4 Tips For Getting Your Crypto Startup Funded In 2023 According To Bitget's Top Exec

By Gracy Chen, Managing Director at Bitget
Gracy Chen will be a speaker at the Benzinga Future Of Digital Assets event in NY, November 14. Don't miss out and get early bird discounted tickets!

Why should I care about this product? This is the question you, as the founder of a crypto startup, will probably hear if you participate in the new TV reality show Killer Whales, inspired by the entrepreneurial-themed Shark Tank. In the upcoming autumn episode, I have been invited to join the jury of experts who evaluate Web3 and blockchain projects, deciding whether they are worthy of their support.

As I sit in the judge's armchair, I witness a wave of talented crypto startups with promising ideas based on innovative perspectives. However, many of them lack the necessary business expertise and market understanding to effectively present their ideas and secure much-needed support. 

Crypto is a big tent that welcomes visionaries of all kinds: the dreamers, the go-getters, the revolutionaries, and the oddballs. Their reasons for being in the industry differ wildly but all share this much in common: a need for venture capital. Without it, the prospects of bringing their game-changing idea to life will wither.

Satoshi Nakamoto famously launched Bitcoin BTC/USD without any external backing, but virtually every project since, starting with Ethereum ETH/USD, has relied on funding. While the number of crypto-focused VCs with deep pockets and patient investors has increased exponentially in the last decade, so has the spate of failed crypto startups.

If you’re planning to launch a crypto startup this year, you’ll need more than an impressive deck and a firm handshake. Take the following advice to heart and maximize your prospects of getting funded.

Timing Is Everything

More than any tech industry, crypto is cyclical. This is partly due to the swings of multi-year bull and bear markets, whose effects filter through into VC funding. Broadly speaking, you’re going to have more offers during good times and fewer in lean. But within these macrocycles, shorter trends are playing out as the market searches for new use cases and applications for blockchain technology.

Two years ago, you might have received backing for your algorithmic stablecoin; today you’ll struggle. Similarly, a proposal to launch a crypto wallet may gain short shrift in 2023, unless you’re offering something genuinely groundbreaking, such as a solution that can provide Ledger-tier privacy without the user privacy concerns.

It’s not that the idea or the technology you’ve developed is necessarily wrong: it’s just that the industry’s moved on and VCs are looking for the new, the innovative, and ultimately the profitable. They’re also looking for concepts that aren’t going to land in regulators’ crosshairs.

While Web3 adoption is accelerating, it’s imperative to be attentive to the market mood when timing your pitch. Be mindful of current news and market conditions surrounding the industry as you prepare your raise. You ideally want to avoid pitching your project during periods when industry news is unfavorable, such as reports highlighting the negative performance of crypto-related stocks. 

Conversely, it could be an opportune moment to seek funding when positive news emerges, such as recent headlines about Web3 developer Magic securing $52 million in a round led by PayPal Ventures. Being aware of the news cycle and leveraging favorable developments can enhance your chances of securing funding for your project.

Last year, anything metaverse-related was raising mega-bucks: this year, companies are purging the term that was once de rigueur. Timing matters.

Set a Realistic Target

If you're familiar with the reality show Shark Tank, you'll be aware of how unrealistic valuations can deter investors from funding startups. An established project can seek a substantial raise, particularly when expanding its products or leadership team, as seen in the case of OP3N. However, a complete unknown is unlikely to pull off the same feat.

Investors are wont to conservatively value unknown Web3 startups, particularly at the pre-seed stage. They’ll pay particular scrutiny to the founders’ track record and product market fit. While ambition is commendable, startups should set realistic expectations. Don’t get attached to a specific valuation and be open to negotiation.

There’s the figure you’d like to raise and then the figure you actually need to bring your product to market. These figures are rarely the same. It doesn’t matter if your favorite number is 420,690,000: you’re probably not gonna get it.

It’s okay for a VC to tell you to lower your valuation — it happens all the time — but if they suspect you’re being greedy, they’d sooner walk away than negotiate. Even if you have a brilliant idea and have already built a product with solid financials and a professional team, you might still get a “no” from VCs if your projections are unrealistic.

