When bringing a new crypto to market, the fastest way to do so is arguably with the help of venture capital (VC) financing. But such a high-risk, high-reward operation in a rapidly evolving field can carry a large degree of uncertainty. At the EthCC event in Paris, several prominent VCs decided to share their insight on which strategies have worked out for startups.
For a successful launch, Ryan Barney, an investor at Pantera Capital, recommends founders “focus on the whales/VIPs,” or emphasize selling to an exclusive, affluent clientele as opposed to trying to scale at the very start. In addition, Barney raised the example of the successful Blur airdrop and how a well-designed, marketed airdrop focused on optimizing user engagement within a protocol can boost traction.
Regarding what has not worked, Barney had two main examples: initial coin offerings (ICOs) and influencer marketing. Regarding the first, Barney believes recent regulatory headwinds have essentially made it impossible for institutions to participate in ICOs. As for influencer marketing, Barney said that recent cases of influencer shilling without disclosing conflicts of interest and “front-running” followers have made it difficult for users to trust them.
However, Tony Cheng, general partner at Foresight Ventures, disagrees. For Cheng, influencer marketing is actually “super important” in crypto because application developers have few ways to drive users to their platforms other than Twitter or Telegram. As Cheng tells Cryptox:
“There’s no way you can do paid marketing with companies like Google or Facebook because they don’t allow crypto companies to do so. There is no centralized traffic that a lot of protocols or applications can access, which is why KOLs (key opinion leaders) in this space have such strong presence.”
That said, Cheng warned against the other extreme of reckless influencer marketing: “You can’t always have [KOLs] shill stuff because otherwise, the users are gonna get burned and they’re just not gonna follow them anymore.” He continued that projects should work with KOLs while making sure they align with their user base and that the message they send to users aligns with the vision of the company. “The only reason some projects take off versus others is because of paid marketing,” he wrote.
Likewise, Cheng believes the recent regulatory ruling in SEC vs. Ripple should encourage founders to seek non-institutional token sales or ICOs as a means of gaining traction:
“If you look at the Ripple case, didn’t it kind of send the message that retail ICOs are the only right way to fundraise, right? Like the institutional private sales were deemed to be selling securities, but the ICOs were legit when it was sold to retail, right?”
But the VC also cautioned against “going all in” on utilizing ICOs before further regulatory clarity is established. That said, Cheng says the positive ruling on retail sales can be potentially applied to various fundraising mechanisms similar to ICOs, such as initial DEX offerings and initial farm offerings. “I think, like in the US, ICOs might be like the only way to actually raise money in the future,” he stated.
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