How Startups Can Use Custom Blockchain Solutions to Raise Funds

Why Fundraising Is a Challenge for Startups

One of the biggest challenges facing startups is securing funding. Traditional fundraising methods include venture capital, bank loans, or angel investments. These options, while useful, also come with strict requirements, lengthy processes, and high rejection rates. Many startups fail before even getting started because they lack collateral or a proven revenue model, and it is difficult to attract investors.

This is where blockchain fundraising comes to the rescue! Blockchain technology is transforming the way businesses raise funds with diverse, decentralized, secure, and transparent solutions on the blockchain, thereby providing an avenue for reputable investment opportunities. Custom blockchain solutions are a powerful alternative financing method for startups that are interested in or trying to be innovative and scale quickly.

The Role of Blockchain in Modern Fundraising

Blockchain technology allows startups to attract capital globally and circumvent established financial intermediaries by offering tokenized equity or utility (e.g., a protocol) or digitally representing any economic asset. In doing so, businesses create digital tokens, and selling these tokens to investors provides capital.

The emergence of Initial Coin Offerings (ICOs) and Security Token Offerings (STOs) shows the democratization of capital access through a fundraising model utilizing blockchain. Startups can communicate directly with the global investor pool as opposed to traditional fundraising, which can create disconnects, barriers, and additional costs.

Benefits of Using Custom Blockchain Solutions

• Transparency
  All blockchain-based transactions are recorded on a public ledger. As an investor, you can track every transaction from the very first to the latest. This level of transparency ensures trust is built between all parties involved and drops the risk of fraud.
• Security
  Blockchain uses a cryptographic technology to verify every transaction, making it virtually impossible for anyone to change or distort information or records.
• Tokenization
  Startups can tokenize assets (or company shares), and then, with the aid of a blockchain-based solution, can transfer ownership more easily. Additionally, tokenization allows startups to attract more investors and has increased flexibility and liquidity beyond standard shares.
• Global Accessibility
  The decision based on geographical considerations of potentially raising funds is outdated; tokens are generally accessible to potential investors globally. This enables access to a much larger number of potential backers.
• Lower Cost and Faster Process
  Startups can use blockchain technology to raise funds much quicker and with less cost than conventional alternatives, which take longer and involve multiple negotiations with banks, VCs, and other deal structure supporters.

Practical Ways Startups Can Implement Blockchain for Fundraising

Initial Coin Offerings (ICOs)

ICOs allowed startups to launch their tokens and sell them to investors for BTC and ETH in exchange. The tokens sold to investors would allow for access to a product or service in the future, and for early adopters, this was an attractive opportunity.

Security Token Offerings (STOs)

STOs are similar to ICOs in that the tokens themselves do not represent assets (i.e. ownership), but they are also, at the same time, quite different as STOs must represent an underlying asset with verifiable ownership, i.e., shares in a company, or real property. Because of the characteristics of the tokens sold in an STO, this process is much more secure and subject to strict claims when compared with ICOs.

Decentralized Autonomous Organizations (DAOs)

DAOs are organizations owned and operated by the community through smart contracts. Startups can use DAOs, and their possible structure, as a form of participatory investment vehicle, and an opportunity for a community or group of investors to enter the market together rather than as individuals. This is an attractive form of fundraising from a community of investors if the startup’s purpose has an aspect of transparency in how investor funds will be allocated after launch.

NFT-Based Funding

NFTs can also be used as an alternative method for creative fundraising initiatives. For startups related to the art, gaming, or media sectors, an easy process could be to sell NFTs, which represent exclusive assets (i.e., an item in a game), membership, or even early access to a product.

Real-World Examples of Blockchain Fundraising

• ICO for Ethereum Through an initial coin offering (ICO) in 2014, Ethereum raised more than $18 million to help develop its blockchain platform.
• Filecoin STO: Filecoin’s STO raised more than $200 million, proving that tokenized securities can draw significant investment.
• DAOs for Startups: To create decentralized venture capital models, a number of startups have established DAOs to pool resources and finance projects collectively.

Important Obstacles and How to Get Past Them

• Adherence to Regulations
  Token sales are governed by laws in various nations. Startups need to make sure they are in compliance to stay out of trouble with the law.
  Solution: To improve compliance, consult with legal professionals who are knowledgeable about blockchain laws and take STOs into account.
• Trust of Investors
  Due to scams in the blockchain space, investors are wary.
  Solution: Uphold openness, offer lucid whitepapers, and submit to audits of smart contracts.
• Complexity of Technology
  Custom blockchain solutions require technical know-how to implement.
  Solution: To create a safe system, collaborate with a blockchain development firm or employ skilled developers.

Practical Advice for New Businesses

Blockchain fundraising provides a ground-breaking method for startups to swiftly and internationally raise money. Take these actions to maximize the benefits of custom blockchain solutions:

• Prepare your fundraising model (ICO, STO, DAO, or NFTs) by doing some research.
• Consult regulatory specialists to ensure legal compliance.
• Establish a robust community to draw in investors and foster trust.
• Use public audits and smart contracts to emphasize security and transparency.

Using blockchain fundraising could give your startup a competitive edge if you’re trying to grow and innovate. Investigate personalized blockchain solutions now to open up fresh avenues for expansion.