The world of blockchain still resembles the Wild West — the rules for engagement are not clearly defined, and procedural best practices are often clouded by speculation.
As such, the challenges involved in finding investors for your blockchain project are numerous and can be tough to navigate.
If you’re starting a blockchain company and seeking funding, here’s what you should expect.
1: How well the market is doing will determine how well you’ll do in landing investors.
As the founder of a blockchain company, your ability to obtain funding will of course depend on the quality of your product — but it will also be affected by the health of the market.
This is an unfortunate fact of the blockchain community. When the blockchain market is booming, finding investors for your project is easy. When the market is cold, more speculative investors will be hesitant. Some won’t take on any new projects at all, no matter how promising they might be.
I’ve experienced this first hand, both in starting Bee Token and with the projects I’m advising or involved in now. Some are struggling to raise money on account of the market.
Ultimately, though, great projects are great projects, and they will find funding — it’s just a matter of putting in the work during the more difficult times. Founders need to be aware of that.
2: Investors are still hyped primarily on projects with new protocols for the blockchain and enabler projects.
Another unfortunate fact of the blockchain community is that investors are still interested primarily in projects that offer new blockchain protocols — as opposed to actual applications.
One reason for this is many investors believe that the blockchain is still too young to host real applications — that the environment isn’t ready. Only enabler projects are getting routine traction. These are tools that allow for visualization of something already existing on the blockchain, or tools that audit smart contracts, for example. Those projects have clear revenue models.
All in all, though, investors are mostly interested in infrastructure projects as opposed to applications that provide actual utility. This will continue to prove a challenge for many blockchain founders for the foreseeable future.
3: A lot of investors only care about the short-term.
As all founders likely already know, not all investors are created equal.
This is true across industries, but especially in the nascent world of the blockchain. In the blockchain community, in fact, while there are some very good and smart investors, there are also a variety of bad investors — firms and folks focused solely on short-term profits.
Generally, a good investor is someone who’s genuinely interested in your project. They plan to use it, and they believe in the importance of it. Bad investors, however, will sacrifice a project’s potential to obtain small profits. These are the sorts of firms attracted to blockchain because of the hype. They want to see a return in a few weeks.
Unfortunately, the blockchain space is currently permeated with these types of investors. You need to watch out for them.
4: You need to already have completed certain milestones in your project prior to reaching out to investors.
This is a mistake many founders stumble into their first time looking for funding: they court investors too early in their process.
The reason is, most investors will insist that you’ve achieved certain milestones with your project before they invest. They want to see that you’ve assembled a core team, completed a white paper, and developed a working prototype. If you don’t have these puzzle pieces completed, it’s best to wait to talk to investors until you do.
For this reason, it’s good practice to articulate in your whitepaper when and how you will achieve these critical milestones. You should also detail where investors’ money will be going.
These details don’t need to be incredibly granular, but you do need to prove that you’ve thought carefully about them and that investors will not be throwing their money into a black pit by partnering with you.
5: The easiest way to find investors is through mutual connections.
When we were seeking funding for Bee Token, most of the partnerships we eventually entered into were born at crypto conferences in San Francisco. In fact, two such conferences just happened recently — Global Blockchain Forum, and Block-2-The-Future.
Attending these kinds of conferences is the best way to meet people who might be genuinely interested in partnering with you on your project. They’re great places to start seeing the same people over and over again — to, in effect, begin building relationships.
Ultimately, building these kind of relationships is the best way to find funding. You need to get to know faces and names and ingratiate yourself in this crowd. It’s a small community, so those relationships can prove immensely valuable.
6: You need to make sure your investor is accredited in the U.S.
Finally, one thing all blockchain founders need to be aware of is this: you should only partner with investors who are accredited in the U.S.
In fact, most companies have to follow certain security laws during their ICO process because the tokens they’re issuing are mostly considered securities. That means there are regulations in place protecting potential investors at your potential expense.
Be careful about who you allow to invest in your project. Make sure they’re reputable and won’t get you in trouble with the government.
Ultimately, when seeking investors, the most important thing is that you treat your company or project like a real company or project — just as you would in any industry with any other startup.
It’s true that things move faster in the blockchain community and that there are investors out there who might be willing to partner with founders who’ve cut corners, but the good investors won’t. You still need to prove to investors that your product works long-term and will attract customers.
That’s how you’ll build a successful, sustainable company, and that’s how you’ll find quality investors.