The cryptocurrency fundraising landscape witnessed a notable shift in Q3 2023, with 222 crypto fundraising deals totaling $1.61 billion in investments. This figure represents a significant decrease from previous quarters (one-third lower to be exact), highlighting the current state of the crypto funding ecosystem and the increasing selectivity of investors.
This article aims to provide a comprehensive overview of the various types of fundraising methods, funding rounds, effective strategies, and tools available in the crypto space.
We'll explore everything about crypto fundraising from Initial Coin Offerings (ICOs) to Security Token Offerings (STOs), venture capital, and community-driven fundraising efforts.
So let's jump right into it!
What is Crypto Fundraising and Why is it Important?
Cryptocurrency fundraising, also known as token fundraising or token sales, is a way for companies and projects to raise money by selling digital tokens to investors. These tokens represent a stake in the project or provide some utility, and investors usually buy them with their own cryptocurrency.
Cryptocurrency funding has an immense impact on the blockchain ecosystem because it basically democratizes access to capital, thus enabling projects to get funding from a diverse group of investors globally.
What are the Different Types of Crypto Fundraising?
In the course of its development, crypto funding has evolved into several distinct methods, each with its own advantages and challenges. There are five main types of crypto fundraising, with ICOs, IDOs, and IEOs being the most popular.
The main types of crypto fundraising are:
- Initial Coin Offerings (ICOs)
- Initial DEX Offerings (IDOs)
- Initial Exchange Offerings (IEOs)
- Security Token Offerings (STOs)
- Grants and Accelerators
1. Initial Coin Offerings (ICOs)
Initial Coin Offerings (ICOs) were the pioneering method for crypto funding—the sale of some amount or percentage of one's cryptocurrency project to some abbreviated contributors in exchange for capital.
While ICOs have gone more or less into decline since the big heat of regulatory scrutiny heated up, they have not completely disappeared.
For example, in 2023 Worldcoin amassed $115 million through a private token sale, co-founded by Sam Altman (yes, the OpenAI guy), confirming high-profile projects can still use ICOs effectively.
2. Initial DEX Offerings (IDOs)
Initial DEX offerings (IDOs) are conducted on decentralized exchanges (DEXs). Unlike ICOs, they offer immediate liquidity and are more resistant to censorship.
Carbon Browser conducted one of the biggest IDOs in 2023, raising $1.6 million for their Web3 browser development, far exceeding their initial $600,000 goal. The IDO attracted 3,800 token holders within the first 24 hours, demonstrating rapid community building.
Later, leveraging Blockchain-Ads, they added 4,000 new $CSIX holders and achieved 5,460 new dApp downloads, showcasing the potential of IDOs for both fundraising and user acquisition.
3. Initial Exchange Offerings (IEOs)
Initial Exchange Offerings are managed by cryptocurrency exchanges, leveraging the exchange’s reputation and user base to attract funding.
IEOs remain a popular choice for projects seeking immediate liquidity. In November 2022, Binance Launchpad hosted the HOOK token sale for Hooked Protocol, raising $2.5 million.
4. Security Token Offerings (STOs)
STOs issue tokens representing ownership in an underlying asset, subject to federal securities regulations, providing a secure investment option.
To give one real-world example - in 2022, Securitize, a digital asset securities firm, tokenized an interest in KKR's Health Care Strategic Growth Fund II on the Avalanche blockchain.
This tokenized fund provides exposure to a $4 billion healthcare-focused fund, demonstrating the potential for STOs in traditional finance by making institutional-grade investments accessible to individual investors.
5. Grants and accelerators
Grants and accelerators move funding forward in a project under discussion without the consideration of acquiring equity or tokens. Such programs are often carried out with high-profile organizations that intend to incentivize innovation as a practice.
AlphaGrowth is a platform designed to match early-stage crypto projects with grants and funding opportunities. It connects promising blockchain initiatives to potential investors, facilitating the growth of innovative solutions in the crypto space.
The platform provides access to a network of over 3,000 developers and partners, offering resources to help startups research, track, manage, and optimize their crypto business operations.
For instance, AlphaGrowth connects projects with over 3,000 developers and partners, offering a comprehensive platform to research, track, manage, and optimize crypto business operations.
6. Funding Rounds from Crypto VCs
Venture capital (VC) funding in crypto is a fundraising method that involves investors pooling their money to invest in early-stage blockchain and cryptocurrency projects.
Made in the form of equity or tokens, these investments should bring in substantial profits commensurate with the projects' growth and success.
Crypto funding rounds follow a similar structure to traditional VC funding but with some unique characteristics due to the nature of blockchain technology and tokenization.
What are Some Notable crypto VC firms?
These firms are likely to play significant roles in funding and supporting innovative blockchain and cryptocurrency projects in 2024 and beyond, so it's good to have them on your radar.
