Multiple crashes, regulatory onslaughts, bleeding markets, bearish sentiment—2023 was pretty rough for Web3 projects trying to raise investments.
It wasn’t just about AI, the new shiny object on the block, stealing the limelight. No matter how dominant such a blame-shifting narrative became.
Several macro factors culminated in the recent YoY dip in Web3 funding. But the situation will improve in 2024. If projects capitalize on emerging trends and embrace critical mindset shifts. Let’s see how.
The context for lower funding
Blaming others for our problems is the easiest thing to do. But it’s often not the most fruitful. This applies to how Web3 stakeholders consider AI as the funding-sucking rival. Such naive views don’t help address real issues to find long-term solutions.
From Three Arrows to Terra (LUNA) and FTX, back-to-back fiascos were a major put-off for investors and VCs. These events shook the industry’s counterparty trust dynamics. When big dominos like SBF toppled, it became very difficult to figure out what was worth it and what was not.
To add, a slew of regulatory actions further destabilized the industry, besides highlighting more potential gaps. Finally, diminishing returns and TX volumes lowered the incentives for speculative investors.
But in Q1 2024, Web3 startups have already raised about $1.8 billion, signaling stabilization and the start of an upcycle. Now it’s about adapting to the new standards and delivering real, long-term value.
What VCs will look for in 2024
Hype-fuelled funding has run its course. Projects won’t go far with empty claims and marketing gimmicks anymore. Investors (and also users) learned key lessons from past experiences. Their demands are more realistic and mature now.
For example, projects will need strong teams with demonstrable caliber to raise funding in 2024. If SBF taught us anything, it’s that the founder’s so-called ‘brand’ isn’t enough. Nor are groundbreaking ideas for that matter.
Putting ideas into action and turning them into valuable products requires effective strategies and vision. Web3 can’t be a dreamer’s world, as it often was last Summer. Meaning, that projects can’t raise millions of dollars simply with flashy pitch decks, white papers, and “promising” projections.
They’ll need functional Minimum Viable Products (MVPs). What’s more, the MVP must solve persistent problems for a Minimum Viable Segment (MVS)—i.e., a group of users or consumers actually benefitting from the service, product, or platform.
The point is — investors want to see results before they put their money into projects of the future. This also means they’d scrutinize business model viability, strong tokenomics, and, above all, genuine utility.
There’s also a growing focus on making it easier to onboard non-native people to web3. According to web3 investor and growth expert, Bilal Bin Saqib MBE, “People need more reasons to switch to web3 and lack of user-friendly interfaces and onboarding processes are hurdles to mass adoption. I believe web3 projects should learn how to simplify user onboarding and how to design great and easy to navigate apps from web2 companies. Web3 is complex enough already and we must explore a way to communicate the solution we are offering in a way that everyone understands. Once people understand the usefulness of the project, there’s no looking back if the project is good enough.”
Support systems for Web3 founders
The funding landscape is evidently becoming highly complicated for Web3 founders. They must connect many dots and meet various demands for deep investments with long-term associations.
It’s neither feasible nor advisable for projects to venture on this path alone. A robust support system that fosters innovation but is flexible enough for dynamic markets is crucial for building mature, funding-ready Web3 solutions.
Fundraising has become a full-time endeavor and requires specialized knowledge, processes, and tools for success. This led to the rise of crypto-first incubators and hedge funds, like Coinvesting, helping Web3 projects prepare for the next bull cycle.
Web3 incubators and consulting firms like TDeFi provide mentorship and expert advisory that enable projects to meet funding needs end-to-end—strategic planning, effective communication, community-building, etc. This bridges the gaps between founders and funders, bringing them closer in mutually-beneficial setups.
They also have frameworks to guide projects in creating robust, sustainable tokenomics that align with evergreen principles and the latest trends. This helps refine business models and create compelling narratives that fuel growth on social platforms and community channels.
At the same time, research-driven but accessible information hubs like crypto education channel Cryptonauts, let founders stay in the know. It’s the means to better decision-making and tapping the right resources at the right time.
Overall, thanks to such platforms, Web3 innovators can build on solid foundations. Their projects can endure volatile markets and remain future-proof from a regulatory or compliance perspective.
Most importantly, founders can build deep, value-driven relationships with vetted networks of VCs and investors. Given the project delivers on its promises, this secures long-term funding and revenue streams.
By and large, a progressive support system is the key to virtuous funding and building cycles in Web3. Stronger projects get more funding and generate higher revenues for investors long-term. And users get better access to life-changing products and services. It’s a win-win situation, necessary for the transformation we seek.
Image by StartupStockPhotos from Pixabay