Cryptocurrency Fundraising for Dummies, and Why It Matters to Startups and Investors

Each new startup or venture needs investments for its launch and further developments. Today, cryptocurrencies and NFTs are making the startup fundraising process easier and more accessible to people. 

Of course, such fundraising is more suitable for blockchain-related projects. But no matter if you work in a Web2 or Web3 startup, crypto can help you to raise funds in a smart and engaging way, and even form a community of supporters. Let’s learn more about it.

Types of Fundraise in Crypto

Private Placement

Also known as “token presale,” private placement is a type of fundraising in which tokens are offered only to a selected group of investors. The goal is to raise funds for the project’s early development, or for business growth. Early investors should get allocation, or a place in your whitelist in order to participate in the token presale. 

Public offerings

There are different types of public placements, in which tokens are offered for sale to the wide audience. All interested persons can invest in your project (if there are enough tokens for everyone).

Initial Coin Offering (ICO)

Previously, ICO referred to a stage of fundraising when a project was selling tokens to public investors for the first time. But today we typically call ICO any token offering where the project has organized the sale of its tokens by itself. 

Most projects launch ICOs to sell utility tokens – those that can be used for obtaining services, staking or forming a DAO. Governance tokens are also often sold through an ICO.

Initial Exchange Offering (IEO)

IEO is an improved version of ICO where tokens are offered through a cryptocurrency exchange. Sometimes, companies that invest in startups prefer IEOs, because projects are thoroughly screened and analyzed before the token sale. A trusted exchange, like Binance, is responsible for evaluating the credibility of the project, which can prevent scams and suspicious firms from raising funds through IEOs. 

Initial Decentralized Exchange Offering (IDO)

IDOs are a decentralized version of IEOs which originated in 2019 when Decentralized Exchanges (DEXs) gained popularity. Supporters of IDOs insist that decentralization could remove human fraud and error, speed up the process, and lower fundraising fees. The most popular decentralized exchanges for holding IDOs are BSC Pad, Polkastarter, DAO Maker, and Solanium.

Initial Game Offering (IGO)

IGO is a specific type of startup fundraising popular among blockchain gaming projects. It’s similar to an ICO, but apart from cryptocurrency tokens, IGO participants can get early access to the in-game assets while supporting the game’s early development. IGO typically offer NFT cards, loot boxes, skins, weapons and other items that are required to play the game or give additional benefits.

What Type Is Preferable For Investors?

Companies and self-starters that want to raise money for startup should properly select a method depending on the type of investors they want to have. 

If a project aims to attract crypto investors and just regular crypto users, all methods — ICOs, IEOs, IDOs — would be suitable. However, it’s important to remember that ICOs are sometimes associated with a negative event that took place in 2017-2018, when the crypto market was flooded with ICOs and a vast majority of them failed.

IEOs and IDOs will perfectly suit Venture Capital Funds (VCs) and traditional investors who don’t like to take much risk investing in crypto. Along with these methods, regular non-crypto fundraising methods are also welcomed.

P2E, gaming metaverses and other blockchain gaming projects usually focus on creating a community of their future gamers. IGOs can allow gamers not only to enjoy the project, but also obtain certain benefits and power to make decisions and improvements in a game’s ecosystem.

So, Why Do Startups Need Crypto Fundraising?

Token fundraising grants both Web3 and traditional startups a new source of capital in addition to regular methods such as pitching, crowdfunding and seed investments. It also introduces the startup to a community of crypto enthusiasts who are in constant search of great projects to invest in. 

With the development of Web3 and wider adoption of blockchain and crypto, new methods of cryptocurrency fundraising may continue to emerge, including the use of NFTs for fundraising and the tokenization of real-world assets.