new team members once your company has a clear set of rules and principles. This also enables your business to be internally regulated and audited, and by providing proof of these practices to investors you will give yourself a tremendous advantage when fundraising.
Investors know that well-organized businesses are much more likely to succeed.
When pitching to investors you will want a professionally written, beautifully designed Pitch Deck. Most VC investors vet hundreds of these a year, you want yours to stand out.
Your Pitch Deck should define your project quickly and effectively, relying on graphics — rather than long paragraphs — to illustrate your points. It should communicate your business proposition and market fit and be directed first and foremost to investors. Key points that your deck should hit are:
· Company purpose
· The problem you are solving
· Your solution
· An answer to the question “why now?”
· Market size analytics including TAM, SAM, SOM
· Competitive landscape analysis
· Product description
· Business model
· Team description
· Financial information/Tokenomics
For an example of what we mean, look no further than the Sequoia Capital Pitch Deck Template.
Aim to write precisely in short, punchy sentences and include as much graphical information and schemas as possible. Where possible, replace plain text with images, use larger font sizes, and make sure to design your deck with your brand’s colors, fonts and logo.
Making the Pitch
When you’re pitching to an audience, your Pitch Deck should serve only as a visual aid — expound on each point, rather than simply reading from the slides. Tell the story of your project while using Pitch Deck as a reference point for stats and figures. Fundamentally, it is your job to convince the investors that what you are building is based on and validated by market research and testing.
When you reach the Team and Advisor sections, take the time to elaborate on your team’s previous successes. Tell the story of how you, your team, your advisors and your partners got to know each other and why they’re the perfect candidates for their respective roles. Highlight not just past achievements and strengths but also areas in which your team may lack knowledge or expertise. Good VCs can connect you with experts able to fill in the gaps.
Above all, your pitch must be inspiring. Be authentic, confident and captivating.
Show the investor that you’re inspired by what you’re doing, that you are completely aware of what you’re building and that you have a clear picture of how the world will be improved by what you aim to achieve.
Financial Projections & Tokenomics
If you’re launching a token, we recommend working with a token economist to develop a tokenomics document. This should include token allocation and distribution models, vesting schedules, token mechanics, dependable minting models, staking models, liquidity mining models and the growth potential of your token.
You also need to make the case for why your project needs a new token in the first place. The things that you want to achieve with the implementation of a token into your business model could often be just as easily achieved with an existing digital asset, rather than a completely new token. Highlight the fundamental mechanics of your project that require your token.
Traditional financial projections remain critical in the blockchain space. It is best to hire an economist to work on your P&L projections and design your potential cash flow metrics.
Both tokenomics and P&L should be projected for at least five years into the future; the best approach being to cover two to three Bitcoin cycles (8–12 years) in your projections. Such a long-term forecast will provide you, your partners and your investors with essential insights and would go a long way to assuring them that you are here to stay.
Team Section and Advisors
It is often said that over 50% of an early-stage company investment decision is based on the team.
Make sure the LinkedIn profiles of your team are professional and reflect your worthiness of investor’s money. Create a company profile on Twitter, Crunchbase, Medium and other social media channels like Discord and Telegram. It’s important to be actively working on populating these channels with content and community, and that each is filled out with current information and links to your other social platforms. Aim to make it as easy as possible for someone interested in your project to find you, assess your credibility, and want to connect.
Every project that is fundraising should aim to onboard advisors with prior experience raising funds. Spend some time with your advisors, take them through your project step-by-step and seek their network of connections. Your advisors should also be your first port of call when you need strategic help.
Consult with lawyers on how to remain compliant with the regulations specific to your geography. Be prepared to fundraise by having all the documents that your investors will need to fill out ready. Every investor will want proof of investment in the form of a SAFT agreement or something similar.
A well-defined, long-term project roadmap will help your team stay on track and will give investors a clear understanding of what stage of development your project is at and where you are heading. milestoneBased makes creating a public, detailed company and development roadmap easy. If you want to streamline finding investors, optimize internal spending while also assuring investors that your stated roadmap and intention of funding is achieved, this is a blockchain-based DAO (distributed autonomous organization) that achieves this. milestoneBased allows you to create milestones within your roadmap that stakeholders need to vote on before any funds are unlocked. Beyond this, you can use milestoneBased to share your plans with the world and attract new investment prospects.
Communicating with Potential Investor and Partner communities
In the blockchain world, community is key to growth. This means partners in the investment ecosystem- such as launchpads, market makers etc. are important in addition to investors and there must be a good business and cultural fit.. When selecting investors or partners to work with, take the time to research them extensively. A partner or investor that worked well with another business may not be the right fit for you; seek clarity on business goals, structure, and the paradigm to make sure it aligns with your own mission and needs.
