7 Fundraising Methods for Crypto Startups

March 2, 2022

How can crypto startups raise money to fuel growth?

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In 2021, Venture Capitals poured $30B into crypto startups.

That’s a 400% increase compared to 2020!

To get more “fuel” on the way, crypto startups have 7 ways to raise funds.

7 Types of fundraising in Crypto

1. SAFE (Simple Agreement for Future Equity)

This is the traditional way to raise money with only equity. Startups promise them future shares of stock in exchange for their investment today. It’s more flexible than priced rounds.

2. ICOs (Initial coins offerings)

ICOs originated in 2013. In ICOs, the organizer issues tokens and sells them to investors. It’s similar to IPOs (Initial Public Offerings), except that startups use tokens instead of equity.

The downside is that ICOs are mostly unregulated. So, watch out when investing in ICOs!

3. IEOs (Initial Exchange Offering)

In IEOs, crypto startups launch their tokens through an exchange (like Binance) rather than directly to the public. To launch an IEO, startups need to create an operational prototype for IEO, so that investors understand your idea easily.

4. STOs (Security Token Offerings)

STO is similar to ICOs, but it conforms to regulatory requirements. In STO, a security token represents an investment contract and carries the ownership information. It takes more time to launch an STO because startups need to get regulators on board and carry out the necessary tokenizations.

5. SAFT (Simple Agreement for Future Tokens)

This is a variation of SAFE. It secures the future transfer of digital tokens from startups to investors. It essentially uses tokens instead of equity.

6. SAFTE (Simple Agreement for Future Tokens or Equity)

Based on SAFT, SAFTE promises investors a discount on a future token sale or equity. It is said to provide a level of security: If the token sale doesn't occur, equity are to be traded.

7. SAFE + Token Warrants

Investors receive equity in a project, just like a regular SAFE. But they also receive a token warrant. This means that when the project eventually launches a token, the investors are entitled to buy the tokens at a fixed price (usually at a discount).

This is a popular fundraising method right now.

VCs to Watch:

Paradigm

a16z

Multicoin

Three Arrows Capital

Sequoia

Delphi

Blockchain Capital

Ascensive Assets

Coinbase Ventures

MGNR

Animoca Brands

Polychain

IDEO Ventures

Sfermion

Arrington XRP

Not3LAU Capital

Binance

Tribe Capital

Electric

Key takeaway:

Crypto world is still new. So, crypto fundraising is evolving all the time.

In traditional startups, equity indicates ownership of a company.

But in Web3, the concept of equity has changed.

It becomes tokens and equity.

Sources

https://www.bloomberg.com/news/articles/2021-12-19/ftx-moonpay-axie-lead-crypto-firms-attracting-record-30-billion-in-2021

https://www.bitpanda.com/academy/en/lessons/what-are-icos-and-ieos-in-blockchain-space/

https://coinmarketcap.com/alexandria/article/what-is-an-ieo

https://medium.com/@asianmarketcap.listing/ico-sto-ieo-what-are-they-82d59d46f73a

https://blog.colony.io/a-simple-agreement-for-future-tokens-or-equity-b8ef08608347/

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