While crypto is filled with tales of startups that raised insane amounts during peak bull mania, ensuing success stories are thin on the ground. It rarely makes sense to raise more than you genuinely need, even if the money is on the table. Operating with a leaner team will keep you focused on your core business and maximize your prospects of hitting key deliverables.

Have A Clear Path To Profitability

Global Web3 investment dropped by 82% between Q1 2022 and Q1 2023, resulting in a significant decrease in Web3 startup valuations. Fundraising has become challenging and VCs are now focusing on profitability over growth. As a result, startups have to face lower valuations. 

They will also field more rigorous demands for reaching short-term profitability. Potential investors will likely focus a lot more on revenue than they have in the recent past. Startups should be in a position to show a clear path to profitability since investors will be looking for strong financials and market share – or at the very least a compelling case as to how this will be achieved.

Remember, VCs aren’t writing a check because they like you: they’re doing it because they believe you can write them an even bigger check in the future. That’s how venture capital works. Thus, any business model that’s reliant upon a native token going up in price, or a tranche of a trillion-dollar industry converting to Web3, will receive short shrift. There needs to be a sound strategy in place for monetization – one that doesn’t rely on the rest of the world buying bitcoin.

In 80% of pitches, we receive every day startups can't back their growth strategy or provide clear justification for the check being sought. For what it’s worth, there are three criteria I look for when evaluating pitches. 

The first criterion involves a qualitative assessment of the product, examining aspects such as user experience, business model viability, team comprehension, and the credibility of existing investors. The second criterion focuses on crucial user metrics including total registered users, daily and monthly active users (DAU and MAU), user distribution across geographical regions, and their level of engagement with cryptocurrencies. Additional considerations at this stage include conversion rates and the availability of influential key opinion leaders (KOLs). Lastly, the evaluation entails analyzing the project's strategic position within a specific social or public chain ecosystem, juxtaposing it against competitors in the market.

Recently, we received a submission from a memecoin project that claimed to become the next Dogecoin. The team had an ambitious growth plan but no well-defensible calculations. Their strategy to reach 100,000 followers was based solely on their duplication of Dogecoin’s brand strategy.

While many successful products we see today started as a replication of an already existing idea, it's important to understand that repeating this success five years on might not be replicable. Dogecoin's popularity, at least during the 2021 market, was mainly pushed by Elon Musk. During the GameStop rally, he helped send the price of DOGE from less than a cent to 69 cents. Would a new startup find such an A-list supporter nowadays? The low probability of this prohibits us from betting on it.

Most startups aren’t trying to disrupt legacy industries, become the future of finance, or morph into crypto unicorns to be fair. Nevertheless, whether your benchmarks are 10,000 users or $100 million in revenue, there needs to be a clear pathway to achieving this. Crypto is blessed to have tokenization, with the many opportunities this opens for revenue generation, but it needs to be wedded to sound modeling that will support a robust internal economy.

Find A VC Who Will Work With You

Not all crypto VCs are created equal. Some are only interested in what they can get out of the deal, with the most unscrupulous operators catching flak for “dumping on retail” the moment their tokens unlock. Others, however, are in it for the long haul, and will not only provide financial backing, but will support your startup in other ways, mentoring, nurturing, and introducing to their network.

Venture funding is a reciprocal relationship, even if it’s hard to settle in the Goldilocks Zone in which a VC is helpful without constantly looking over your shoulder. If you’re intent on building a product that will have a profound effect on the industry, VCs need to know that you’re looking for a quick exit. Convince them that you’re committed to harnessing blockchain tech to create something useful and they’ll back you all the way, something I’m proud to have played my part in with Bitget, whose $100M web3 fund aims to incubate projects long after the first check has been written.

Lastly, don’t give up if the funding process gets longer than expected and you get refusals. Apply to as many VCs as possible to increase your chances and get precious feedback to improve your idea. History has shown that some of the most profitable companies in the world were born during recessions and challenging economic periods. These resilient firms have demonstrated their ability to survive and thrive even in difficult times. Moreover, they are often poised to experience significant growth when the economy and funding landscape rebound. So persevere, learn from each interaction, and stay resilient as you navigate the funding journey for your startup.