April 13, 2022

Creating A High-Quality Web 3 Investment Pitch

Creating A High-Quality Web 3 Investment Pitch

Gavriel Shaw

Crypto has a legacy of bad investment practice. 

Most Founders know the history of 'the 2017 ICO day's' — where 'nothing more than white papers raised millions of dollars'. Today, the vast majority of those ICOs are dust, which Binance will conveniently convert into BNB for you. Very few ICO's made it big. 

The question today is... has our industry matured much? Does the fact of launching a project today as an IDO make any difference to the commercial viability (and hence investability) of the project? 

Helios receive's dozens of investment requests with very cool 'web 3 business ideas'... some of which have intriguing twists and turns for tokenomics (burn rates, yield curves, minting schedules, and so on)... yet lack insight on traditional business areas such as:

  • Product R&D plans
  • Real-world competitive landscape
  • Customer development (not the same as token sale community development) 
  • And more... 

Hence the important role of a Web3 Startup Incubator as offered by Helios to help web3 founders refine their business models and become investible by savvy investors (who are looking for more than just a ‘rug pull’ token launch). 

Which brings us to…

Principle 1: Technology is not a product. 

A cool way of doing something while using a web3 wallet for user access, governance or incentivization does not necessarily mean it's a product that hordes of customers will adopt any time soon… which makes it difficult to plan for a sustainably profitable business. 

Hence, beyond the ‘tech’, a realistic business model (based on a product with reasonable expectation of customer adoption) is crucial for gaining investor confidence. 

Principle 2: A token sale is not a business model. 

Anyone can launch a token today (token publishing platforms are readily available and a token can be spun up in minutes) with a bit of math in a white paper, a snazzy one-page website, and a quick launch campaign on an IDO platform.  

Many token launches are half-baked business ideas (often with limited founder experience for the product category)... while others are simply ‘rug pulls’ (where the founders will sell their tokens to new buyers following the Token Generation Event and thus crash the token price but make out like bandits). 

It’s more common than any of us may like to admit. 

A viable business model needs a well-calculated assumed cost of real customer acquisition (not just a token buyer), including insight on specific and reachable customers with a sensible pricing strategy that attracts sales, covers operating costs and makes a profit to reinvest in growth. 

Principle 3: Investment pitches should be achievable and believable. 

Investment pitches typically include 2 key artifacts: The pitch deck, and the financial model. 

The deck itself is a simple summary of the business model, supported by a detailed financial model (spreadsheet) that reveals the data-driven projections of costs, sales and growth for the project over the coming few years. 

These artifacts are the tip of the iceberg and signal to the investors that a deep well of data-driven insight exists that the founders have drawn on to represent the investment opportunity and business potential. 

Easier said than done. It can take many weeks of research, or months, to refine the underlying business model as the basis for a quality investment pitch. 

Forecasting a billion dollar revenue within 3-years of raising funds, based on limited track-record and an unbuilt, unproven product is not likely to be seen as believably achievable by an investment team. 

Venture Capital firms often confess to only investing in ‘less than 1%’ of the pitches they review. Oftentimes that’s not because the ‘idea’ isn’t good… it’s because the business model behind the idea is not well enough developed. 

Yet most VC’s never reveal how or why they select pitches… leaving founders wondering what went wrong.

Helios believes in transparency to support web3 founders in the struggle to build an investible business idea and launch with success. 

Setting these expectations up front may even help our industry begin to mature beyond the…

'It's crypto, we don't need a business model' phase, to: 

'It's crypto, we have highly sophisticated business models using web3 governance and incentives including best practice traditional business strategy that will help to quickly replace every aspect of the old centralized economy'

Bringing a profitable service or solution to market involves understanding the needs of one or more customer audiences in order to develop a suitable product (service or solution), at a price that's right, made available in a cost effective way. 

If a web3 startup intends to displace a particular product category... such as AirBNB rentals, or supply chain logistics, or a new social network, or whatever... having a tokenomics model and some marketing hype might possibly garner money via a token launch... but then what? 

Whatever product category you as a founder are considering, how do you intend to compete with existing centralized incumbents? 

What is your data-driven plan for monetization, new feature rollout, customer communications, strategic partners, and so on..? 

If web3 incentivization or governance is a significant part of the plan, how will that help to out-compete existing products available on the market? 

How long will it take to bring your solution to market? (ball-park figure based on reasonable expectations and credible claims) This may include:

  • Developing enough core features of the service that can be monetized to cover the costs of operating the business. 
  • Running test marketing campaigns that hones sales messaging, discovers the best marketing channels, and confirms the customer/user acquisition costs.  
  • Attracting a buzzing online community that helps introduce the solution via their networks to enough users for sustained month-on-month growth to support sales, token liquidity, governance requirements, and so on. 

Each area a challenge in itself... 

And this is what lies beneath the tip of the ice-berg summed up in a pitch deck presentation. 

Investors want to fund promising projects with the right amount of capital to help projects achieve significant commercial milestones. It’s all about risk vs reward. 

A pre-seed project (typically pre-product-development and pre-market-traction) is normally not worth as much to an investor compared to a project that has a live product with paying customers. 

The raise amount needs to reflect the viable business milestones that will convert the current stage of the project into something that makes money (or significantly increases the assurance of making money in the future). Asking for $5,000,000 because that’s what another project raised… or that’s what a similar project token trades every 24 hours… is not a good investment pitch. 

The amount of investment being sought should be tied as precisely as possible to the ‘use of funds’. This means a budget plan with justified expenses with as much confidence as possible of building a significant revenue producing outcome (or at least a very strong pilot study or genuine MVP). 

Bottom line is that investors are taking an ‘educated gamble. The more that founders can help educate the investor with facts, insights and evidence, the more likely the investor is to take the gamble of making an investment. 

In lean startup literature, one of the most important (and often neglected) pieces of advice is to 'get outside your office and go and talk to actual potential customers about your product'

Without knowing thy customer, all the fancy tokenomic models in the world are not enough to convince experienced investors to risk allocating funds into a project. 

One of the best attitudes that a founder can cultivate is to 'fall in love with the customers problem'. By doing so... by becoming extra curious about the ins-and-outs of a customer's situation... a founder may overcome the hurdles of uncertainty to build a business that gains strong market traction, scales towards the moon, and returns oodles of profit for themselves and investors. 

The Helios Incubator is evolving to support web3 founders in achieving market and customer validation as part of an extended program, helping web3 projects become investible, whether by Helios or other investor groups. 

If you are a founder looking for a supportive investment community and a future-proof blockchain ecosystem, submit your current pitch deck or business overview to Helios. 🌐 https://www.heliosrising.com/helios-incubator

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