- Pantera Capital: Pantera Capital is one of the active funds that focus on investing in blockchain projects and decentralized applications driving industry adoption and growth.
- Andreessen Horowitz (a16z): Large VC firm, known for their participation in the cryptocurrency space since more than half a decade ago: their portfolio ranges from key projects like Solana and MakerDAO to CoinSwitch.
- Coinbase Ventures: Specializing in early-stage investments in crypto, metaverse, and web3, Coinbase Ventures is one of the most active funds, partnering with the founding teams of the very earliest stages of their startup lifecycle.
What is the best fundraising option for crypto?
Initial DEX Offerings (IDOs) are the preferred fundraising method in the crypto space, offering a blend of advantages that align well with the industry's ethos. They enable direct community fundraising on decentralized exchanges, fostering supporter ownership and enhancing transparency.
IDOs offer lower costs, requiring only gas fees for smart contracts. They also provide immediate liquidity through instant token trading on DEXs. With fewer regulatory hurdles than centralized offerings, IDOs are an efficient crypto-project funding choice.
While IDOs offer a number of benefits, this does not mean that the one-size-fits-all approach works. Depending on your specific project needs, you might want to explore and compare other options like ICOs or IEOs. Each method has its own set of pros and cons that could align differently with various project goals and circumstances.
To understand what's best for you, I strongly suggest reading this article: ICO vs IEO vs IDO: In-Depth Comparison and Best Option for Crypto Fundraising.
What Tools are Available for Crypto Fundraising?
Crypto funding leverages many tools and platforms that help put the process of raising capital and engaging with investors on autopilot—a dream, right?
Here are some key tools available for crypto funding:
Token sale platforms
Token sale platforms provide solutions for end-to-end execution, from ICOs to STOs. In addition to compliance with KYC/AML, these platforms have such features as customized token sale structures and incorporated marketing instruments that help a project efficiently raise funds.
- An all-in-one solution for accepting crypto donations
- Offers a customizable donation form and unique donation page
- Provides a dashboard for tracking donation data
- Helps builders secure funding and provides community access to early-stage token offerings
- A non-custodial fundraising platform for Web3 startups
Launchpads
Launchpads are the platforms that help new projects acquire much-needed funds and exposure by way of IDO offerings. They offer a launchpad for token sales and very often provide a variety of their complementary services - marketing support, community building, and post-launch support.
- A community platform that connects projects with supporters
- Uses Liquidity Bootstrapping Pools (LBPs) for fundraising
- Rigorous project selection process ensures that only high-quality projects are featured
- Projects gain access to Binance's extensive user base, enhancing visibility and community engagement
Smart contract-based fundraising tools
Smart-contract-based tools are maximally based on blockchain technology in order to create programmable and automated funding mechanisms. These tools secure a safe, transparent, and highly efficient way of fund management and distribution.
- Ethereum-based platforms:
- Allow for programmable funding mechanisms, such as token sales and automated distribution of funds
- Enable secure and verifiable fund disbursement through automatic execution upon fulfillment of predetermined conditions
2. Presail
- A comprehensive platform for investment groups and Web3 projects
- Likely utilizes smart contracts for managing investments and distributions
Decentralized Autonomous Organizations (DAOs) for fundraising
DAOs enable decentralized and community-driven fundraising efforts. They provide a framework for collective decision-making and resource allocation.
- A user-friendly crypto donation platform focusing on transparency and community engagement
- Operates as a DAO, allowing for decentralized decision-making in funding and fund allocation
- Part of the Optimism network, focusing on retroactive public goods funding
- Uses a DAO-like structure to determine funding allocations for projects benefiting the Ethereum community
How to Prepare for a Successful Crypto Fund Raise?
Preparing for a successful funding round in the crypto space involves several key steps. Here’s a detailed guide on how to get ready:
Developing a solid business plan and whitepaper
A solid business plan is basically a roadmap for your venture and is very important for attracting investors. Similarly, a whitepaper is a detailed document that explains the technical aspects of your crypto project, its use cases, and the problem it aims to solve.
Building a strong team
Investors look for a capable and experienced team that can execute the project successfully. So make sure to highlight the expertise and track record of your team members in your business plan and whitepaper.
Creating a Minimum Viable Product (MVP)
An MVP is a basic version of your product that demonstrates its core functionality. It helps in validating your concept and attracting early users and investors.
Tokenomics design
Tokenomics refers to the economic model of your token. It includes the total supply, distribution plan, utility, and incentives for holding or using the token.
Legal and regulatory considerations
Comply with securities laws, implement KYC/AML procedures, and choose the right legal structure. Figuring out the legal aspect is a must in order to avoid legal pitfalls and ensure a smooth token launch.
