What are Venture Capital Firms & How Do They Work?
With Venture Capital firms playing such a driving role in the industry, we decided to take a closer look into what they do and who some of the leaders in the pack are.
Venturing in Search of Profit
2021 was a landmark year for crypto venture capital funding, among indecisive monetary policy and the ensuing lockdowns. CB Insights’ ‘2021 State of the Blockchain’ report highlighted that crypto startups received somewhere in the region of $25.2 billion in 2021, in comparison to just $3.1 billion the year before.
This year has thus far been more pragmatic, but one constant that remains is that retail investors still regard decisions taken by VCs as indicative of a project’s chances of success. The reasons for this are varied, but a primary motivation comes in the fact that aggressive funding allows projects more time to fail and eventually succeed. With this in mind, we decided to take a closer look at how the funding process works.
How VC Funding Functions
Traditional venture capital firms are largely indistinct from those active in crypto, but small differences exist. Traditional funding will see a pool of investors on the prowl to multiply their initial investment by contributing in the early stages of a project. They will assess their respective candidates and spread their funding so as to minimize risk.
There are five eminent stages in traditional venture capital funding:
- Pre-seed: The very first stage will see the project at a very early stage, perhaps even at the conception, and investments tend to come from personal affiliations- family or friends.
- Seed round: At this stage, the product sets testing its viability, which involves analysis of market potential, prospective competitors, and developing a minimum viable product. The initial materials prevalent at this stage are pitch decks, cash flow, roadmaps, and materials of a similar preparatory ilk.
- Series A: At this stage, the product has progressed and does not require validation; it is growing and is backed by a strong community. Investors will see less risk if a project is at this stage and will therefore be required to pay more.
- Series B: By this point, the product has grown and already has a large user base while it continues to grow. Investment at this point tends to focus on marketing, sales, human resources, business development, and customer service.
- Series C: Already established, the primary motive at this stage becomes diversifying product lines and opening growth to the point where access to international markets is made available, making the product more commercially suitable.
Crypto VC funding differs somewhat in that many projects often find it increasingly difficult to move past the initial stages. There are very few organizations that make it as far as Series C, and those that do have already become household names in the cryptosphere. An example would be FTX, which raised a premium of $32 billion in a Series C funding round.
While early-stage crypto investments are increasingly standard, with the technology still very fresh, the process has added complications. Often projects do not sell actual equity, they instead doll out their relevant token in return for funding, this makes the process somewhat different to traditional forms of funding. This is achieved through an Initial Coin Offering (ICO) or an Initial Dex Offering (IDO) and involves a different kind of risk. However, many will argue that the risk still amounts to the project’s success or failure.
The marketing highlighted in the aforementioned stages is also especially important in the crypto industry. Unlike established industries where the general public understands the market and the relevant product, crypto often sees people not quite sure of the impact the prospective crypto project will have on our world. This makes marketing and informational material hugely important.
When all this is considered, the volatility involved in a new and changing industry means crypto VC funding is often much more at risk than in traditional examples. As with retail user experiences, however, the profit can also be massively different from traditional funding, making the incentive seem worthwhile for participants.
The Most Influential Firms
Binance Labs identifies, invests, and empowers viable blockchain entrepreneurs, startups, and communities, providing financing to industry projects that help grow the larger blockchain ecosystem. Binance Labs is committed to supporting fast-executing teams who positively impact the crypto space. Some of its portfolio includes: Coin98, AnySwap, Terra, Moonbeam, Oasis Foundation, Figment, BiSwap and many others.
Where to find Binance Labs:
Three Arrows Capital
Three Arrows Capital Ltd. is a hedge fund established in 2012 and focused on providing superior risk-adjusted returns, founded by Su Zhu and Kyle Davies. It is considered one of the premier hedge funds and market makers in the cryptosphere. This firm holds stakes in hugely influential chains like Solana, Ethereum, Avalanche, Bitcoin and Terra. The firm has indulged in an array of different projects varying from GameFi (Axie Infinity) as well as DeFi.
Where to find Three Arrows Capital:
a16z Andreessen Horowitz
Founded in Silicon Valley in 2009 by Marc Andreessen and Ben Horowitz, Andreessen Horowitz (known as "a16z") is a venture capital firm that claims to back bold entrepreneurs building the future through technology. They describe themselves as stage agnostic, investing in seed to venture to late-stage technology companies across bio + healthcare, consumer, crypto, enterprise, fintech, games, and companies building toward American dynamism. a16z has $28.2B in assets under management across multiple funds. Their portfolio contains the likes of Coinbase, Compound, Uniswap, Avalanche and NEAR protocol among others.
Where to find a16z Andreessen Horowitz:
Animoca Brands is a leader in the field of digital entertainment, specializing in blockchain, gamification, and artificial intelligence technologies to develop and publish a broad portfolio of products. The company is based in Hong Kong, the United States, South Korea, Finland, Argentina, and the Czech Republic. Animoca’s portfolio includes: The Sandbox, Quidd, Gamee, and nWay. The company has also utilized the intellectual property of Formula 1®, Marvel, WWE, Garfield, Snoopy, and more.
Where to find Animoca Brands
Jump Crypto states that it is building toward the next frontier in crypto infrastructure. The team behind the firm believes that public blockchains have unlocked new and incredible modes of resource coordination by enabling trust between mutually distrusting parties, enabling communities to truly become stakeholders. The firm underlines that it has been partnering, innovating and trading in the crypto world for years. The team’s aim is to help lay down the pavers and conduit that will shape the future of the industry. Their portfolio includes the likes of: Solana, Serum, Fantom, Chiliz, Terra and Pyth among others.
Where to find Jump Crypto:
These are just some of the leading lights in the Venture Capital game that have been propelling crypto projects forward. Let us know which firms you follow and who you believe has been harbouring the most success at BSC News Twitter!
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This is a paid press release, BSC.News does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products, or other materials on this page. The project team has purchased this advertisement article for $2500. Readers should do their own research before taking any actions related to the company. BSC.News is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods, or services mentioned in the press release.
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