"Crypto startup Kolibrio attracted $2 million in investment." A year ago, this news was discussed by all specialized media. How did a team of 8 people raise such a sum in a seed round? Unfortunately, there's no magic pill, and what helped Kolibrio might not work for your project.
However, don't despair. The investment attraction process has certain stages, types of investors, and recommendations. Even without a magic pill, we're confident that the more you know the basics, the higher your chances of success.
Attracting investment in a blockchain project is a multi-level process that requires strategy. What's usually included in it?
Development of MVP and investment proposal. Create an MVP that solves a real problem. Analyze competitors and identify their strengths and weaknesses. Develop an attractive investment proposal, including a roadmap and tokenomic design
Building trust and authority. It's essential for the project to have authoritative consultants. Comprehensive project security forms the basis of investor trust, so conduct an internal audit of smart contracts before making offers to investors
Compliance with legal norms. Blockchain projects face dynamically developing crypto-regulation. Therefore, it's important for founders to thoroughly study and constantly track current legal norms and anticipated legislative changes
Choosing a source of funding. Determine which types of investors suit your project. Consider various funding instruments such as SAFT, ICO, STO, and IEO
Building an active community. Build a community of enthusiasts that can significantly influence the project's success. A large interested audience demonstrates your project's potential, attracting investors.
In this article, we'll focus on choosing a source of funding and developing an investment proposal, and in the following materials, we'll cover the other points.
Who are these people who can provide money for your project? Initially, it's you, but later, other formats join in. Let's briefly describe them:
FFF (Friends, Family, and Fools). Raising funds from close ones and inexperienced investors. This method is based on personal relationships but can create additional pressure on the project's success
Grants that don't require repayment. Practical but specific criteria must be met
Venture financing. Attracting investment from firms or private investors in exchange for a company share. Suitable for promising startups but implies a loss of control over the project
Angel investors. Private investors provide capital and valuable advice. They can take on more risk and often help in the early stages of project development
Accelerators and incubators. Programs that provide not only funding but also mentorship, training, and networking opportunities. Incubators are common in the early stages of development, while accelerators are focused on accelerating already-formed startups.
Crowdfunding. Raising funds from a large number of people over the internet. Effective for projects with broad public interest and usually requires active marketing efforts
Financing through loans. Includes both traditional bank loans and P2P lending. Suitable for projects confident in their ability to repay the funds.
"For Fun" investors. People ready to invest small amounts in new technologies are often driven by interest or the desire to be part of an innovative project. These investors usually seek simple and understandable information about projects
Developing an attractive investment proposal
How to understand if your investment proposal is good? It should contain solid arguments for why your startup is worth investing in.
Usually, the development has these stages:
Before writing an investment proposal, prepare by identifying market segments, consumer demand and studying customers
The best time to write an investment proposal is when you have an MVP. At this stage, you should define business goals and buyer characteristics. Presenting your MVP will demonstrate a deep understanding of the potential audience and that you can meet their needs
Determine which investors you want to attract. Research target organizations based on:
their main field of activity or focus
projects they've already financed
projects they've rejected and why
any additional publicly available information (e.g., interviews, area of interest, etc.)
Consider customizing your business plan. For example, if you approach bankers, they'll be more interested in the financial side of things, while an angel investor will want to know more about the startup's innovativeness and marketing ideas.
Structure of the investment proposal
The format of the proposal largely depends on the chosen investor. It can be a regular text document, a PDF file with graphics, or a presentation.
Each proposal has these mandatory elements:
Investment title. A few words describing the value of the future product or service
Executive summary. It includes a short statement with information about the target customer, their problem, the proposed solution, and advantages. Immediately indicate the return on investment you expect to receive
Project details. This section contains all the facts that support you as an entrepreneur, your company (if you already have one), and the MVP
Company performance results. If it's an existing company, include a business description and provide current financial data. If you haven't found a business yet, share information about products you've participated in and contributed significantly to, about current project members and their achievements, and convincing market statistics that highlight your startup's potential
Planned marketing and sales methods. In this part of the document, present market and competitor research. Describe the marketing strategy
Project financing. Given that this is the whole purpose of the proposal ensure you use accurate figures and include many details. This part should list funding sources, forecasts, timelines, return on investment, and investment exit plans
What to avoid in the investment proposal?
Don't use jargon, complex formulations, and complex sentences. The simpler the text — the better
Specify when talking about the financial support you need. Clearly state the amount you want to raise and what you will do with it
Support your hypotheses with data. Surveys, interviews, and focus groups will help. A plan that solves a problem is exactly what investors want to see. However, it's not necessary to solve all problems at once. Instead, you can develop a plan to release more advanced versions of your product
Create a working prototype. The demonstration is more convincing than words. And it's a great way to show investors you know how to turn their money into a working solution
Before writing a business proposal for investors, it would be helpful to get feedback on your prototype from a test group of users. Its analysis will help you better understand what people expect from your product/service and how to improve it to meet these expectations
Ensure that the presentation of your investment proposal includes an explicit launch and scaling plan. Investors need to understand the potential of your startup, which includes the market size and the value proposition for customers (why customers will buy the product)
Stay tuned! In the following materials, you will learn about the tools of fundraising, such as SAFT, ICO, STO, IEO.