Launching a Web3 company requires a mix of technical skills, passion, drive, vision, and capital. Entrepreneurs often seek investors to fund their ventures, but bootstrapping is also a viable option for those with private savings or alternative funding sources.
The question of funding is a tough one, and for most entrepreneurs it usually means seeking out investors who’re prepared to back your idea. But if you happen to have your own source of money, such as private savings or a rich uncle or aunt who’s prepared to back your dreams, you might want to consider bootstrapping your Web3 venture instead.
There are good reasons why so many Web3 startups go down the venture capital funding route. In general, VCs have access to millions and even billions of dollars that they’re only too eager to give away, so long as they think your business idea will ultimately become profitable. But it’s not just the money that VCs bring, for they also provide founders with access to expertise and mentorship through their extensive networks of blockchain professionals, and they’ll also be happy to introduce you to other investors if they’re unwilling to take on the entire risk of backing your venture alone.
However, there’s a major downside to accepting VC’s cash. That’s the equity in your startup that they’ll inevitably demand. Quite simply, they want a stake in your business, and that stake can be significant enough that you no longer call the shots.
To fulfill your dream, you need control. There’s a lot to be said for staying in full control of your Web3 company. Founders who retain a 100% stake will remain in charge of their company’s vision, strategy and ethics, and get to dictate exactly how it goes about running its operations, from the decisions around hiring to advertising campaigns and even the pricing model.
That’s why many founders prefer to bootstrap their companies instead, self-funding their projects so they don’t have to give up any equity. By staying in control, founders don’t have to justify the decisions they make and they can ensure that their company engages in ethical business. Kairon Labs co-founders Jens Willemen and Mathias Beke were quick to realize when they launched their startup in 2019 that if they wanted to stick to their model of “ethical market making” they would need to retain full control. And so they chose to reject all offers of outside funding and instead bootstrap the company themselves.
They had good reason for wanting to do this, for the world of crypto market making is often regarded as one of the shadiest aspects of the Web3 industry, with dozens of dodgy entities that engage in suspect practices such as wash trading and pumping and dumping tokens to turn a quick profit, often at the expense of retail investors. Had Willemen and Beke accepted cash from VCs, they may well have come under intense pressure to abandon their model of ethical market making services, which is based on the startup’s proprietary algorithmic trading software and an alliance with dozens of top cryptocurrency exchange platforms.
Kairon Labs is therefore able to prioritize taking an ethical approach in providing liquidity for crypto projects, creating customized strategies for each digital asset it supports to ensure their long term growth, rather than make fast money through market manipulation. This approach helps Kairon Labs avoid the temptation that likely befell on the founders of market makers such as ZM Quant, Gotbit and CLS Global, which set out to be just as honorable, but ultimately couldn’t resist getting involved in the dodgier side of the business.
Unfortunately for their founders, they ultimately got found out, and their companies have since been slapped with charges by the U.S. Securities and Exchange Commission that stem from their alleged manipulation of crypto asset prices.
Of course, the need for Web3 visionaries to retain control begs the question, how can they do this? Fact is, most founders go cap in hand to VCs precisely because they lack the private funds themselves or they don’t dare to risk what meagre savings they do have stashed away. But bootstrapping a Web3 company isn’t nearly as daunting as it is in other industries, for the decentralized nature of the industry means they have alternative ways to get some additional capital.
If you can find enough funding for the first few months – just enough to get your project off the ground and generate a small community, those followers may well provide the rest. As a Web3 project, you’ll almost certainly have a digital token of some kind that’s used to pay for access to your products or services, and this can be an extremely valuable asset when it comes to funding.
Quite simply, founders can raise money by selling a portion of those tokens to early adopters, giving them a chance to benefit financially from the startup’s long-term success. Most Web3 projects launch their tokens through an Initial DEX Offering, and it doesn’t take long to get there.
Once you’ve got an entity up and running and your basic dApp is built, you can get started on marketing the idea and building up a following on platforms like X, Discord and Telegram. Then, all you have to do is launch a token sale for those early followers, selling them at what’s likely to be a discounted price.
The basic idea is that the revenue from the token sales funds the startup, so that when it succeeds, demand for those tokens will increase, driving up its price so that early backers can sell at a profit. Founders need to be aware that most token launchpads will perform due diligence, which means the founders and senior developers will be carefully vetted, the smart contract code will be checked rigorously and the use case/application verified.
But what if you don’t have enough private funds to get to the point where you’re ready to launch a token sale? For the truly broke Web3 founders, there are still options available to them. If you do have a fantastic idea, there are many Layer-1 blockchains that are only too willing to provide grants to those who are willing to help build out their ecosystem.
With grants, you won’t need to give up any tokens, or even have one at this point. Instead, all that’s required is a solid idea and a plan for execution, and the ability to make people believe in your idea. Once you’ve obtained a grant, you’ll need to make that money last until you can obtain a further grant or get to the point where you’re ready to launch your token sale.
Do this, and you won’t need to put your own private savings at risk, and you’ll never need to give up equity that could result in you losing control of your dreams. That’s not to say that venture capital is always a bad thing. If you’re operating in a high-growth industry, VC money may well be the only way you’ll be able to compete, because such industries require startups to spend millions of dollars on research and development alone.
Token sales simply won’t be sufficient. However, a great deal of Web3 applications don’t need mountains of money to be able to compete, especially if they’re operating in immature markets or experimenting with new concepts. In such cases, entrepreneurs may well decide there’s a lot to be said for retaining control over their startup, allowing them to react as they see fit as the market evolves.
