By Vittal Ramakrishna
Blockchain has emerged as a transformative technology that is acting as a driving force for several businesses. Although the technology is still in its nascent stage, its development and adoption continues to evolve. Its potential has already been recognized, and a variety of organisations and tech companies have found its specific use cases and methods to create value. Catering to their needs, several startups have also emerged with tailored solutions that are aiding firms in utilising the complete benefits of the distributed ledger (DL).
Over time, investors have also shown interest in these blockchain startups and they have become commonplace for investments. Despite some headwinds faced by the sector in recent times, investors are still bullish about the growth of blockchain start-ups. They are heavily investing in the blockchain industry, which may be due to fear of missing out (FOMO) or a recognition of its enormous potential. Therefore, if you are an entrepreneur looking for funding, you may need to meet certain criteria in order to obtain funds.
Raising funds: What must blockchain startups do?
A blockchain startup today has many opportunities to secure funding and access a variety of funding options. Investors disburse their money in exchange for equity, which includes a stake in the startup and the right to share in any future profits. However, as investors are always at a risk, they tend to analyse a startup critically before making an investment. Therefore, it is crucial for an entrepreneur to be clear about their motivations for raising capital in order to mitigate any potential risks.
Assess the motive: The startup must determine why funding is needed and the appropriate amount to be raised. They should create a milestone-based plan with specific timelines for what it wants to accomplish over the projected timeline. Taking anticipated sales data into account as well as market and economic indicators, along with a financial forecast over a specific time period is necessary for startups to access the motive.
Investment readiness: While it is significant to assess the requirements of capital, blockchain startups must also understand if their startup is ready to raise funds. An investor will consider the funding if they are convinced about the returns and projections of the venture. They will look for the potential for revenue growth, USPs, time to break even, vision, and so on before providing the necessary funds.
Once a startup has assessed their motives and analysed their investment readiness, they are ready to know the investor’s mindset.
Knowing the investor’s vision: What do they look for in a startup?
Investors consider the startup’s prior financial choices as well as the team’s credentials and experience. This is done to make sure that the startup’s claims about market size and growth can be verified and to make sure that the investor can spot any questionable practices in advance. But more importantly, they look for the company’s goals and vision.
The main goal: Any startup should differentiate its offering to address a distinct customer need or problem. They must showcase patented concepts (if any) or goods that offer investors significant growth potential.
Management: In order to move the company forward, the founders’ passion, experience, and skills are just as important as those of the management team. Investors specifically look to see if the company will be able to handle the capital or not.
Scalability and sustainability: Startups should demonstrate their ability to scale quickly as well as a viable long-term business strategy. They should also validate information about expansion plans, growth rates, imitation costs, and barriers to entry.
Financial assessment: a thorough financial business plan that shows cash flows over time, investments needed to reach important milestones, break-even points, and growth rates At this point, assumptions should be reasonable and explicitly stated.
A new way to raise funds
Out of the existing funding ideas present, blockchain startup founders may use incubators, accelerators, angel investments, venture capital funding, crowdfunding, and more to raise funds. While others have largely remained unchanged, some of them have changed in specific ways to adapt to the environment. Additionally, some strategies are broadened by blockchain-specific funding mechanisms like DAOs (decentralised autonomous organisations).
Moreover, as the demand for funding has increased, several communities and fundraising platforms have emerged that are facilitating funding for these new-age blockchain startups. They are the intermediaries who link VCs, HNIs, and angel investors with promising startups, among others. If the investors believe that the startup has potential, they can choose to invest in it without any hassle in exchange for equity. The choice now rests with the business owners as to whether they want to use more modern fundraising platforms or opt for conventional methods of obtaining funding.
The author is founder and CEO, POD World
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