Why The Crypto Industry Needs Venture Capital

18 March 10:18

[TL; DR]

The crypto industry has continued to attract the spotlight across the globe.

Investors are trooping in from all angles to catch a glimpse of the “gold rush.”

Funding via Venture Capital (VC) is one of the ways investors can invest in a crypto startup.

Venture capital dates back to 1946 and was started by Georges Doriot.

Venture capital brings legitimacy and helps build strong connections across industries.

Other ways in which crypto startups can receive funding include Initial coin offerings (ICO), Initial DEX Offering (IDO), and Security Token Offering (STO).

The decentralized financial institution (DeFi) and Non-fungible token market (NFT) are crypto-assets powered by blockchain.

These blockchain technologies are digital assets that investors perceive to yield high income when they invest in them.

Startups in the crypto industry are maturing at a rapid pace and are gaining global acceptability. These digital currencies allow you to share part of their equity.

The general acceptability, fast pace growth, and equity for investors are some of the reasons why industry giants and financial institutions are looking forward to investing in the crypto industry.

Whether financial or technical, the investment is what we refer to as venture capital.

To someone unfamiliar with the crypto industry, funding and how to raise venture capital might be tricky.

However, this article shall unfold every trick behind venture capital. Let's start with what venture capital entails.

What is Venture Capital?

Generally, venture capital means the fund that an investor or prospective shareholder raises and pulls into a startup. It could be financial or technical support with a binding agreement that the investor will have a reasonable return on their investment.

Venture capital is a subset of Private equity which dates back to the 19th century, and venture capital was eventually developed after WW2.

The father of Venture Capital is Georges Doriot. He raised $3.5 million in funds in 1946 and started the American Research and Development Corporation (ARD).

In the crypto industry, venture capital takes the exact definition. Albeit, it entails a lot compared to other sectors.

Venture capital in crypto is riskier and dicey. Every day new digital assets are springing up on the blockchain.

As an investor with venture capital funds, you have a lot of these cryptocurrencies to study and carry out a background check. These checks will guide you to ensure you invest in those that will yield enough profit.

When developers launch their digital assets on the blockchain, they send out the prospectus to potential investors. The prospectus contains all the details that the investor would need and a kind of "juicy offer" for the investors to participate.

There are venture capital firms with professionals and financial experts that look into the growth potential of digital assets before making investments. These professionals do not only look into crypto tokens; they use the “pick and shovel” model to fish out and invest in newly arising ideas.

These newly arising ideas include crypto tax reporting startups, crypto charting software, digital wallets, and other opportunities that they perceive to be valuable and will yield a high return on investment.

Having explained in detail what venture capital entails and the processes involved in venture capital funding, it is expedient (at this point) to identify ways that venture capital can impact the crypto industry.

Reasons Why The Crypto Industry Needs Venture Capital

The following are reasons why the crypto industry needs Venture Capital (VC):

Legitimacy
Venture capital funding comes from giant industry players and multinational investors. The venture capital firms push legitimate funds into the crypto market.

This investment gives the crypto startup an air of legitimacy and helps them have a solid source of finance. The legality of the investor and their investment helps to woo more retail investors and make them committed to the growth of the digital asset.

When you look at other ways of funding in the crypto industry, such as ICOs, the barrier to entry is low and shady. To launch an ICO funding, you only need a website and a white paper.

These requirements do not bring the legitimate air that venture funding brings. Professionals and experts in venture capital do a series of investigations and analyses before investing.

The entry-level into the crypto market as a venture capital investor is high. You carry out company valuation, soundness of project, forecast profitability, etc. All these give the funding legitimacy.

Establishing Relationships and Connections

Most times, developers of digital assets send out the prospectus and invites to many investors. A few eventually show interest and bring the resources to finance the project.

People do not know that most of these investors cut across various sectors and want to build partnerships with big brands. So when they see an industry giant bringing their venture capital funding to a crypto startup, they see it as an avenue to form a partnership.

When multiple investors gather resources and invest in blockchain technology, they establish connections. They begin to network and move the relationship to other sectors.

Conclusion

Investing in the crypto industry comes with a lot of risks. Venture capital investors are aware that not all investments and projects succeed.

While profit tops the priority of venture capital investors, they look beyond that and take emotions out of the equation. The relationship they build while setting up a startup with another firm might eventually yield positive results in other sectors.

In addition, venture capital is not the only funding opportunity for crypto startups. Initial coin offerings (ICO), initial DEX offering (IDO), and security token offering (STO) are some of the alternative funding approaches in the crypto industry.

Author: Valentine A. , Gate.io Researcher
This article represents only the researcher's views and does not constitute any investment suggestions.
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