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Crypto

Navigating Funding Options for Cryptocurrency Startups: ICOs, STOs, and Beyond

Max Kardasevich
Max Kardasevich
September 18, 2023

As cryptocurrency has emerged as a promising alternative to traditional payments, with innovative crypto startups being the main driving force of the industry. As these projects develop advanced solutions, one of the critical challenges they face is attracting investment to support their growth. In this article, we decided to overview the most effective funding options for crypto startups and help you choose a strategy that aligns with your project goals best. 

The Challenges of Cryptocurrency Startups Funding

Let’s face it – attracting investments has never been easy. When it comes to funding for startup businesses in the cryptocurrency industry, the task becomes even more complicated. Below are the main issues crypto startup initiators have to deal with. 

  • Regulatory uncertainty and legal compliance. These are two main reasons why investors may be unwilling to fund startups in the crypto industry. The matter is that there is no uniquified legislative framework for such projects, and each of the countries regulates cryptocurrency differently. This uncertainty can make it challenging for startups to understand and adhere to relevant regulations, increasing the risk of legal complications, which is consequently the reason why attracting investments can be so difficult. 
  • Market volatility. Cryptocurrency markets are extremely volatile. This volatility can make it challenging to secure stable funding, as investors may be wary of investing in an environment characterized by rapid price fluctuations. 
  • Technological complexity. Developing and maintaining blockchain and cryptocurrency technology is inherently complex. Investors often require assurance that a startup possesses the technical expertise necessary to execute its vision successfully. Lack of technical competence can be a significant barrier to attracting investments. 
  • Investor trust. Building trust is essential for any startup seeking investment, as investors need assurance that the invested capital will be paid off. However, in the cryptocurrency industry, which has its specifics, the task of building trust becomes even more challenging since crypto startup initiators have to deal with all the issues we’ve specified above. What’s more, investors can be skeptical about funding for crypto startup businesses because of the fraudulent schemes, high-profile hacks, and unscrupulous projects.

Funding for Startups – Main Opportunities in Crypto

Now, let’s discover the approaches and types of startup funding. For the crypto industry, the already familiar ICO vs. STO can be viable strategies but to make a fully informed choice, pay attention to their pros, cons, and differences. 

Initial Coin Offerings (ICOs)

An Initial Coin Offering (ICO) rose in popularity during the cryptocurrency boom of the late 2010s. The essence of this fundraising strategy is simple. Startups issue tokens representing a share of ownership and offer them to the public in exchange for established cryptocurrencies like Bitcoin, Ethereum or traditional currencies.

The main advantage of ICOs is their accessibility. Since they are open to a global audience, companies and private persons can invest in crypto startups, which enables them to attract the necessary investment in a matter of weeks. Still, this funding option comes with regulatory challenges and security concerns. When options for this approach, you should also keep in mind that some investors may seek quick profits rather than supporting the project’s long-term goals.

Security Token Offerings (STOs)

A Security Token Offering (STO) has emerged as a response to the regulatory concerns associated with ICOs. According to this approach, the issued tokens are considered digital securities and are often backed by tangible assets like real estate, equity in a company, or profit-sharing agreements. This is the main difference between ICO and STO – STOs provide a more secure and regulated means of raising capital through token sales, making investors more confident. Still, STOs may take longer to execute due to regulatory approvals and compliance procedures.

So, which is better – STO or ICO? The right answer depends on your project goals and specifics. For example, the project that is developing a decentralized social media platform can opt for ICO since it will allow it to attract a global audience of users and investors, creating a network effect. But if a startup creates a blockchain-based real estate investment solution, STO would be a more suitable fundraising method because of the asset-backed nature of the tokens. 

Security Token Offerings (STOs)

A Security Token Offering (STO) has emerged as a response to the regulatory concerns associated with ICOs. According to this approach, the issued tokens are considered digital securities and are often backed by tangible assets like real estate, equity in a company, or profit-sharing agreements. This is the main difference between ICO and STO – STOs provide a more secure and regulated means of raising capital through token sales, making investors more confident. Still, STOs may take longer to execute due to regulatory approvals and compliance procedures.

So, which is better – STO or ICO? The right answer depends on your project goals and specifics. For example, the project that is developing a decentralized social media platform can opt for ICO since it will allow it to attract a global audience of users and investors, creating a network effect. But if a startup creates a blockchain-based real estate investment solution, STO would be a more suitable fundraising method because of the asset-backed nature of the tokens. 

Alternative Funding Methods

In addition to ICO and STO, there are also alternative opportunities for business funding for startups explained below. 

