More than Just Capital: Leveraging Investors as Strategic Partners in Web3
The road to success is fraught with challenges in the dynamic and rapidly evolving world of Web3. The staggering statistic that 95% of crypto start-ups fail is a stark reminder of how difficult it is to succeed in a highly competitive environment. Yet, amid this turbulence, Web3 technologies and innovations are emerging as the foundation of the next digital era, attracting founders and investors alike.?
For startups, securing funding is often the difference between realising transformative potential and becoming just another statistic. While funding is not the sole reason for failure, it plays a critical role.?
This is where crypto venture capitalists (VCs) step in — not merely as financiers but as strategic partners helping to shape the future of Web3.
The Evolving Landscape of Web3 Funding
Even as optimism grows around Web3, with the target of reaching one billion daily active users in this cycle, investors are adopting a more discerning approach.?
The narrative surrounding Web3 is no longer just about potential — it is about actionable growth.
Lessons from the past have prompted VCs to move beyond speculative bets, taking cues from established Web2 verticals like social media, gaming, e-commerce, and finance to identify projects that offer long-term value rather than fleeting hype.?
Despite a 20% decrease in VC funding, which still saw around US$2.4 billion invested in crypto startups in Q3 2024, the industry is resilient. Many experts believe the total capital deployed following the recent cycle will exceed that of 2023, reflecting a shift toward quality over quantity. The numbers tell part of the story, but the real transformation lies in investors' approach. Leading firms are doubling down on high-potential projects that align with emerging trends and address clear market needs.?
Take Auros Ventures, for example. Since inception, Auros Ventures has actively engaged in approximately twenty targeted investments across diverse sectors, selectively backing high-potential projects across the Web3 ecosystem, such as Layer-1 and Layer-2 solutions, fraud prevention, infrastructure messaging layers, DeFi primitives, and decentralised physical infrastructure networks (DePIN). This concentrated approach underscores a commitment to backing projects that exhibit significant growth potential that align with our thesis, but also importantly with our position as a market participant, rather than taking an ‘indexation’ approach that results in thinly spread capital across numerous ventures.
Navigating the Difficult Conversations
However, the journey to success is not without its challenges. Founders often grapple with the time-consuming nature of capital raising, which can detract from essential product development. This challenge is exacerbated by the dual nature of many crypto startups, which often operate on two fronts: as Software as a Service (SaaS) platforms providing services and as blockchain entities seeking to scale their networks. This duality complicates operations and is a source of friction when executing long-term visions.?
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The pressure intensifies in specialised sectors like DePIN and Web3 gaming, where founders face unique hurdles that require careful navigation of additional variables such as hardware supply chain management for the former, and successful launches for the latter. Irrespective of product specifics, though, there’s a common denominator to managing emerging crypto protocols: achieving sustainable market depth requires sophisticated tokenomics, robust liquidity mechanisms, and innovative incentive structures that can attract and retain sophisticated market participants. Success hinges on developing a nuanced understanding of market microstructure, implementing dynamic trading strategies, and creating resilient economic models that can withstand rapid narrative and market transformations.
To overcome these barriers, founders need more than just capital — they need investors who act as strategic collaborators.
Managing those multifaceted risks requires tough conversations between investors and founders early in the partnership to prompt the success of their projects. Questions like “What does investing in my project mean to you?” and “How far will you go to deliver on your promise to my project?” set the tone for accountability, ensuring that partnerships are built on trust and a shared vision.?
The Future of Web3 Fundraising: A Collaborative Effort
Crypto VCs returning to the market after what has felt like a ‘warm winter’, does not necessarily equate to an easier fundraising climate. With more discerning and extensive risk management processes in place, the pressures of fundraising can continue to be overwhelming. Yet, this new climate allows founders and investors to redefine their roles. Founders must demand more from their VCs — more guidance, more support, and a deeper commitment to their success.?
For VCs, the path forward is clear: investment is no longer just about capital. It is about fostering innovation, providing operational expertise, and helping founders navigate the complexities of scaling in a rapidly evolving industry. This is also where Auros’ unique investment toolkit is a differentiator.?
At Auros Ventures, we view partnerships as reciprocal relationships grounded in collaboration and accountability. Our unique approach extends far beyond capital deployment.
It encompasses a rigorous assessment process designed to align our internal resources with the protocol's most pressing needs while meeting agreed-upon KPIs and adhering to corporate risk thresholds. Ultimately, true partnerships should deliver mutual value for both parties.
A common pitfall for investors in DeFi protocols is focusing solely on the capital deployed without considering whether their involvement might contribute to the growth of the actual project. At Auros Ventures, we take a deliberate, thoughtful approach to ensure our presence supports long-term growth - this requires taking a mental leap which we then attempt to turn into action: under what circumstances could we be a power user? To start with, this holistic methodology is designed to help Web3 protocols overcome critical infrastructural and design challenges, which often serve as significant friction points for institutional adoption. We then empower protocols to build resilient ecosystems that attract sustainable investment by addressing these foundational issues. Network effects are still key, and once we invest into an individual protocol or project, our attention turns itself towards ecosystem growth at large, lubricating the connectivity between the projects that are building around it.?
As ecosystem stewards who aim to foster a flourishing Web3 ecosystem, VCs must reposition themselves as strategic partners and help protocols build robust platforms. This way, the industry can collectively realise Web3's full potential and ensure long-term success in this dynamic landscape.
For more information about Auros Ventures, contact [email protected].