Last year, InnMind raised over $47 million through connections made in our VC Pitching Sessions, where we match Web3 startups with interested investors. The sessions are open for applications from all stages, geographies & verticals in the Web3 space and are held every two weeks. Only verified, proactive and top-tier crypto VCs attend these events.
So, if you want to get investment-ready, let's take a look at a few necessities for a great crypto startup.
Clarity of Vision
There needs to be clarity on what niche the startup fits in within the crypto field. It could be a developer, a marketer, or a broker. For each of these niches, the startup can specialize in things like crowdfunding services, lending services, crypto exchanging, international payment services, or wallet services. For all those areas, the startup can provide physical products (such as cold storage drives), or services (such as tracking digital property).
Once a startup zeroes in on what products or services it offers, it should emphasize its uniqueness to the market. It should make it clear what problems it aims to solve, and why it is best placed to solve such problems. To do this, the startup needs to have good knowledge about competitors in that niche, and identify areas in which it can improve on value creation and delivery. In certain cases, where the service on offer is difficult to improve, the startup can create more value by offering rewards or loyalty points to customers, redeemable in convenient ways.
A crypto startup must have personnel well versed in distributed ledgers systems: how they work, how they can be further optimized, and how they can be designed to fit specific market needs. Depending on the products or services offered by the startup, there can be a need for knowledge in such things as smart contracts, and how to operate within certain ecosystems such as the Ethereum protocol.
If the crypto startup aims to be a software developer, then skills in certain programming languages are essential. For instance, to implement smart contracts within the Ethereum ecosystem, proficiency in Solidity (an object-oriented programming language) is required.
Cryptocurrencies deal with financial value at a fundamental level. They quantify the value that people have allocated to certain services, contingencies, or conveniences. It is therefore critical that a crypto startup must incorporate personnel intimately familiar with financial systems, especially macroeconomics. There should be personnel capable of analyzing financial markets technically and fundamentally and translating their analysis into programmable goals within the startup.
Most technology startups require the infusion of money from external parties at the beginning. This money is raised through Venture Capitalists (VCs), or the issuing of tokens in the form of Initial Coin Offers (ICOs). Either route (VCs or ICOs) requires people skills. A good crypto startup therefore needs a human relations department or internal skillset to manage such negotiations. It also requires a legal expertise to craft protocols for conflict resolution, should such occur, and eliminate any ambiguities in the startup’s communications that could afterward create legal problems.
Interacting with VCs is where InnMind's expertise really shines through. We have an extensive network of VCs on our platform that are looking to invest in exciting, up-and-coming crypto startups, and beyond into the wider world of Web3.
Initial Coin Offerings in particular present significant legal and financial liabilities to crypto startups. They are vulnerable to misrepresentations, fraud, and value manipulation. Since cryptos, in general, provide a level of anonymity, ICOs can easily be used to launder money, conflicting with statutory regulations within almost all legal jurisdictions. Whether the startup’s founders and personnel are involved in such criminal activities or not, they might have legal exposure. A legal department within the startup could help avoid such risks.
A new startup has a unique advantage that it should maintain for as long as possible: the ability to adapt and pivot as market conditions change. Unlike old businesses with entrenched revenue streams, a startup can quickly revise its work structure to fit in with new ideas or demands by the market, quickly crafting products and having them in the market as soon as the demand is recognized. The risk appetite for the startup should also be higher than older businesses within the same field: they should be willing to try out new revenue streams that are as yet untested.
The crypto field is still new in many respects: new protocols and value-related concepts are being created almost every other month. For instance, NFTs (Non-Fungible Tokens) are relatively new, with the underlying technology and people-facing markets evolving very fast. These rapid changes in the crypto landscape require a startup with personnel who can think on their feet while keeping their thumb on the general pulse in the market. Fortunes can be made overnight, with the right decisions at the right time. Conversely, the wrong decisions, or the inability to make decisions at the right time, could spell disaster for the startup.
Due to the fast-evolving nature of the crypto field, a significant amount of the startup’s resources needs to be allocated to keep up with trends in the market. A developer startup, for instance, must be ready to adopt any new protocols or optimized software that comes into the market and do so before they lose market share. The crypto field is highly competitive, and any edges lost into the wider market would be hard to get back. The ideal startup hence should have personnel working round the clock to keep at the frontier of innovations.
The startup should invest in networking: staying in touch with other players in the same or related fields. Although the crypto field is highly competitive, there are still avenues through which players get to meet, exchange ideas, and help each other grow organically. For instance, there are industrial events such as Token2049 and Blockshow in which even little-known startups can have a platform in which to showcase their new products and vision. Such events also tend to have lots of media coverage, and in this age of social media, a startup participating in such can easily trend for days.
To increase market penetration, a good crypto startup should have a mobile presence. This means the creation of apps for mobile phones. Traders, investors, and other crypto consumers have a huge presence on mobile phones. Data from major crypto outfits such as KuCoin show that up to 80% of their revenues come through their presence on mobile apps. It is hence essential to have a presence in that mobile ecosystem. The mobile apps need to be user-friendly: intuitive, easy to use, and highly interactive. It should also be light on resources, and free of bugs, to maintain its reputation among users. This means extensive testing of the app before it's released to the public.
Dealing with 'Unknowns'
As a nascent market, the crypto field still has a lot of unknowns. These unknowns manifest in the market in the form of wild fluctuations in market prices. Market crashes of over 50% of the price are common, and they can sometimes happen seemingly overnight. A good startup hence should craft its business structure around a high-risk, high-reward notion. It shouldn’t try to create revenue guarantees to investors, for instance. Instead, it should work out a revenue-sharing plan where the market itself dictates how much the investors make, lifting the burden of debt from the founders of the startup.
To further reduce the effects of market volatility, the startup can explore investments in highly diversified fields. Ideally, such fields should be uncorrelated, so that wild swings in one don’t affect the other. The startup can also hedge in the financial markets, such that downswings in one area are countered by upswings in another area of investment, resulting in a much lower loss of value for the startup. The problem with such hedging, though, is that it also works in reverse: any major increase in value in one area would be counteracted with the hedge, resulting in little to no growth in capital for the Startup.
Finally, a good startup should have very good customer support. This is such an important feature that there should be an entire department dedicated to it. As the saying goes, the customer is king, and the customers expect to be treated like royalty. In a field where there are probably lots of competitors offering the same product or service, better customer service might be the one edge that puts a small startup ahead of its bigger, more bureaucratic competitors. As much as possible, avoid autoresponders - bots or answering machines – in the customer service department.
A great crypto startup needs to have a diligent team, dedicated to the mission, and willing to adapt fast to changing conditions while maintaining a human touch with the growing customer base. It needs to constantly network with other players in the market and to keep innovating and filling new market needs as they arise. It requires a team dedicated to the broad promise of the crypto revolution: a brave new world, where what can be imagined, can be manifested, through the power of technology, and the magnificent mathematics that underlies blockchains.