  • Venture Capital (VC) funding. VC funding means raising capital from traditional venture capital firms in exchange for equity in the startup. To some extent, these firms work as startup funding consultants, providing valuable expertise and mentorship. The main advantage of raising capital with the help of VC firms is that they have access to a broad network of investors, facilitating partnerships and increasing the startup’s credibility. Still, startups must exchange equity for VC funding, which can lead to a loss of control and ownership.
  • Initial Exchange Offerings (IEOs). According to the Initial Exchange Offerings fundraising method, investors can purchase tokens directly from the exchange’s platform. The main benefit of this tactic is that the investors can use established cryptocurrency exchanges, which conduct rigorous due diligence on projects to reduce the likelihood of scams. In this way, startups can instantly access the pool of investors, while the investors have a higher level of trust. However, exchange platforms control the control IEO process which limits the startup’s autonomy in fundraising, plus there are listing fees and other costs to participate in the IEO process. 
  • Community-based funding. As the name suggests, this startup funding strategy involves attracting investments from the community of users and supporters. However, for this option to work, a crypto startup should have a strong mission that resonates with a wide audience and may have a significant impact on society.

How to Boost the Chances of Raising Funding For Your Startup?

Regardless of the strategy you choose for your startup business funding, consider the ways to increase the chances of attracting investment for your project. Below are some viable tips. 

Solidify your value proposition

nvesting in crypto startups may be risky, so the first thing to do is to strengthen your value proposition and communicate it to potential investors clearly. Get started by highlighting what sets your project apart from competitors. Make sure your project has a clear vision and strong mission that defines your project’s purpose and long-term goals. Highlight your project’s unique features, such as innovative technology, a novel use case, or a disruptive approach to an existing problem. Additionally, emphasize your commitment to transparency, compliance, and risk mitigation. 

Ensure robust product development

Ensuring robust product development is another strategic approach to increase the probability of attracting crypto startup investment. The most effective tactic for this case is to partner with a reliable software development vendor with a proven success record in building crypto projects. In this way, you will be able to access technical expertise and experience, assuring investors of a high-quality and well-executed project. 

A tech-savvy software development company, like Tino Agency, can also accelerate the development process, getting your product ready for attracting investment faster. With our expertise in blockchain technology, we can assist you in building a secured, robust, and legally-compliant crypto project with a high potential of getting funded. 

Opt for professional UI/UX design

There are several ways to attract attention on a startup funding platform but creating a professional and visually appealing user interface for your crypto project is one of the most effective approaches. It not only enhances the user experience but also signals to potential investors that your project is committed to professionalism and user-centricity. Investors are more likely to support projects that show attention to detail and a focus on user satisfaction. It instills confidence that your team is capable of delivering a product that can gain widespread adoption.

Collaborating with a design studio for startups is the wisest choice for creating a professional UI/UX for your crypto app. At Tino Agency, we are committed to creating user-friendly interfaces that make complex blockchain technology more accessible, and ensuring that both investors and users can easily understand your project’s potential. You are welcome to opt for our startup website design services now! 

Diversify sources of funding for startups 

In the dynamic and often challenging landscape of crypto startups, diversifying funding sources is one of the keys to success. By seeking capital from a variety of sources, startups can distribute the risk of relying on a sole funding strategy. 

So, depending on your project specifics, make the choice between ICO and STO offerings, each with its advantages and regulatory considerations. Then, proceed with alternative funding tactics, such as engaging in strategic partnerships exploring venture capital investments, conducting crowdfunding campaigns, or leveraging community-based funding models.

Craft a concise sales pitch

Crafting an effective sales pitch is crucial for persuading potential investors to support your project growth. The best practices in crafting a successful sales pitch revolve around understanding your audience, emphasizing the value of your offering, and effectively communicating your message. Your pitch should highlight the benefits of your product or idea, addressing the pain points and showcasing how it provides a unique solution. Overcoming objections and concluding with a strong call to action are also key components of a winning sales pitch.

Develop a clickable prototype

All the tactics we have discovered above are viable and useful, as evidenced by recently funded startups. But how to get funding for a startup in the most effective way possible? Creating a clickable prototype for your crypto startup is a solution that offers investors a tangible and immersive experience to interact with your future app. In this way, they can not only read about your project in a sales pitch but also see it in action, making sure of the feasibility and potential of your concept firsthand.

At our startup web design agency, we can build a  clickable prototype in just 8 weeks and showcase your crypto project’s vision and functionality. This rapid turnaround empowers you to engage with potential investors more effectively and demonstrate the value of your solution in close-to-real-life conditions. You are welcome to get in touch with our startup development team right now and bring your project to life in no more than 2 months!

Conclusion

In this article, we have explored the best funding options for crypto startups. The cryptocurrency industry continues to grow and evolve, opening its doors to startup initiators and attracting the attention of investors. Still, great opportunities come with great challenges. From developing a robust and secure product, creating intuitive UI design and effective UX to ensuring legal compliance, startup owners face a lot of barriers to overcome on the way to getting invested. 

Tino Agency has the necessary expertise to support you along this path. At our software development agency, we specialize in providing end-to-end design and development services tailored to the unique needs of crypto startups. You are welcome to partner with us and leverage our experience, technical proficiency, and commitment to excellence!