As
Blockchain technology continues to thrive, funding plays an important role in the entrepreneurial business. Bank loans are nearly unattainable for Blockchain start-ups because of their novelty and associated risks.
However, there are various types of financing available in the modern world that are available for both beginner and experienced investors.
Let us take a look at five ideas of
how one could fund a Blockchain project, each with pros and cons.
1. Bootstrapping
Bootstrapping is perhaps the most direct means of financing a project. It entails using the proprietor’s funds or current revenues to finance the business. This reduces the chances of founders relinquishing control of their venture since they do not need to seek funding from outside investors.
It refers to the use of personal funds, credit cards, or other legal income sources that a business can use to fund itself until it becomes profitable enough. It focuses on spending and operation astuteness, where only essential costs are incurred, and profits are expected to be realized as soon as possible.
2. Venture Capital
Venture capital is a valuable source of financing for innovative Blockchain businesses. Firms involved are generally experienced in technology, and apart from funding the business, they can help with management and sourcing.
Basically,
venture capital is most applicable to companies that mitigate risks via amenable business models and solid growth forecasts. Still, the funding source does not close the door in due diligence and possibly partially surrendered the business’s management process.
3. Crowdfunding
This funding method involves the subtle art of leveraging the community where people can invest a small amount of money; it has become popular for Blockchain projects. This method not only funds the project but also confirms the validity of the project concept with potential users and customers.
There are different categories of crowdfunding, such as reward, donor and equity, each with unique advantages and drawbacks offered by notable players such as
Kickstarter and
GoFundMe. Fundraising and communication strategies with backers involve several factors that determine successful crowdfunding campaigns.
4. Peer-to-Peer Loans
Again, Peer-to-Peer (P2P) lending is a lending model that eliminates middleman agents such as banking institutions through Internet media. For start-ups operating in the Blockchain space, P2P loans may be appealing, given that they might experience difficulties when accessing bank loans.
LendingClub or
Prosper – these marketplaces allow such transactions to happen by setting the standards for the deal. The downside of this method involves pledging an asset and taking a loan; thus, start-ups need to have a sound repayment plan.
5. Initial Coin Offerings (ICOs)
Today, ICOs are well-known as one of the unique types of crowdfunding in the Blockchain space. Through tokens, businesses can sell securities, and at the same time, investors can gain use from the product and have a chance to appreciate the value of their tokens.
Nonetheless, ICOs need input in terms of their legalities, the characteristics of the token, and their market position. As with most Cryptocurrencies, the success of an ICO is highly dependent on the credibility of a project and the market’s faith in its growth and utility.
The Take Home
Options for funding Blockchain projects are pretty broad and provide several routes depending on the approaches, risks and the stage of business. Whether start-ups choose to bootstrap their business or sell stakes to the public through crowdfunding, they are not short of options. All these funding methods have advantages and future risks that need to be considered when entering the fascinating universe of Blockchain development.
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