There are many great ideas for blockchain and DeFi projects, but most founders are struggling to access funds to scale. Due to this development, venture capitalists (VCs) get pitched countless times a year. For a particular project to be selected and funded, the founders must understand the fundamentals of pitching investors. There are dos and don’ts to be followed, but most fund-seeking founders know very little about that.
While pitching investors might sound straightforward, there are some underlying technicalities most people fail to understand. This is why I have sought out expert insight from the CEO of fundraising agency, Priority Token, Victor Larionov. He will share his expert opinion on the issue of pitching investors in the blockchain industry.
Pitching investors appears to be the order of the day for most upcoming blockchain and DeFi projects. In your opinion, do you think fundraising should be a priority at the early stage of a project, or should founders be more open to bootstrapping?
Crucial to have a clear funding strategy: pre-seed stage to be financed from the founders’ own pockets + friends and family, seed – mostly business angels and private investors, Series A – venture funds. Normally you should only approach fundraising agencies in the late seed round.
Understanding the fundamentals and putting them to practice is a priority. I do believe, careful planning of the financial streams is the foundation of future business success and growth. While at earlier stages, personal financial agility plays a pivotal role, later in time it becomes instrumental to communicate the sources of business value – and future business success – to investors.
At that stage, transparency backed up by a realistic value-generating business model becomes absolutely indispensable. Investors have to know how their money is gonna be spent, and when they can anticipate the returns, plus cherries on top. Accountability is the crucial word here; those business owners who don’t hold themselves accountable to stakeholders, are doomed to failure.
As an insider in the business of fundraising for blockchain and DeFi projects, what would you say is/are the major reason(s) projects fail to get funding?
- Inability to prepare a proper business case
- poor legal setup
- insufficient community of backers
- inadequate valuation
All of the above contribute to getting a negative impression, due to the lack of valid calculation and proper business planning. Each entrepreneur has to sit down and think seriously about the business project, if he or she wants to have serious investors on board.
Developing a successful business model takes time, and never comes at a low price. The breach comes in when the founder fails to evaluate their own forces realistically, gives too much reliance to a team that does not possess a proper skill-set, does not apply a rigorous approach in market evaluation and under-researches consumer needs. Not to mention the legality of the aspect – there has to be a separate team in control of that.
When projects are looking for funds to scale, what are the things the team/founders need to have in place in order to improve their chances of getting funding for their project in the blockchain industry?
Legal setup in place (with all the necessary approvals from the regulator obtained), MVP with test access, early backers, clear proposal for the investors. All aspects of the business have to be carefully lined up, thought over and tested against the real market environment.
There are decades-long principles of business – if the founder applies them, sooner or later the success will follow in its footsteps. I do believe, even if a business does not place all focus on advertising but rather on value-generating, the sharks from the investor world would sooner or later smell the opportunity. Don’t take me wrong, advertising is important too – however, there’s no need to mix up a chicken and an egg; value always comes first, advertising is only its consequence. With careful priorities, success is certain to come.
Only once the ‘behind-the-stage’ aspects are carefully thought over, tested and finalized, only then it’s time to advertise the business to investors, communicate its value-generating model and the source of future success. I do believe that’s what lies at the heart of sustainable practice, and the long-term leadership place in the market.
What is it that most venture capitalists or investors want to hear when it comes to funding a business? I have heard people talk about having a great business model, new market idea, etc. Are there things you could highlight that make investors readily part with their money to fund a project?
In addition to that – clear exit strategy for investors, and partnerships with big brands already signed. I will never cease to highlight that clarity for investors is fundamental, and it’s important to prepare them for all scenarios of the business outcome. Investing in venture capital is always a risky enterprise; this fact should never be underestimated, and communicated explicitly to the investor community. The matter of responsibility in case of a negative outcome should be negotiated in advance.
What concerns big brand partnership on the list, this brings in a degree of psychological safety, which is especially important for small investors. Big enterprises can boast of a strong legal team, which runs a careful scrutiny of any project prior to giving a participation consent. To some extent, prominent brands on the list give a guarantee, in one way or the other, that the business project at least is not a fraud and is going to work out, one way or the other. However, it is important to apply a fair share of common sense when signing up for any engagement – especially long-term.
According to a report by Christian Kameir on Forbes, a lot of investors are often left disappointed with the approach of most founders seeking funding for their project. Would you care to point out these things that people seeking funding should avoid at all costs if they hope to achieve their goal?
Inadequate valuation (particularly at the early rounds); – no understanding of go-to-market strategy (including metrics); – lack of product development expected for the stage.
I would also like to focus attention on the aspect of investing involving illicit funds – tax avoidance or the funds the source of which cannot be clearly certified. To some extent, I may understand the frustration investors are often surrounded with, because in the business world, sadly, not everyone seeks to play the game according to the rules.
What these founders underestimate, however, is that the long-term success of their venture is going to be exposed. Then the whole community will suffer and bear consequences – founders in the first place, investors in the second. Transparency should always be a priority: openness of the source of funds, combined with a solid value-generating model backed up by rigorous calculus. Otherwise, any project is just a castle made of sand.
