• Sun. Sep 25th, 2022

Not Only Tech: Web3 is Opening the Floodgates to Alternative Funding Sources

Opting for a dapp, instead of an app, in your new venture might have unexpected financial perks. Allan Swart/ Alamy pic.

Got this unique app idea nobody has come up with before? Or maybe there’s a glaring niche in your region for a traditional payments or delivery app so popular elsewhere in the world? More and more tech entrepreneurs become aware that choosing to develop these on blockchain, instead of traditional web2 networks, bears numerous technological advantages.

But not all of them are aware that besides decentralization, immutability and transparency, opting for web3 tech might also get an easier access to funding. A single letter in your business plan may not only make VCs start paying attention, but also open the web3 gates to the whole new ecosystem of funding sources.

Traditional private investment vehicles will probably remain for some time the main means of attracting large cash flows for fintech start-ups, and we’ll get back to these in a minute. But first let’s look into funding alternatives the thriving blockchain industry has to offer. This will help you decide whether it is an app or a dapp that is most suitable for your next venture.

From ICOs to Developer Grants — Web3 is Rapidly Changing Tech Fundraising Landscape

Despite it’s no longer 2017, ICOs, Token Generation Events or Pre-sales remain a major instrument for attracting initial funding in the cryptoverse. However, there are already around 10,000 tokens in this market, meaning the competition is overwhelming. At the same time, retail investors’ appetite has fallen sharply due to countless scams and the general market correction.

Besides, issuing crypto tokens and relying on retail investors isn’t something that necessarily suits every business model or digital product. In that case a good bet is to pick a thriving blockchain ecosystem, and apply for some of the increasingly popular developer grants. This way you not only get to create on a technically superior decentralized network — you are also paid to do that.

Grants vary from $5,000 to $100,000 and can be allocated repeatedly. CHF 200 Million will be deployed in total.

The DFINITY Developer Grant Program is one good example of such an alternative web3 financial resource supporting both the growth of the Internet Computer ecosystem and start-ups working in it. Funding from $5,000 to $100,000 is offered to developers and teams creating dapps and other decentralized tools and catalyzing growth of the ICP blockchain. A total of CHF 200 million is allocated to that end. There are already 264 dapps running on this network, and DFINITY Foundation itself has 250 developers dedicated to improving the blockchain.

Developer Grant Program, however, is not meant to be a source of venture funding. If you are actively fundraising, dedicated funds like Beacon Fund managed by Polychain Capital is most likely a better fit for your venture.

Number of Fintech Start-Ups is Going Ballistic, 90% of them fail

According to Boston Consulting Group, the number of fintech startups worldwide tripled in the last two years, rising from 12,200 in 2019 to 26,000 in 2021. And it is mainly blockchain tech that accelerates this revolution. Besides fintech, blockchain and a wider distributed ledger technology revolutionizes dozens of different industries like logistics and supply chain management, healthcare, cybersecurity, entertainment and others.

In the highly competitive tech world, attracting sufficient funds in time and being able to scale your operations is a prerequisite for success. And fundraising in 2022 isn’t getting easier, especially bearing in mind the grim macro outlook we are currently faced with. It’s no coincidence that 90% of all start-ups fail, and 82% of these — due to cashflow issues.

Now creating your product on blockchain purely for easier funding or better marketing most likely won’t work for obvious reasons. Instead, consider building on blockchain if your product would benefit from data security, transparency, trust without intermediaries or decentralization.

In this case, tapping into advantages of DLT organically might provide you with a crucial bonus of getting a quicker access to a longer runway. And experienced entrepreneurs know all too well an extra mile in the runway might mean the difference between Radio Shack and Spotify.

Blockchain Is the New Website for Private Investors

According to CB Insights’ “State Of Blockchain 2021” report, more than $25 billion worth of venture-capital funding went to blockchain startups in 2021, demonstrating a sevenfold increase from $3.1 billion in 2020. American start-ups alone attracted $6.26 billion with 157 deals. Increasing institutional and consumer demand for crypto-related products and services were identified as leading factors behind this gargantuan growth.

CB Insights diagram.

So this exponential growth paired with general trends in the market hints fundraising entrepreneurs at an obvious choice. In a hypothetical situation where potential investors are pitched with two otherwise identical products, they’d be more likely to choose the one with organically integrated blockchain features.

The current situation could even be compared to the Dot.com bubble in a sense. Somewhat anecdotical stories used to go about in the business community at the time. Entrepreneurs recounted numerous situations when banks and investment funds were more interested in the website than in one’s business plan.

Explosive Mix Fuelling a Decade-Long Run

· Urgent need to fundamentally improve web2-based legacy systems

· Rapid development of dozens of technologically superior DLTs

· Shortage of engineers able to develop on web3

· Willingness of VC funds to capitalize on the shifting web paradigm

– all these blend perfectly into an explosive mix. The mix that will fuel for years the businesses and professionals able to capitalize on it, but could bear extensive opportunity costs on the ones ignoring it.

And in case you are wondering if it’s not too late to capitalize on this growth, here are two more facts to wrap it up:

· There are currently 27 million active developers in the world, but only 18 thousand of them are developing web3 applications.

· Already exponential web3 growth is estimated to continue at least till the end of the decade.

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Not Only Tech: Web3 is Opening the Floodgates to Alternative Funding Sources was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.