Let us assume you have a business idea. Let us assume that this business idea is so revolutionary that it would change the world. Or change the way most people do certain things. After all, not all businesses change the world, and many just do enough to make tiny parts of our lives easier.
Maybe this business won’t even make a huge dent in the world and is mainly a way for you to make money. It doesn't matter. Whatever it is you are building, you will need money to build it. And if your business, or solution, must be built on a blockchain, you will face even bigger funding problems.
For one, only a few banks will lend you money to build something that isn’t brick and mortar and is difficult to repossess. They also would never borrow your money to build anything on a blockchain.
This isn’t because the building on the blockchain is risky, even though it is: just like every other business. But because the blockchain and its accompanying tech will probably __eat the bank, __they definitely would not contribute to that venture with their services. It would be like Instagram funding TikTok instead of buying the app out.
Additionally, traditional VCs are __not exactly into the idea of building for Web3__right now because Web3 is precisely the kind of project venture capitalists don’t want to touch. Web3 is all about democratizing ownership, and most VCs certainly do not want that, as they prefer to retain a modicum of control in any project they are funding.
This allows them to have full control of when and how they get their return on investment. Web3 projects don’t promise that. In fact, not promising that is a
This, of course, leaves you in a precarious situation. You have this great idea, but you cannot source funds precisely because the kind of product or service you are building is not what banks or traditional VCs want to sink their money into.
So, what do you do?
If you are building on the blockchain and need cash, the first thing you must accept is the simple fact that
Of course, this approach to funding has its cons and pros. For example, crowdfunding may not be able to get you enough money, since you really cannot specify or really demand how much you need from crowd funders. It is the market that will decide what you get, and the market can be brutal.
On the other hand, if crowdfunding goes well, you could get even more money than you need. This, of course, gives you more than enough time to find a product-market fit and build something that is truly sustainable and works.
Now that you know that crowdfunding is the key to raising money on the blockchain, you must realize that you cannot just crowdfund in a traditional manner. You can’t just create a Kickstarter account and expect people to fall in line and donate.
While that has worked for some, the more reliable route is to build a community first. In Web3, a community means a world of users for your product.
That is right, you need to find your users before you build the product if you are going to crowdfund a project on Web3. This community is, roughly speaking, people who believe in the project's goal and are willing to put their money where their mouth is.
This unwavering belief in community is what stands some projects apart from others in Web3. Some projects just get their community dynamics right, while others really don't.
Unlike traditional crowdfunding operations, these potential users in your community are not giving you their money because they think you are nice. They are giving you money because they believe in your project and want to have a stake in it. So instead of having a couple of VCs, you’re looking to have a couple of thousand small VCs who, vitally, is not interested in having tyrannical control over your product.
By getting your funding from your community of users, you are literally being funded by the market. In other words, you are running a business by the market, of the market, and for the market. That is how Web3 works.
Now that you understand the rough outline of how to source funds, here is a walkthrough of the technicalities of your potential fundraising campaign. The first thing you need to do is work out the technical aspects of what you are building. That means deciding on a blockchain and a technical partner.
If you have trouble deciding on one, I have had some really great experiences with
Once you have got that set up, it is time to build your community. There are several channels to help you do that. Discord, Telegram, or even Twitter are all great choices. Promoting the project using influencers is not a bad idea either, but as long as you’ve got a solid whitepaper and solid ideas, you should have no problem building a very active community.
When you're done with that, you can move on to the fundraising proper. First, you need to issue a capped amount of a fungible token.
Keep a percentage for the project’s treasury, and sell some to your community of potential users. If they are hyped enough about the project, it will quickly increase in value. Once that is done, you need to create pools for the token.
This pool should hold equal amounts of the currency you want your token to be pegged to. If you want your token to be equal to one ETH, then you need to add 1 ETH for every token of your project in the pool. That way, if someone wants to buy your token, they can just swap ETH for it. That will give it liquidity and give your community more confidence to buy and hold the token.
This, of course, will increase the value of the tokens in your treasury and will give you the funds you need to continue building your project. You should also allow people to have the ability to stake the tokens, as this will make it an attractive investment and will increase its value even further.
In any case, you've got to remember and make it clear to your community that this is merely an extremely early IPO. The funds you're raising via the tokens will be going into the project, and the tokens themselves are intrinsically worth nothing outside the project.
This method of crowdfunding has been tried and tested several times over. In fact, it's probably the most common way of raising money in Web3. Some of the most successful DAOs, Dapps, and even Protocols used their tokens to raise money to fund their development.
So if you're planning to go that route, just understand that the key is having a great project and having great people. The community is everything, the project has nothing. That's what Web3 is supposed to be, and if you're lucky, that can work out well for you and your project.