If an investor indicates their interest, we recommend asking them to sign a memorandum of understanding (MOU) or any document that puts into writing their intention to invest in your project. We also recommend asking the investor for advice; advice is arguably one of the most valuable things an investor can offer. Advice from a reputable company or individual also fosters trust. Once you get their advice, you can get a clear understanding of what milestones they’re looking for you to complete before moving to work with you full-time (if they aren’t already).
Once these initial foundations are laid, follow up with your prospective investors and show them your progress. Once you receive feedback, implement it. You made an effort to find people whose opinion you trust, so trust that their advice is worthwhile. However, it’s important to be careful not to lock yourself into anything; if you commit to implementing advice and then end up not doing so it can harm your relationship with that party.
In these moments, a CRM system is handy for several reasons. It helps keep track of activities and meeting minutes. It helps remind you of what you spoke about previously in meetings with specific people and whether follow-ups were required. It allows you to easily look at the upcoming milestones and define the direction you’re moving in to get clarity on frameworks for activities such as referral strategies or direct investment strategies. In any case, you need to clearly state your plan and follow the framework of activities as per the MOU.
How to Select the Best Investment Partners for your Token Offering
Partner up with reputable companies
The best way to create trust to help your fundraising efforts is by selecting reputable organizations as your service providers: get companies like PwC and KPMG as your auditors, apply for the Binance Brokerage Program for your crypto operations, find the best custodian, onboard the most reputable lawyer or law firm, and partner up with trusted experts in your field.
While in the selection process you should consider which partners will have the most to offer you during your project’s launch and development. For token offerings, the best targets are typically launchpads and the VCs associated with them. Find VC firms that have invested in companies you could bring added value to, or VCs that have invested in companies within your market segment.
You’ll also want to find investors connected to market makers, Liquidity-Mining-as-a-Service (LMaaS) providers and Staking-as-a-Service providers. Lending and borrowing protocols also often invest in projects that would be using their services — you can get commitments in cash or services from these partners, adding tremendous value to your project.
Of the over 1,000 different blockchains currently in operation, 20% have their own grant programs offering grants ranging from $50,000 to $500,000. Doing your research on the chains that best suit your product and then applying for a grant can be a great way to fast-track your development and receive benefits that extend far beyond the money.
These grants have three main advantages. One, the money you receive is not considered an investment. Two, you don’t give up equity or tokens. And three, you’re likely to receive extra exposure from the grant issuer.
But be careful to read and adhere to the rules of your grant as any slight misstep can be enough grounds to expel you from a program. This happens regularly in crypto.
Rather than going straight for the biggest players, finding a promising blockchain that you have the potential to grow with can be a game-changer for your project. For example, players in the emerging Polkadot ecosystem like the Web3 Foundation, Acala and many others have launched grant programs ranging from $100M up to $500M in total.
Crypto KOLs (Key Opinion Leaders) are accomplished, well thought of, and well followed individuals within the crypto community. Typically they invest in the projects they do advisory work with, with average investments ranging from $15,000 to $50,000. If you want to adopt an existing community as your own, crypto influencers are the people to go to. Searching through Twitter and YouTube you’ll find reputable crypto thought leaders with tight-knit communities who align with your project’s vision. Smaller influencers with thousands rather than a hundred thousand plus followers are a great place to start, so find their contact info and organize a meeting.
You should be using different channels for different target audiences: for crypto influencer KOLs and YouTubers, use Twitter DMs and Telegram groups created by these influencers and opinion leaders. This is typically the most effective way to contact the people you want to speak with directly.
VC firms, market makers, liquidity providers, LMaaS and Staking-as-a-Service providers are typically a bit more traditional. You can still contact them via Twitter and Telegram, but they may prefer the more formal route of using the official contact forms on their websites.
Partners at some of the more top tier VC firms can be elusive and often a warm connection from an advisor or someone who knows them can be the best approach and cut through the noise.
Be persistent and keep following up with your targets. Sometimes you may need to reach out multiple times to get in touch with an organization. Don’t give up!
If you follow the tips and tricks suggested in this article, you’ll be setting yourself up for a successful fundraising campaign. Implementation of the practices and strategies described here will help you to survive the competitive environment of today’s decentralized crypto world and the drive for investors, growth capital and company growth. 🔥
Mempool Ventures is a crypto VC firm focused on advising, accelerating and investing in breakthrough tech at its genesis stage.www.mempool.venture