Exploring Capital Raising Methods in Web3: Traditional and Innovative Approaches

The Web3 space is rapidly transforming how projects raise capital, charging innovative methods, decentralization of capital, and community engagement. As blockchain continues to alter how it’s possible to interact with finance, new strategies are needed to ensure a project’s stable economic growth.

Deciding which strategy to adopt is one of the most important steps in a project, shaping its development, engagement, and ecosystem, influencing how the project develops, what incentives will be offered to its participants, and how sustainable it can be.

Traditional fundraising methods, such as venture capital and private sales, have long been part of the industry. However, the rise of innovative models like launchpads, Initial DEX Offerings (IDOs), and new mechanisms, like those ApeBond offers, have introduced more dynamics to the market.

This article explores and compares these capital-raising methods, highlighting the advantages and disadvantages of each.

Each capital-raising method offers distinct pathways to funding in Web3. Traditional approaches like private sales and venture capital bring strategic partnerships but often clash with the ethos of decentralization.

On the other hand, innovative methods such as launchpads, and IDOs, are more aligned with community engagement and decentralization, though they come with their own set of complexities.

It’s impossible to ignore the role that traditional methods have played in providing early-stage projects with access to crucial financial resources. By using this method a project can acquire funding through direct negotiation with institutional investors and/or VCs.

This year, VCs alone invested around 8 Billion dollars in Web3, distributed in approximately 1200 fundraising rounds according to cryptorank.

Advantages:

• Access to Large Capital Pools: Private sales allow projects to raise substantial sums, which can be necessary for scaling operations in the short term.

• Strategic Partnerships: VCs often offer more than just money. A good VC partnership provides strategic advice, connections, and mentorship, essentially guiding the growth of the project.

• Stability in Funding: Unlike public sales, private negotiations offer a more stable financial environment without immediate market pressures and with more predictable market behavior.

Disadvantages:

• Subtle Centralization: These methods rely on a few large investors, which is seen as contrary to the “decentralization ethos” by some, as it often involves a lack of transparency and allows a group of few to have a significant amount of influence over the project.

• Preferential Terms: VCs and private investors frequently negotiate favorable terms, such as priority in token distribution, access to new features, or special roles within the project. This approach can dilute the influence of smaller stakeholders and participants in the project.

• Preferential Prices: It’s also common for VCs to buy tokens at a 35% discount or more. And once the token becomes available to the general public, there’s significant market pressure when VCs seek to realize their gains, which can lead to value depreciation for the token.

• Exclusive Access: These deals are often closed to retail investors, further limiting community involvement.

In short, choosing to fundraise via more traditional methods can offer substantial financial power in the short term and a “ready-to-use” network of partnerships. On the other hand, it’s not a community friendly choice and can restrict the project’s flexibility and return on investment in order to meet the VC’s expectations.

Launchpads and IDOs are innovative ways of raising capital, prioritizing decentralization and community involvement.

Launchpads enable projects to raise funds by selling tokens to retail investors. IDOs, on the other hand, allow projects to list their tokens directly on decentralized exchanges, providing immediate trading and liquidity.

To make a comparison with traditional fundraising, big projects like DAO Maker were able to secure over $17 million from 19 IDOs, showcasing the potential this strategy has.

Advantages:

• Community Engagement: These methods allow for community participation in the form of retail investors, democratizing access to investment opportunities.

• Immediate Liquidity: They offer instant liquidity as tokens are immediately available for trading on DEXs and among users, increasing market activity and short-term liquidity.

• Decentralization: Launchpads and IDOs support the Web3 idea of decentralization. It limits the influence of large institutional players and ensures project contributors keep their intellectual property. They also connect well with strategies like governance tokens.

Disadvantages:

• High Volatility: The rapid tradability of tokens can lead to significant price swings and market instability, requiring careful management.

• Technological Challenges: These models often involve a certain level of complexity due to the technological features involved, making creation and implementation potentially challenging for projects.

• Marketing Requirements: The success of these models often depends on raising enough awareness and interest from the community while maintaining credibility. A well-crafted strategy is needed to engage the community and ensure they feel safe investing. However, If done well, this can be turned into a positive.

Unlike traditional methods, Launchpads and IDOs focus on core developers and the community. This makes fundraising more challenging because projects need to create awareness, incentives, and a well-developed system to successfully launch their tokens. But if successful, the upside can be massive.

ApeBond introduces an alternative approach to capital raising with its Bond issuance platform. Unlike other models that rely heavily on short-term liquidity or centralized funding, ApeBond focuses on creating sustainable, long-term fundraising solutions through Bonds, leading to healthy economic growth.

Projects can issue Bonds, allowing users to acquire tokens for discounted prices. It’s easy to turn native tokens into stable coins or blue chips and sell them to users at off-market rates that are vested over time.

Each Bond is customizable with traits that reflect the vesting period and the tokens involved. This way, ApeBond works together with its partners to ensure that liquidity and funding are aligned with the long-term goals, avoiding the pitfalls of short-term incentives.

Advantages of Bonds:

• Market Stability: Bonds generate a stable source of additional revenue by selling tokens via decentralized OTC that vest over time, mitigating the risks of immediate sell-offs and market crashes.

• Customizable Vesting: ApeBond helps find the optimal release schedule for their tokens, helping maintain price stability and prevent oversupply.

• Inclusive Participation: Bonds democratize access to capital raising, allowing bigger and smaller investors to engage with the fundraising, generating long-term holders in the process.

• Alignment with Project Vision: Unlike traditional liquidity mining or fundraising, ApeBond’s approach focuses on aligning the strategy with long-term project growth, fostering a healthier ecosystem for everyone.

While Bonds have immense benefits, they can also pose a challenge to less experienced investors and developers, being more complex and requiring an adoption curve of implementation due to being relatively new.

However, ApeBond has done an incredible job in addressing these issues, offering a comprehensive platform and documentation, ensuring that users and projects can easily use this alternative without trouble.

The Web3 space offers a diverse range of capital raising methods, each with its benefits and challenges, but still far from fitting everyone. ApeBond’s alternative aligns decentralization with sustainable growth, as a remedy to redefine how projects think about capital raising.

Together we’re stronger! Join ApeBond’s journey — Start raising today. 🤝