Will the Future of Venture Capital be Decentralised Communities?
Over the past five years, the world has seen an incredible explosion in blockchain technology, cryptocurrencies and startup ecosystem building. As technology evolves, new opportunities for venture capital funding, crowdfunding and financial services have emerged. One of the most exciting new developments in NFT technology is using digital assets in crowdfunding solutions.
Early-stage startups often require help to raise investment. New businesses may be fragile and need immediate access to money. This may be for covering basic expenses, expansion costs, or taking advantage of market opportunities at the right time.
Fundraising is part of the startup culture nowadays. It is generally accepted that getting seed capital for a new project is challenging. It is also fair to assume that early-stage investors are taking significantly more risk than those who provide capital for a well-run business. Add to the equation that most investors typically seek projects that will generate higher revenues quickly — with only a few companies valuing risky early-stage projects. This established process gives the startup ecosystem many successful companies. However, as there is still room for improvement — it is also worth considering how to increase the efficiencies of the entire system.
Why is it more challenging to fundraise in Web3?
How should a web3 business approach investment? Where can a project that aims to be successful get money for startup funding? In the year 2021, with the exchange rates skyrocketing, there were, of course, plenty of new projects and plenty of applicants for funding. However, this has now changed due to the ongoing crypto winter. What is this so-called crypto winter? With the recent cyclical cryptocurrency market decline — many investors have taken a step back, and crypto funds have also strongly reduced their activity.
Historically, many crowdfunding leaders and traditional investment firms have yet to be very supportive of crypto and blockchain solutions. Moreover, the majority of venture capital fundraising opportunities have always been a slow and unpredictable process. The problem is that many startups need help finding a quick and efficient way to solve their funding challenges among traditional options. The sector needs new solutions where potential users decide the value of startups.
NFT-based solutions could quickly become the new arena for venture capital, crowdfunding and financial services. They provide a secure and transparent way to represent ownership and open exciting opportunities for funding startups, blockchain, crypto and other projects.
The more transparency — the better
In popular crowdfunding models, companies and projects raise money by selling shares in their companies or offering rewards in exchange for investment. Crowdfunding sites such as Kickstarter and Indiegogo have made this process easier and more accessible. Where exactly does that money go? How is the fundraising value realized and distributed over the model? Is it truly transparent and trustless?
NFT-based crowdfunding brings a new level of transparency, security and efficiency to the process. If NFT fundraising technology is backed by the work of an incubator, with professional credibility and accountability, barriers to crypto-based community funding could be removed.
The task is simple. First, projects build their community. Experts on crowdfunding help the community by screening projects and placing those worthy of funding on a platform. Using this method effectively authenticates the companies seeking investment.
The project may raise money itself directly from backers, but such a site is also essentially a way for the community to select projects that can be funded. In this way, the site collects projects and potential funders.
When the investor is replaced by a Decentralised Autonomous Organisation (DAO)
When digital tokens are used to raise capital, investors can purchase partial ownership or service in a company or project and securely lock their investment into the blockchain. This makes tracking the progress of the company, the investors and prospective users easier. It also provides a new way to raise digital funds by having the DAO decide how to invest. The digital assets supporting each investment can be sold or traded, and the community can be developed into a portfolio-based funding system.
This means that investors, the members of the DAO, can exchange their tokens for other tokens or cash, essentially creating a secondary investment market. Such a system also allows market validation of early-stage projects and products; there is significant marketing value and additional benefits to digital crowd investment.
The technology is there, but the smart contracts of blockchain systems add real and concrete value to the system.
Real community systems
The rise of NFT-based community systems is also an exciting process because, when the crypto winter ends, the opportunities that have led to the explosive growth of blockchain will be re-created. Investing in the value accumulated by a community of users is a natural demand. However, featureless NFTs, once considered valuable, may no longer be seen as an attractive form of investment. Those particular token owners may also seek safer investment opportunities.
The emergence of Decentralised Finance (DeFi) solutions for communities is also legitimate, as these systems no longer need to rely on financial service providers and banks. Digital assets guarantee that the project receives a continued share of the investor’s or backer’s profits in every transaction.
As NFT-based technology evolves, more businesses and projects will likely take advantage of this new type of community financing.
There is no risk-free system
Open questions remain — even in the best-case scenario. This form of community funding is embryonic, so early and unforeseen challenges are still likely to appear. However, an exciting and interesting use case is emerging for NFT technology that could be useful for talented startups.
Of course, community funding still needs to eliminate the pitfalls in the system. Decentralised systems also leave opportunities to circumvent a well-designed funding mechanism. Unfortunately, fraud happens everywhere.
On the other hand, in the new method, the success rate of different projects is kept by the amount of funding. Money is only the catalyst. A talented project will succeed if it finds an immediate market for its product or service.
When I was introduced to the concept of Galaxis, I had no idea of the fantastic potential of this technology. It is clear that soon, we can develop genuinely decentralised systems that can become the real support communities for the next generation of innovation.
Written by Tamas Peter Turcsan
Edited by Orsolya Szlahotka-Godri
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Disclaimer
For legal purposes, we have to include this disclaimer. This of course doesn’t mean that we won’t do our absolute best to make every feature possible, but since this is new technology and new legal territory, we need to make sure that the terms and conditions are in order.
Galaxis / Ether Cards makes no representation, warranty, or undertaking, express or implied, as to the accuracy, reliability, completeness, or reasonableness of the information in any posts. Any assumptions, opinions, and details expressed in any Galaxis / Ether Cards blog or community posts constitute Galaxis / Ether Card’s judgement as of the date hereof and are subject to change without notice. Any projections or claims contained in the information are based on a number of assumptions including, but not limited to market conditions and the current status of Galaxis / Ether Cards, and there can be no guarantee that any projected outcomes will be achieved.
Galaxis / Ether Cards does not accept any liability for any direct, consequential, or other loss arising from reliance on the contents of the information in this post.
