Bear Markets Aren’t Great for the VC World. How Will DeFi Startups Survive without VC Support?
Bear Markets. They are an inevitable part of any investment ecosystem, but that doesn’t mean we have to like them. They are temporary, thankfully, but during that time it can create confusion, panic, and poor decisions. With crypto, already volatile, this effect is compounded.
There are a number of articles working to guide the average investor during this time, helping them to weather the storm and come out the other side even stronger. Advice like don’t panic sell, but don’t hold onto your investments blindly, are common. Other advice might include the futility of trying to time the bottom and buy/sell accordingly. All good advice for the average investor.
But what advice is there for the Web3 startup trying to develop and launch during a bear market? Let’s take a look at the market as a whole, discuss the different options for startups and investors alike, and dive into the emerging trend of Web3 crowdfunding platforms like AllianceBlock’s Fundrs.
VC’s Are Great—Unless They’re Gone
For the past several years, Web3 startups have relied on the attention of VC (venture capital) firms for funding. Because global regulation of blockchain still has a long way to go before it is stable, traditional funding from banks and other financial institutes can be much more difficult than a typical business. This is very frustrating for Web3 startups because it limits their options considerably, and no doubt a number of revolutionary Web3 platforms will never exist thanks to a wide range of funding options.
However, VCs have taken the crypto ecosystem by storm, with crypto-specific VC firms popping up over the last several years, gathering strong portfolios of Web3 startups and launching some of the leaders we see in the crypto world today. This community of VC firms have taken on risks that traditional banks refuse to, and for their efforts they have hit jackpot returns on more than a few of their clients. The startups in turn have been able to take their concept and get the teams and technology needed to flesh out their ideas, creating production-ready platforms and gaining millions of customers as a result of their innovation.
This would be the end of a really nice story, except that with a bear market, it becomes harder and harder to attract a VC firm to fund your startup. The firms take on less risk, become very conservative, and some stop taking on new investments altogether. While it’s still possible to find a VC firm to provide funding, it becomes more about networking and less about having a strong idea. Networking is always important, but for those small teams with amazing ideas but no knowledge of how to get the word out, these innovations may be lost to the industry forever.
Creating a Bear-Proof Funding Ecosystem
While VC firms have more rigid criteria in what they will and won’t fund, there’s one area that provides some hope to startups in the crowdfunding model. This has launched countless products, platforms, games, and more in the Web2 ecosystem, with several leading platforms acting as facilitators and match-makers between great ideas and people who want to be part of it. It has taken a while, but this same model is evolving for the Web3 ecosystem as well.
At a certain point, Web3 platforms are naturally about creating a strong community that is passionate about the project’s success. With events like ICOs, staking, and other mechanisms, members of the community can essentially invest by purchasing tokens, NFTs, or other options provided by the platform. However, where crowdfunding is most needed is for those platforms who are earlier in their development. If they can’t develop their way to a token sale or a platform that offers paid services, how can they ever succeed? The funding for development is a critical step, but also a critical opportunity for early funders as the potential returns could be higher the earlier one invests. To be sure, this is a period of uncertainty so that same investment could be lost if the platform can’t accomplish their goals. But like with Web2 crowdfunding, this is where the supporters are willing to chip in and help fund amazing ideas, hoping they can come to life.
The market will likely see these crowdfunding platforms grow over time, both in bull and bear markets. Currently one of the clearest examples of this type of program is with AllianceBlock’s Fundrs platform. AllianceBlock is a blockchain “concierge” service, helping platforms to develop by offering the skills and experience in areas a small team might lack. They offer smart contract creation, guidance on creating compliant DeFi, bridging, data protection, and more—in addition to facilitating crowdfunding. This is telling, and seems to be a major step up from the traditional Web2 crowdfunding platforms, who often only provide a marketing and funding stage for startups. For Web3, platforms are more complex, often have more to lose if not developed properly, and require skills that a small team likely doesn’t have. Combining this concierge service along with the ability for platforms to raise funds from their communities is smart, and we will likely see subsequent crowdfunding platforms work hard to offer more than just funding.
Post-Bear Thoughts
It’s important to pay attention to market swings, and know where the market stands at any given time. Bull actions can be very different from bear actions, though ecosystem investment should be a constant activity in an industry that discovers new use cases to add value every day. This market is still young, and there is so much more development to be done. There are certainly risks, but there are also opportunities in those startups who will be the Web3 leaders in just a few short years.
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