The R Roundup Presents: Venture Capitalism 101 For Dummies — #12
With the speed of development in the digital currency industry ever-growing, the need for ideas to receive funding so that they can come to life is just as important as the idea itself.
Many avid crypto believers have lost a sense of respect for the VC industry due to the way previous venture capitalist firms have operated but from the perspective of a beginner, what can we expect from VCs?
The reality is whether we like it or not, ideas will always look for avenues to secure funding and often VC investment is one of the most turned to by blockchain startups.
What Does Venture Capitalism In Crypto Mean? 🤝
Those who have kept up with how startups operate in general will understand that venture capitalism isn’t just a crypto-native industry like DAOs or NFTs.
Venture Capitalism is the act of investing in return for private equity in startups or small businesses that the VCs believe have the potential to do well. This investing within crypto often means VCs get access to tokens often earlier than the majority of retail at different prices and different vesting schedules.
There may be a lot of fancy words to distract you from its simplicity: VC A invests in Project B for many different reasons like; they think it's a good project, they know the team or they just may spray and pray.
Regardless of the motive, as a beginner, the most important aspect of understanding VC investment is that it's essentially investing with perks that may give the VC a better deal than retail investors.
Projects may tend to offer VCs better deals because they have a network or a team that can contribute many different things to that project away from capital like; marketing, content provision, developers etc.
How Does VC Investment Impact The Average Investor?👉👈
Due to the large access to capital VCs have compared to retail investors, they will naturally already be at a major advantage however, VCs additionally impact the average investor as they also can access the best opportunities on the market.
Most of the top projects attract the top VCs meaning that if you want to invest in the same projects, you’ll have to understand that VCs will have allocated rounds way before the project is even on market.
As private rounds are built around vesting schedules which are designed to unlock earlier invested tokens in a schedule that avoids price dumping on market.
A great tool that you can utilise to keep up with most vesting schedules is VestLab. VestLab is an analytics service that provides you with all the information you need regarding token unlocks and it’s a very useful tool to give you a beneath-the-surface outlook on your asset's private investment data.
Reputable VCs In The Industry 🏅
A driving force of the VC industry as a whole is reputation and the ability to keep a good track record for their name and investments.
With the pressure to often maximise returns on their investments, VCs can be accused of not acting with integrity however there is still a group of venture capitalists that have managed to still maintain a reputation for their size, team or expertise.
VCs In The Crypto-sphere🤑
- Binance Labs
- Coinbase Ventures
- a16z — Andreesen Horowitz
- Digital Currency Group — DCG
- P2P Capital
While reputation is part of a driving force to Venture Capitalism so is commitment and a VC that has emerged and solidified a long-term alliance with The Russian Roundup, is Himitsu Capital🏔 and you can find more on their work here👇
VC Flaws To Be Aware Of👎
The reality is, that early investment breeds an unfair advantage for retail investors but beyond that advantage, VCs also have common practices that have contributed to the disdained name they often maintain throughout the entire ecosystem
One common activity that has been attached to VCs is the “Dumping Of Tokens” which is selling a large portion of their allocation with the intention of affecting price. While it’s hard to officiate how large capitalists should secure profits, selling on the market large portions of tokens against the team's discretion in some cases can be something to be aware of.
Another flaw of VCs that affects teams more than investors is false promises. Often before securing said investment in any project, teams are likely to voice several objectives/demands from the VCs that are given alongside the allocation. Once the asset is on market usually we see VCs become uninterested in following those objectives through that can halt project developments which can indirectly impact retail investors.
If a project has emerged that fits the liking of large VCs they can also tend to alter their tokenomics to suit VCs resulting in tokenomics that don’t consider retail investors.
Conclusion🧠
VCs can have a bad name but the reality is they are an important arm of the crypto industry as they play a contributing part to the birth of ideas coming to market.
You rarely see projects that haven’t been backed by Venture Capitalist investment and that highlights the objectivity of their role.
The collapse of Three Arrows Capital and the lack of regard for risk management can be a turning point for VC investment as they may take their time with the vetting process of projects and the way that they operate and inject their capital.
If you are entering crypto while working through our 101 series, Venture Capitalism is one of those areas of the market that you should keep an eye on because they have access and the top emerging projects often want to be in touch with the best venture capitalists.
Being aware of all the flaws as well as the importance of Venture Capitalism can put you ahead of other retail investors ignorant of this part of the crypto-economy.
As a reminder, this is not a trading signal or investment advice; it is an opinion, and each trader/investor should know and understand the risks of trading cryptocurrencies. At no point should this be regarded as financial advice, feel free to familiarise yourself with our NFA disclaimer.
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