According to Tudor Vrabie, Co-founder and CTO of SeedOn
You don’t need to be a successful entrepreneur to know how difficult it is to find funds for a startup. While it’s fun to watch business owners compete to invest in ABC’s Shark Tank, handling competition and investor uncertainty is almost unpleasant for those on the other side of the screen. Startups are statistically more likely to face rejection after rejection, with company VC Andreessen Horowitz only investing in 0.7 percent of startups approaching each year. Without the evolution of fundraising tactics, baby companies have nothing to rely on except good pitches for VCs and cameos on ABC.
Struggling to achieve a financial life line
Early-stage funding is a major headache for hopeful startup founders, especially considering the potential for long-lasting effects on the business as long as it is guaranteed. Twenty percent of small businesses fail in the first year, most commonly due to lack of capital or funding. Companies without early -stage VC backing take additional risks, resulting in more frequent failures and four times faster than venture -backed partners.
Funding is an obvious necessity for both short-term and long-term success, but a variety of current options other than VC support are also difficult to secure for general startups. Startups can seek out a lot of funds, but there are some limitations here. Entrepreneurs face catch-22: They need to secure funding to build a business that is respected by investors who want to see the credibility they have in the first place. If prospective investors don’t trust the business, founders can say goodbye to gaining support. There is also no shortage of fraudulent crowdfunding campaigns, which further contribute to investor uncertainty and distrust.
An initial public offering (IPO) may be a practical hypothesis for a small company, but the expensive and time -consuming process only distracts the founders from their main business objectives. The associated costs and time lost can lead to the overall loss exceeding the value of the capital acquired. IPOs are also relatively limited in reach, as they are usually limited to a select few institutional investors, who may not be impressed with what the startup has to offer.
Initial coin offerings (ICOs) appeared as a new way of funding startups in the era of the blockchain boom, embracing the accessibility of digital assets. However, he lost his initial momentum due to a lot of fraud, with eight out of ten. ICO in 2017 classified as fraudulent.
Take the page out of the blockchain book
Startups are struggling to attract seed investment, and current options are clearly ineffective or simply inaccessible to the majority of early -stage entrepreneurs.
While ICOs are not a viable option for startups, the power of digital assets can fill where traditional funding methods do not exist in the startup world. Blockchain technology has been praised for its decentralization process in many industries. Blockchain -based funding has proven effective for films, replacing the ancient funding system in the entertainment industry. Film producer Niels Juul recently founded production company NFT Studios, which sells NFT to public and institutional investors. The profits then fund small productions that often struggle for recognition from Hollywood production companies.
Early -stage funding decentralization can expand the reach of entrepreneurs due to the global accessibility of blockchains. This opens the door for anyone to get a stake in the project, regardless of size or location. On the other hand, startups can raise money quickly, with a clear record of exchanging funds on the blockchain.
Smart contracts offer investors peace of mind by ensuring safe funds during the process. This eliminates the game of guessing what money is used and removes the risk of funds being used preemptively before the project reaches its fundraising goal. These securities can boost investor confidence, providing an incentive to be less conservative.
However, the ICO scam saga requires a certain level of centralization in blockchain fundraising. Smart contracts are not enough to ensure security in the entire crowdfunding process. Supervision is still necessary to ensure a legitimate and safe investment.
Know-your-customer (KYC) verification and background checks will prevent another recurrence of the 2017 ICO bubble by ensuring investor credibility. However, there is something to be done. A centralized platform or DAO, through expert members, would be ideal for moderate blockchain crowdfunding. Some type of public oversight will ensure blockchain crowdfunding can provide a decentralized solution without being free with no restrictions for all. Finding this balance from the start is crucial to prevent bad players from believing in decentralized fundraising capabilities.
The implementation of these security features and the balance of decentralization and oversight could open the door to blockchain fundraising for budding entrepreneurs. Early stage startups can raise funds, while also verifying investor intentions and identity.
Businesses thrive, and processes integral to conception, like funding, need to evolve. Blockchain has the potential to radically change the fundraising process for baby businesses, but it needs to cross the line between centralization and decentralization in order not to repeat its own mistakes — or those of more centralized partners.
