Exploring Web3 funding challenges in 2024

Many people may not be surprised, but Last year, startup funding for Web3 companies came to a halt.. According to Crunchbase:, VCs paid the smallest amount of cash to cryptocurrency startups since 2020 (less than $7 billion). This represents a 74% decrease compared to the previous year. There is no doubt that many people FTX Collapse, which provides an easy explanation as to why so many businesses struggle to raise capital. Thanks to ETFs and the upcoming halvingThe forecast for 2024 is much brighter due to recent successes such as: Hashkey achieves unicorn status, It only reinforces the theory that money will start flowing again.

But beware of simplistic stories that distort the more complex truth. While cryptocurrencies operated fairly independently of other markets for most of the time prior to around 2021, the global economy was in a state of near-continuous growth throughout that period.

By contrast, at this point in its evolution, the cryptocurrency sector is inextricably linked to events occurring in the real world and the broader economy, with institutional adoption and increasing reliance on private equity. The idea that events inherent in the digital asset space can create conditions for Web3 startups that still do not exist in other industries is no longer plausible.

With this in mind, even a bull market in the cryptocurrency market is unlikely to buck the broader trend in startup funding. Expected to stabilize in 2024. But a bubble of the level we saw in 2021 is unlikely to happen again.

This could be a positive change for the cryptocurrency sector in the long run. Cryptocurrencies, which have gone through successive booms and busts when financing was easy, have produced only a few projects and companies that were actually successful and known to outsiders. on the other side, Half of Fortune 500 companies It was formed in a crisis situation. If diamonds are only created through pressure, this may be an opportunity to shine rather than break, and these difficult conditions could finally give birth to high-profile projects based on blockchain.

So the Web3 sector needs a bit of a break in 2023 due to the lack of funds and attention we have endured, but the fact is that even a bull market is not going to change the reality. Startups will have to work much harder to get investment in 2024 and beyond. To be successful, you need a solid strategy to differentiate your project from the competition.

Top priority – product-market fit

Product-market fit is an area that has proven elusive in the Web3 sector, so you can expect it to come under greater scrutiny from VCs. The inability to analyze user behavior on blockchain platforms is one of its practical limitations. However, there are also complexities in Web3, such as the heavy participation of the decentralized community and the different roles that every individual member can play, be it a user, token holder, developer or nominator. With so many groups and metrics, it’s too easy for a fake project to feign success, while true usefulness can have a hard time making itself known.

While the community will always play a critical role in making a Web3 project successful, founders have the opportunity to differentiate themselves from competitors by creating a clear definition of success for product-market fit using industry-relevant metrics. This could be the number of users, but it could also cover other measures of success, such as TVL for DeFi dapps, number of marketplace listings, or engagement levels for gaming and social dapps.

These definitions and metrics should be accompanied by a plan for bringing the product to market, covering areas such as the degree of user involvement in the development process, the iterations involved in building and testing, and a high level of marketing. strategy.

Strategic Funding Sources

When searching for sources fundingWeb3 founders must also think strategically about how their funding sources support them. Achieve product-market fit. This field may require more critical thinking than just finding a VC with relevant experience or the right network.

For example, many recently launched layer 2 platforms now have generous grant programs to encourage dapp development on their platforms. but, Entrepreneurs must have a clear understanding of the platform ecosystem., which includes some insights into different types of dapps, number of users, and user profiles. No matter how generous the grant, your project will not succeed if it cannot form partnerships and collaborations within its own ecosystem, or if the platform does not have enough users to reach product-market fit success metrics.

Moreover, even if the founder is willing to gamble on a new platform to receive generous subsidies; It takes away the opportunity to raise additional funding from VCs. Alternatively, if the project cannot provide product-market fit, it will move forward through other sources.

Take only what you need

It may seem like a no-brainer, but adopting a minimalist mindset toward fundraising will help startups navigate the uncertainty of 2024. Crunchbase figures may have revealed: Funding will decline by 74% from 2022 to 2023 However, when measured by number of transactions, the difference is only 46%. This means you are more likely to close a deal, but invest less when financing is tight.

Therefore, entrepreneurs can potentially gain a lot of profits. Keep the pitch as tight as possible It can explain in sufficient detail how the funds will be used. The “Lamborghini and yacht” mentality of the past has led many Web3 entrepreneurs to think that raising money is an end in itself. But the truth is that every startup only needs to raise enough money to reach the next funding round, and VCs have the right to be suspicious of founders who can’t justify the amounts they announce. Moreover, over-funding may mean that the project is overvalued, which may lead to a detrimental re-evaluation later on.

Ultimately, the changes we see in the Web3 funding landscape are consistent with changes taking place in the broader cryptocurrency sector as it matures and becomes more interconnected with traditional financial markets and the sentiments driving the broader economy. . While this makes financing more difficult, it also provides an opportunity for founders to differentiate themselves by developing a strategic plan to keep pace with change and achieve product-market fit..

Also read: How will Bitcoin ​​halving in 2024 affect prices, mining rewards and future trends?