As of today, crypto-related startups can attract investments through both private equity fundraising and token fundraising. Financial institutions can offer a number of options and services to help startups raise funds via token sales.
Let’s explore what opportunities of token fundraising are there.
Loan Provider
Just like in traditional fundraising, when banks or financial institutions provide loans to small businesses, the same financial institutions can lend funds to DeFi and crypto startups or entrepreneurs. The key requirement for such dApps is to be registered and comply with local or/and international regulations.
This type of blockchain startup funding can include business loans, project financing, or even sponsorship of certain activities such as gaming or NFT projects. Sometimes, startup investors sponsor projects in exchange for interest, customer incentives or promotion.
ICO Portal Provider
Although initial coin offerings (ICOs) have lost much users’ trust after the 2017-2018 ICO bubble, it is still a profitable way to raise funds for a startup. Financial institutions have credibility in the eyes of consumers and can create their own ICO portal to serve as a platform for token fundraising projects.
There is a growing trend where regulated firms wish to initiate project financing by raising funds via token sales. For example, Thailand’s Securities and Exchange Commission has already approved 5 regulated firms to operate as ICO portal providers: Kubix, Longroot, T-Box, Xspring Digital and BiTherd.
KYC Provider
Know Your Customer (KYC) is an emerging practice in crypto that allows dApps to identify users and prevent frauds. As crypto becomes more regulated, authorities may begin forcing registered crypto and DeFi startups to apply KYC to their users. In addition, many venture capitalists prefer to invest in startups that comply with this practice.
Since financial institutions have extensive customer data and expertise, they can help dApps comply with KYC regulations by acting as an information provider or consultant for startups.
Launchpad
Crypto launchpads serve as fundraising platforms that help to raise venture capital funding for startups. Launchpads provide a limited group of investors with the opportunity to engage in early crypto projects before they are listed publicly. This enables them to buy tokens cheaper, so that they can maximize their return on investment (ROI) when price grows later.
Nowadays, there are a lot of launchpads which specialize in fundraising of specific startups: DeFi services, social crypto projects, blockchain games, NFT arts and music, etc.
Conclusion
As you can see, VCs and financial institutions can facilitate in funding dApps not only through direct loans and investments, but also with providing services such as KYC consultations. Crypto and DeFi startups today can get a wider range of services and opportunities for fundraising, which indicates that investors see less risks related to digital assets.