The CEOs and founders of startups like Benja Inc., YouPlus, uBiome, etc., have all been charged in court in 2021 for defrauding investors. Have such occurrences dampened investor confidence in funding new projects?
No, venture funding is on the rise but these examples show why adequate legal setup is equally important for founders and investors. I do believe, where the higher returns are involved, the higher degree of risk follows relentlessly – and only multi-level expertise will help to escape that.
As an investor, one should be prepared for all courses of outcome – and to avoid the worst ones, good homework should be done. If the founders fail to come up with a solid business proposition and investors still get involved with them, it’s on the investors’ conscience. Therefore, it is fundamentally important to be aware not only of the financial viability of the chosen investment project, but also to build a liaison with a legal team from the very first stages, in order to escape cat in the sack later on.
Is there a generally accepted template for an investor pitch, or is the pitch dependent on the type of investor one is meeting? What and what is contained in a top-notch investor pitch?
Nothing particular from my end, just would be good to mention that it’s now a common practice to couple the deck with a 5-7 min video pitch. The main point of the matter – to communicate the benefits of the business to the investors effectively. In the modern world, the variety of communication channels exist specifically for this purpose, but audio/video presentations have traditionally been considered the most persuasive.
Another crucial component is the strong public speaker. Once the team has on board at least one experienced team member, the matter can be resolved in-house. If it’s not the case, it sometimes makes sense to resort to the external agency. But as a rule, investors want to see the founder – the main driving wheel behind the enterprise. Besides, they will be the person who will handle all consequent questions after the presentation.
Please also do take care of the corresponding spreadsheets with numbers and leaflets, that’s what the investors are most interested in and what they can leave with themselves after the presentation, to analyze and reflect on. As a rule, there will be a lot of questions as to where the figures were obtained from.
Most investors go for equity in the blockchain projects they invest in, a lot of founders are quick to give out stakes in their project to get the needed funding. In your opinion, what is the maximum equity stake you would advise founders to release to investors?
10% pre-seed, 10-20% both seed and series a. Or you can do a combination of equity and tokens (with a particular vesting period) if you’re chasing investments in a crypto project.
Generally, any founder has to answer a question of what degree of control he/she wants to preserve in the enterprise. If he/she is ok with 50% of it, he/she can do it. If he/she is ok with letting go of 90% of it – this can be done too. However, to be in charge, or at least to be at the helm of a given company, the largest fraction of equity should be in the hands of a founder. Giving up on control for the sake of funding is not always a good strategy, since it may result in a long-term loss of ownership, or at least a voice.
It’s worthwhile if the business owner decides in advance how much control he/she wants to have in their hands, and only after that take an action. Each step in the business world has to be carefully pre-planned and calculated – otherwise, there’s a risk the enterprise will not follow the intended pathway.
In their eagerness to have the needed funds to scale their blockchain project, most founders tend to go all out to ask for hundreds of millions of dollars from investors. Is there a benchmark to the amount of money founders should seek from potential investors irrespective of the project’s scope?
it’s always worth checking direct competitors but for the blockchain projects in general I would suggest to limit pre-seed to 0,5Mln, seed – 2Mln, Series A – 5-7Mln. However, these numbers may be adjusted to the project scale, needs, ambition, and future plans. All that comes to funding is entirely project-dependent, and the owner should take charge of ruling the things right, making sure no money is incorrectly spent or wasted, without giving a proper return.
It is essential to take into account that investors are always after profit – that means, they expect the same money back, plus returns. If a business fails to do so, then there may be problems. The value-generating mechanism simply has to work, otherwise there’s no sense in running the enterprise and exposing numerous stakeholders to the risk. Business owner has to understand the responsibility not only to his project and his team, but also to the whole community of stakeholders at large.
As an expert in this area, what will be your advice to founders out there jostling from one investor to another seeking funding for their blockchain and DeFi projects?
Seek value for the investor and pitch it
target smart money first, ask for some specific support in addition to funding
only approach investors when you’ve completed your homework on legal, business case, product development, and marketing
focus on a “big name” lead investor even for a small cheque
These are the principles that will help to stabilize a venture at the very start, and earn it a good reputation.
Once the business starts expanding, the new challenges of scale-up will come in; so it’s better to foresee everything in advance. A business is like playing chess – each of your next moves may result in a success, or failure. Only the ones who know the rules of the game, and the proven strategies they can rely on, will eventually win.
One more golden rule – cross-check the success of your business against your own gut. Then ask as many external consultants as you can. Try to form as objective an overview as possible; you should get to know all perspectives, all risks and opportunities stemming from this project. Once you do believe that it’s going to win, you will be able to persuade others in the success of your venture – which, in the course of time, will become your own success.
Victor Larionov is a Co-founder and CEO at Priority Token and Industry 4.0 Investment Bank. Personally supervising off-market investment opportunities in tech industry and dealing with fellow investors. 15+ year background with major VCs in Singapore, Hong Kong, Switzerland, and the UK. Currently based between Melbourne and Zurich.
The author does not have any vested interest in the projects mentioned above.
The opinions in this article belong to the author alone. Nothing in this article constitutes investment advice. Please conduct your own thorough research before making any investment decisions.
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