You don’t need to be a successful entrepreneur to know how hard it is to fundraise for a startup. Though it’s entertaining to watch business owners vie for investments on ABC’s Shark Tank, dealing with competition and investor uncertainty is hardly much fun for those on the other side of the screen. Startups are statistically likely to face rejection after rejection, with VC firm Andreessen Horowitz only investing in a mere 0.7 percent of startups approaching it annually. Without the evolution of fundraising tactics, infant companies will have nothing to rely on other than fancy pitches to VCs and a cameo on ABC.

Funding is an obvious necessity for both short- and long-term success, but the current array of options aside from VC backing are also hard to secure for most startups. Startups can seek to crowd-fund their rise, but there are a few limitations here, too. Entrepreneurs face a catch-22: They need to secure funding to build a respected business from investors who want to see existing credibility in the first place. If prospective investors don’t trust a business, a founder can say goodbye to any chance of winning their backing. There is also no shortage of fraudulent crowdfunding campaigns, which further contribute to investor uncertainty and mistrust.

Initial public offerings (IPOs) can hypothetically be practical for smaller companies, but the expensive and time-consuming process only diverts founders’ attention away from the main business objectives. The associated costs and lost time can total up to an overall loss surpassing the value of the obtained capital. IPOs are also relatively limited in reach, as they are typically restricted to a select set of institutional investors, who may not be too impressed by what the startup has to offer. 

Initial coin offerings (ICOs) emerged as a new way of funding startups in the blockchain boom era, embracing the accessibility of digital assets. However, they lost momentum early on due to an abundance of scams, with a whopping eight out of ten ICOs in 2017 classified as fraudulent.

While ICOs did not last as a viable option for startups, digital assets’ strengths can fill in where traditional funding methods fall short in the startup world. Blockchain technologies have been praised for decentralizing processes in a myriad of industries. Blockchain-based funding has already proven to be effective for films, replacing an antiquated funding system in the entertainment industry. Film producer Niels Juul recently founded production company NFT Studios, which sells NFTs to public and institutional investors. These profits then fund smaller productions that often struggle for recognition from Hollywood’s powerhouse production companies.

Know-your-customer (KYC) verification and background checks will prevent another iteration of the 2017 ICO bubble by ensuring the credibility of investors. Someone has to conduct them, though. A centralized platform or a DAO, through its expert members, would be ideal to moderate blockchain crowdfunding. Some kind of general supervision will ensure blockchain crowdfunding can offer decentralized solutions without being an unrestricted free for all. Finding this balance from the beginning is crucial to prevent bad players from making everyone skeptical of decentralized fundraising’s capabilities.