Despite the global economic situation, the market for investments in Web3 startups remains relatively stable. According to Crunchbase, the total amount of money invested by investors in the development of next-generation Internet-related companies reached more than $23 billion in 2022. Large venture capitalists continue to support crypto and blockchain companies by actively investing in interesting projects. At the end of August of this year, for example, Seven Seven Six , a digital asset-focused venture capital firm led by the co-founder of Reddit, created a $177 million fund for Web3 startups. In addition, North Island Ventures, an early-stage cryptocurrency venture capital firm, has committed between $250,000 and $3 million to 40 crypto and blockchain projects during 2022.
And yet, the willingness of investors to finance attractive Web3 startups is only half of the success for entrepreneurs who consider venture investments as an accelerator for the growth of their project. After all, a lot of work needs to be done before VCs can get interested.
When a startup thinks about attracting external investments, the question of preparing a business plan and presentation of the project (investment pitch deck) always arises — in their absence, it may be possible to talk to investors, but it will not go beyond talk.
Raising capital for Web3 companies is not that easy anymore. If during a bull run good startups could close a deal within a few days, on the “normal” and especially bear market it takes at least a few months. Before any VC decides on funding, the startup has three to many meetings with each potential investor, not even counting long chats, Q&As, exchange of documents, etc. At the meetings, it is desirable to show that the business is moving confidently toward the goal set, and to report on the key milestones passed — both in finances, product and business development.
Clear, measurable results of the project will help the entrepreneur gain the trust and interest of potential investors. In addition, the venture capitalist needs to make sure that the startup team is capable of executing its idea. For a potential investor to become a real investor, you need to show the maximum of what the project is capable of during the pitching process.
For startup founders that are actively fundraising from venture capitalists we prepared a new article with tips on how to defend your project while pitching to investors. We hope it will help you to prepare for the VC presentation and show the full potential of your project.
Will you be able to implement your startup idea?
It is important to convince an investor that your idea is viable, that it can be implemented, and that it has growth potential. To do this, you need to prepare — analyze the market and describe the technology you are using in the project.
Are the market opportunities for the startup great?
You need to calculate the volume of the market — how much the existing players are earning on it. And you need to show how much market share you plan to obtain. This data should correlate with the project's plans for multiple growth.
What positive dynamics did your startup achieve in the early stages?
One of the most important things for investors is the early success of the startup. You can get a venture capitalist interested in strategic partnerships with firms or companies, or a demonstration of a beta version or a minimally viable product.
Why is your startup's product unique?
Entrepreneurs should clearly articulate what the startup's product or service consists of and why it is unique. Therefore, before pitching, it is best to research your competitors: their products and how they differ from yours.
In what markets will you realize your startup?
The probability that a venture capitalist will invest in your idea increases if you plan to go international. You have to research these markets, too, and provide data.
Tell us about your competitors
The question about a startup's competitors will always be relevant, and any entrepreneur who answers that «we have no competitors» will prove to be a dishonest partner. So be sure to anticipate this question and try to gather as much information about your competitors and how their companies differ from yours.
How do you plan to market your startup?
Investors want to get an idea of how the company plans to market its products, what the cost of customer acquisition is, and what the long-term value of the customer is. Therefore, they need to know what audience your startup is targeting and what platforms it will be promoted through (social networks, major search platforms, advertising on company sites, etc.)
How do you estimate the value of your startup and how much support do you want to get?
If you tell an investor that you value your startup at $100 million, even though you started the business three weeks ago, the conversation is likely to end quickly. Sometimes it's better not to discuss valuation during pitching and say you expect a reasonable valuation. But venture capitalists also don't want to spend a lot of time on additional meetings with entrepreneurs, so they ask this question during the first presentation. Prepare for this situation and try to analyze the market and valuations of different startups.
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How will my investment capital be used and what progress will be made with it?
Investors will definitely want to know how their capital will be used, as well as the estimated payback rate. VCs will also want to understand how reasonable your cost estimate is, given their experience with other companies.