Setting realistic goals and valuations
You need to get the investors to trust you, and to achieve that you need to set achievable goals and realistic valuations. Overly ambitious targets or inflated valuations can deter potential investors.
What are Effective Fundraising Strategies in the Crypto Space?
You need to have a multifaceted approach to make funding effective in the crypto space. To achieve this, several key strategies have proven particularly impactful in attracting investors and securing resources for blockchain projects.
These marketing strategies include community-building and engagement, crypto PR, leveraging social media and influencers, building partnerships, and securing advisors.
Let's explore each of these in detail.
Community-building and engagement
You need an active community to provide support, spread the word, and create a sense of belonging among members. All of this is very important for any crypto project.
To build your community you need to tap into the power of the social media channels. Platforms like X, Telegram, Reddit, and Discord, can be used to interact with your audience.
And don't forget events, webinars, and AMAs - hosting or participating would help you interact directly with your community and address their questions and concerns.
Marketing and PR in crypto
Effective marketing and crypto press releases (PR) are essential to create awareness and attract investors to your project. Here are some key strategies to get you started:
- Press Releases: Distribute press releases to relevant crypto news outlets to announce important milestones and updates. This can help in gaining media coverage and attracting attention. Some PR agencies can help you with this.
- Content Marketing: Create informative and educational content that positions your project as a thought leader in the industry. This can include blog posts, whitepapers, and case studies.
Leveraging social media and influencers
Social media and influencers play a vital role in promoting crypto projects. Here’s how to leverage them effectively:
- Social Media Engagement: Actively engage with your audience on platforms like X, Instagram, and LinkedIn. Share updates, run polls, and create interactive content to keep your audience engaged.
- Influencer Partnerships: Partner with crypto influencers who have a strong presence in the crypto community. They can help amplify your message and reach a broader audience.
- User-Generated Content: Encourage your community to create and share content related to your project. This can include testimonials, reviews, and social media posts.
Building partnerships and securing advisors
Forming strategic partnerships and securing reputable advisors can add significant value to your project. Look for companies and projects that complement your own. Partnerships can provide mutual benefits, shared resources and expanded reach, being among the many.
You should also be looking into engaging experts and thought leaders as advisors. Their experience and network can provide valuable insights and credibility to your project.
What are the Challenges and Risks in Crypto Fundraising?
Cryptocurrency funding offers significant opportunities but also comes with its own set of challenges and risks. Let's tackle some of them:
Regulatory uncertainties
The regulatory landscape for crypto and digital assets is fragmented and rapidly changing, creating compliance challenges across different jurisdictions. Moreover, the lack of universal legal classification for crypto assets complicates their use as collateral and hinders legal actions against insolvent companies.
Market volatility
The crypto market's notorious volatility can drastically impact the value of raised funds, making financial planning and project execution challenging. Rapid shifts in investor sentiment due to this volatility can also disrupt funding efforts, leading to sudden withdrawals and loss of support.
Scams and fraudulent projects
High-profile hacks and security breaches persist in the crypto space, eroding trust and causing significant financial losses. The lack of transparency and proper licensing in some exchanges and projects raises serious legitimacy concerns, while practices like wash trading further undermine market confidence.
Managing investor expectations
Exchanges frequently face sluggish performance and outages during periods of high volatility, frustrating users and causing potential financial losses. Inadequate liquidity can lead to wider spreads and increased price volatility, complicating investors' ability to trade at favorable prices.
Additionally, the lack of robust investor protections and consumer safeguards in many countries leaves investors exposed to significant risks.
Case Studies of Successful Crypto Fundraising efforts
Let's look at a couple of crypto fundraising efforts, covering Dapper Labs, Circle, and Polkadot.
1. Dapper Labs
Known for creating popular NFT projects like CryptoKitties and NBA Top Shot, Dapper Labs leveraged community engagement to reach a valuation of $7.5 billion. Their success obviously demonstrates the power of building a strong user base and network effect.
2. Circle
The company behind USD Coin (USDC) achieved unicorn status by focusing on regulatory compliance and building trust in their stablecoin platform. Their approach to working within existing financial regulations has been key to their success.
3. Polkadot
This project's focus on blockchain interoperability has attracted significant attention and investment, leading to a valuation surpassing the billion-dollar mark. Their technological innovation in addressing a critical need for cross-chain communication has been a major factor in their funding success.
Conclusion
In 2024, we saw a $413 million raise for a Bitcoin ecosystem project and an $85 million seed round for an AI infrastructure project, so according to these latest trends - the cryptocurrency fundraising is far from over.
As the technology matures and the regulatory landscape stabilizes, we can expect to see more sophisticated, transparent, and efficient crypto funding methods emerge.
So yeah, thank you for reading this guide on fundraising. I hope you got what you needed.
