Especially over the last decade, we’ve seen a huge number of companies materialize in tech, specifically thanks to venture capital funding. In tech, finance, and decentralized finance, VC backing is a common way for projects to get their footing. That initial injection of capital allows a brand to grow more quickly, utilize more resources, and hit the ground running.
In fact, even over the past year, over $500M USD has been raised for a combined 34 DeFi projects, totaling over 100 VC backers integrating into the community. The keen interest in developing blockchain technologies has caused a surge in focus on DeFi, with the VC world rapidly assimilating to this new market.
Yet, while VC can help a business get up and running, it isn’t always the best fit for a new company. Often, after investing lots of capital, VCs expect a high level of control over the products, services, and direction that the company they have invested in goes. For DeFi companies that exist in a rapidly changing environment, this can quickly turn into an inhibiting factor.
In this article, we’ll dive into the world of venture capital in crypto, exploring how there is more to the story than there may initially seem.
What’s Not To Love About VC Backing?
VC backing gives new businesses in DeFi a way to get their project started. Instead of stalling operations until they’re able to get enough community support to begin, this can kick-start their business and help them grow. We’ve seen this time and time again, with VCs existing in every single industry.
For example, MetaTime raised $11M in a private seed round, allowing them to rapidly begin to scale their offering. The Metatime ecosystem has a plan to deliver 70 Web 3 products by 2029, meaning that this initial capital has helped them pick up speed and stay on track with their roadmap.
Yet, they’re still planning on diversifying their backing by opening their business up to community support and participation. They’re planning on releasing a Metatime Airdrop, which will pool further investment from the community.
While this strategy has worked well for MetaTime, that is only because they have a very clear vision of what they want to achieve. With a phenomenal team and clear objectives, they’re able to use VC funding to rapidly build to their desired future.
For some companies, especially those that don’t have as much experience on the leadership team, VC backing can quickly turn into a problem. For example, when a VC donates, they typically gain a voice on the board, allowing them to make suggestions about the project itself. Too much influence can stall projects, or send them in a different direction than what the founders initially wanted.
For more radical projects that have visions that require more change, spontaneity, and those that will develop over time, VCs could completely stall and derail progress.
If a Project Has a Big Vision, VC Can Be Overbearing
An example of a Web 3 project that hasn’t gone down the VC route but is still seeing major success is Peer. Peer are a technology company that’s planning on scaling the future of blockchain as we know it. Instead of focusing on one singular area of blockchain or the metaverse, they’re building the underpinning technology that will facilitate all other projects to thrive in this new Web 3 world.
Over the next few years, Peer plans on releasing everything from NFT minting engines and decentralized identity managers to Web 3 domains and even augmented reality technology. They’re able to achieve this by using their own underpinning blockchain stack, which has L1-L4 built into it.
This multi-blockchain is able to reach upwards of millions of transactions per second, allowing Peer to effectively build an entire blockchain ecosystem within using their own technology. Something as visionary as Peer is continually changing, shifting, and developing at a rapid pace.
Instead of partnering with a VC that may slow down their progress or derail their vision, Peer is a great example of a business in blockchain that took a different route. Instead of working with VC and potentially being subject to their demands, Peer has raised funds via alternative methods.
By doing this, Peer is able to continue to scale at their own pace, away from the potentially damaging influences of any venture capitalist firms. This financial maneuver supports their dream, allowing them to continue building the Web 3 systems and platforms of tomorrow.
As we’ve seen with the rapid progress of Metatime, VC and seed round backing can be a great way to gain capital and traction for a project. That said, it can also hinder the progress of some companies by focusing them into a more narrow offering. For a project like Peer PR, which envisions a radical future, VC backing would be more constrictive than beneficial.
Depending on the complexity of the vision that a project has, VC backing may not always be the best method. Often, projects that have a distinctive future plan will be able to source community support. From there, their own creations will speak for themselves, helping them to gain capital and further traction without being constricted by VCs.
Cryptocurrency and DeFi, in general, is a rapidly changing space, meaning that every company is slightly different. While VCs might be the perfect solution for some, they may also be an impediment for others. It’s always good to think about the future when planning capital collection and expansion in crypto.