Preparing for pitching is not an easy task. The process of making a presentation takes much more time than the pitch itself. And, of course, the presentation itself creates a sense of uncertainty and excitement for aspiring entrepreneurs.
To give you an idea of what to expect from project pitching, we asked startups from 4 different verticals - Farm.XYZ (DeFi), Power DCloud (web3 infrastructure), CRAZY META (NFT) and Hidden Beyond (GameFi) - to share their experience from fundraising and pitching their projects to VC investors.
According to Eddy Huang, the founder and CEO of CRAZY META (a Wear-to-Earn NFT startup), their main difficulty during the pitching process was that there was too much information to absorb in too little time.
The Hidden Beyond team faced the problem of communication and the fact that they thought they were «nothing» compared to the venture capitalists.
Founders at Farm.XYZ cited memorizing the presentation and formulating clear answers to questions from venture capitalists as the main problems of the pitch.
The Power DCloud team pointed out to the limited time to explain important points about the project as one of the difficulties of pitching.
But, all these difficulties can be solved, and all startups we talked with have successfully coped with them.
CRAZY META founders realized that they needed to prioritize and reduce the flow of information. The entrepreneurs at Power DCloud decided that the best way to deal with pitching difficulties was to hope for a call in which the remaining objections could be addressed. The Farm.XYZ team too has found a way to cope: according to them, you should rehearse the pitch several times to tell it fluently and passionately, and always write down investor questions you didn't have answers to, so you can come back to venture capitalists with a ready-made solution. In addition, startup founders need to constantly improve their deck and pitch with feedback, which is worth soliciting from as many partners as possible.
Muthu Selvan, the founder and CEO at Hidden Beyond startup (an open-world action-adventure skill-based game) also managed to solve their problem and stopped worrying about the different status of startups and investors.
The founders also gave a couple of tips for startups on pitching. The CRAZY META team advises entrepreneurs to stick to the most important pages and be concise during presentations. In turn, Muthu from Hidden Beyond suggests that startup founders should not be shy and confidently pitch to any venture capital fund.
Meanwhile, Dmitry Burov, co-founder at Power DCloud recommends that companies tell a project story — it helps VCs remember you better. "VCs have a lot of pitches. It would be best if you had a familiar context in the memory VCs for following updates", he advised.
Alex Mincu, CEO and the founder of Farm.XYZ shared his advice as well 👇
In addition, we asked entrepreneurs what venture capitalists pay attention to when considering startups.
According to CRAZY META, VCs are very interested in team, execution and traction during pitching.
The Hidden Beyond team also highlighted traction as a key point of interest to investors, but also added to the list of venture capitalists' priorities the MVP and its degree of readiness, and how your product differs from the competition.
The founders of Farm.XYZ noted that VCs want to see how the entrepreneur is going to grow his business, because one of the goals of investors is to get profits from the startup. You need to think about risk minimization and, preferably, demonstrate high growth rates for your company.
Farm.XYZ founders noted that the main questions investors are interested in are related to how your product differs from competitors' products, your go-to-market strategy, how the startup makes money, and details about the team and tokens.
Power DCloud founders told us that the number of questions from investors depends on their field. If VCs understand the technical side of startups, then 3-5 questions are enough to get an idea of how everything works. If, on the other hand, investors are mostly concerned with financial issues, then they need a story about go-to-market and traction.
The CRAZY META team also added investor questions about the company's employees to the list of top pitching items.
Startup founders should prepare for the fact that investors will ask questions anyway-and not necessarily the comfortable ones. Prepare in advance so that you are not embarrassed and do not get angry in any way, even if the answer to the question was already in your presentation or it is, in your opinion, obvious. How you perceive criticism already at the pitching stage is extremely important.
It is good if the investor is immediately interested in your idea and declares the intention to continue cooperation. But for the venture investor to make the final decision on investing, you will need to meet more than once. Ideally, your presentation should result in a discussion of the next steps.