It’s clear that crypto is not just a passing trend, but a transformative technological shift reshaping the landscape of value transfer, startup formation, and asset ownership. Network participation and ownership, liquidity to protocols, fostering an ecosystem where participants are directly invested in the success of the networks they support.
This represents the most radical shift in our financial system since the modernization of banking and finance, which began over three centuries ago.
Crypto startup are typically young ventures who have distinct features that set them apart from traditional startups:
In the evolving landscape of crypto startup financing, venture capitalists are adapting their strategies to align with new fundraising structures. A prevalent approach now is the use of a SAFE combined with a token warrant. This combination, often referred to as SAFE+token warrant, is becoming a standard in crypto fundraising. Unlike traditional SAFE agreements in Web2 startups, where the focus is solely on equity with a long-term involvement commitment, the SAFE + token model in crypto includes an inherent agreement for token warrants.
This structure is generally initiated by the founders and is integrated into the initial SAFE agreement, granting investors rights to future tokens. This approach allows VCs to balance their traditional investment methods with the unique opportunities presented by tokenization in the crypto space.
The interesting aspect here is the shift in VC investment philosophy. While traditional Web2 investment via SAFE is about equity and long-term engagement with the business, in the crypto realm, the addition of token warrants offers a pathway to liquidity and potentially quicker returns. This reflects a willingness among VCs to adapt to the fluid nature of crypto assets, even though it might mean less legal control compared to traditional equity holdings.
This trend indicates a significant evolution in venture capital, where VCs are not only financiers but also active participants in the emerging token economy
Despite regulatory uncertainties, the demand for tokens continue to surge due to several factors:
Early liquidity for traditional startups is going to eventually become a natural shift.
VCs and investors are increasingly reluctant to remain locked into a single investment for decades. Certain conditions will be necessary to make this transition viable including aligning interests properly, establishing appropriate vesting periods, and ensuring professional execution of these new liquidity models.
The crypto sphere is setting a precedent for what the future will look like: a token-based economy where assets are fluid, tradable, and collateralizable.
The most significant challenge lies in transforming the mindset of the long-standing, traditional VC industry. Encouraging them to adapt and recognize the efficiencies of having liquid and tradable equity in their portfolio companies is crucial. Such a shift would not only enhance their business model but also allow them to adjust their exposure to specific industries more dynamically and adapt swiftly to changing market landscapes.
Drawing inspiration from Jeff Bezos's quote:
You can build a business strategy around the things that are stable in time simply asking yourself the question: 'What's not going to change in the next 10 years?'
What is not going to change:
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