Venture Capital Financing in Crypto
venture capital (VC) is a form of financing that institutional investors provide to entrepreneurs and startup businesses, usually in the expansion stage of their growth.
However, VC funding can be provided at any stage of the evolution of the company.
As a rule, the VC funds may come from VC firms, investment banks, high-net-worth individuals (HNWIs) and other financial institutions.
Sometimes, VC does not consider monetary investment but the technical transfer or managerial know-how.
VC financing is provided for startups and small businesses are expected to generate high profits due to outstanding business idea, a product unique or revolutionary technology, among others.
Venture capitalists invest in early stage businesses in exchange for equity or stock holdings, sometimes had an influence on the company through their voting rights.
Startups generally opt for VC financing, because they can not go public and seek investment from retail investors. Meanwhile, venture capitalists are happy to consider a very risky form of investment is, hoping for a generous pay-off. Note that venture capitalists do not ignore diversification. Thus, they are investing in several startups, expect that at least some of them will increase the aggregate return of their portfolios.
How does it work in the crypto room?
venture capital financing in the crypto room is no different from the typical VC, with the exception that the benefits of financing startups operating in the market cryptocurrency.
Crypto or business-related blockchain thrive in the new world, given that the industry has only been around for only a decade. Therefore, the risk to venture capital is much higher
cryptocurrency education, especially given the prevalence of failure and even fraud.
Blockchain revolution is often compared with the dot-com era, in which the company countless internet came out of nowhere promised great progress. While the Internet has become a disruptive technology indeed, just a few dot-com company managed to survive until today. And, yes, some of them rule the world now.
The same rhetoric being used in crypto industry. Venture capitalists are aware that some startups blockchain today may turn out to be a mega-caps in the future. This is why investing in a crypto-related businesses have become attractive. Some VC firms have invested exclusively in startups crypto and blockchain.
The unique aspect of VC crypto is that some VC firms gaining exposure crypto assets through what is called a simple agreement for the Future Token.
How crypto venture capital differs from ICO / IEO?
Venture capital comes from institutional investors and HNWIs, while the ICO funds mostly from retail investors.
initial offerings of coins (ICO) and the early exchanges newer offerings (IEO) is a method that allows crowdfunding startups to ignore the commitment equities, as investors bought the issued digital tokens. Note that ICOS and IEOs intended for anyone who is willing to buy tokens, including retail investors. In fact, the latter representing the driving force behind space ICO / IEO.
Elsewhere, the financing of crypto-related venture capital comes from institutional or accredited investors who usually have high demands of startups in which they invest.
In addition to the background of the inverse of the investor, below are more differences between the VC and the ICO / investment IEO:
Crypto startups seeking VC funding should be ready to demonstrate a product that works, or at least a great vision with a well prepared pitch. The team needs to be experienced and motivated enough to achieve a significant goal. Also, these businesses had to give up a significant stake to venture capitalists.
However, most of the ICO / IEO startups just need a white paper that is well designed and roadmap to win the interest of retail investors.
crypto startups that have secured VC funding is considered as more reliable. Elsewhere, an increasing number of scams have compromised the image of ICO space. In fact, many cryp