Why financing is not going well？

Today I’m going to share the fourth important factor in the project failure — Don’t know how to raise funds.

When the financing of many projects is not smooth, but due to commitments to early investors or schedule announcements in the community, even if the project's current physical and market operations are not very smooth, it still has to be listed on the exchange at the original time. In most of these cases, the project is listed on the exchange to allow early investors or those who received airdrops to sell their tokens. When project financing does not go smoothly and you are forced to get CEX, can you avoid failure?

Let’s get back to the key of this question, why financing is not going smoothly. In the past five years or so, we have served as advisor for more than 80 web3companies. Most project hopes that we can help the project party bring in investment. In my experience and observation of cooperating with these projects, there are indeed many factors that lead to unsuccessful financing. Here I summarize the following five main and most common reasons. If you happen to be the founder of a project or the person in charge of financing, you might as well see if you have made similar mistakes.

1. Incorrect positioning: Positioning is one of the most critical factors for the success of a project. This is a complex issue involving market analysis, product blueprint, strategic layout and SWOT. Below I'm not talking about theory, but more about sharing practical experience. For example, I have met many project founders who asked: Why other projects can raise so much money, and their teams look ordinary? Or maybe they don’t have many fans in their community? Their product hasn’t been released yet? In fact, this is a problem of project positioning. Because there are many things behind the public announcement which you don’t know, and you can’t just look at things based on their appearance. Perhaps the founder of the successfully financed project has a deep relationship with an investment institution, or perhaps the project and the investment institution have a gambling agreement. Project founders must be clear about the positioning of the project itself in the market. People, promotion and profit are the three most important elements of impact financing. People refers to the team, Promotion refers to publicity and promotion, and profit refers to the ability to make profits. Why is product not among the three most important elements? Because now is the era of product surplus. There is no shortage of high-quality products on the market, and there are no products that must be bought. Most products are just icing on the cake for users. Proof you have the ability turning product into profit, then you can convince investor.

2. Misunderstanding the definition of current product: For a crypto project in early stage that wants to raise funds, what is the “product” of this project? If we invite 100 web3 project founders answer this question, 80% of the answers should be: the product is the service or technology platform launched or about to be developed by the project party. Unfortunately, this is an incorrect answer. For a crypto project that needs financing, if I stand from the perspective of an investor, the product I think is the token issued by project. Because that’s what I can get immediately after paying the money. Therefore, if a crypto project founder unable to figured out what the current product yet, it financing will be very easy to fail. Why do I say that tokens are the product of this crypto project? Because when the product of a crypto project is not mature enough to generate revenue, the product is not worthy of excessive publicity at this stage. Publicity only highlights the weaknesses of the project and contributes product direction to potential competitors, but cannot bring in any cash flow. The only thing that most crypto projects can sell for money is tokens. And because the token is a virtual thing, not a physical commodity, it is even more necessary to promote it carefully, correctly and strategically, explaining the purpose of the token, the prospects of the token ecology, and the future use scenarios of the token. Only by communicating it clearly to potential investors can you have a chance to get investment.

When promoting, many project parties excessively promote "products" or "technical" functions that have not yet been implemented, and they promote them to potential future users. In fact, these groups are not token investors. In this case, most of their community members are not token buyer, so will not have a good effect on project financing. To use a Chinese proverb, that is "more peddling less selling".

3. Failure to manage the project weakness rationally: I have encountered many projects that failed to manage the weakness rationally, but used their own preferences to manage the weakness. Founders with technical backgrounds attach great importance to technology and ignore marketing promotions. They always reserve a budget for technology development. They always believe that as long as they develop product technology, they can survive even if they do not raise funds. The founder, who has a marketing background, shouts slogans every day, but cannot come up with a specific technology development blueprint. It is unclear what services can be provided at each stage and what problems can be solved. The budget is spent on posting some content every day without specific content. tweets. Either way, these entrepreneurs fall into the trap of self-righteous budget management. To put it simply, rational management is based on the standpoint of what is lacking in the project. The financing of the Web3 project is simply to "sell pre-sale tickets to a virtual utopia around the world." There are four key points here. All over the world; virtual; utopia; pre-sale tickets. 1. The world is so big, where are your potential buyers? Now that you know where they are, how do you find these buyers? Middlemen? Channels and ticketing platforms? Why would they help? What benefit does it give them? How to divide the money? 2. Virtual, the token does not even have a paper ticket, it is just a string of codes. How to make buyers believe that this string of codes can really enter the market in the future? You can even sell scalper tickets to transfer a sum of money. 3. What is in Utopia? There are endless delicacies to eat for free, endless beautiful women, and gold and silver mountains at your disposal. Many items are unclear. 4. Generally speaking, the earlier you buy pre-sale tickets, the more advantageous it is. How many benefits are there? But if inflation in the web3 world is 10 times that of the real world, is it worthwhile to buy pre-sale tickets? What if inflation is 50 times? I have seen a project where their two token sales phases were one month apart, and the price difference was only 30%. Although 30% seems like a lot, the problem is that the market rose by more than 100% in a single month at that stage. So why should investors invest in this token? Isn’t it a good idea to buy ETH or BTC directly if you have spare money? Therefore, at different stages, you must think clearly about the above issues over and over again, and you will find a suitable and rational budget model.

4. Encountering fraud: Many projects have experienced fraud. The two most common scams at present are 1. Fake exchanges, especially well-known exchanges. 2. Pretend to be an investment institution or service company. In the 80 projects I have worked with in the past, I have also encountered three scams. One of them was a fake exchange, and both were fake Binance exchanges. The other was a fake investment institution. Although many exchanges have public official contacts or links to apply for listing on their official websites, the problem is that these links are often passive contacts. Therefore, many project parties hope to communicate directly with the exchange’s business windows through acquaintances. And because the fees for listing are high and the anonymity of encrypted wallets is difficult to trace, this gives many scammers an opportunity. The second type is fake investment institutions or services. The fake investment institutions will require the project party to pay a guarantee fee before investing. The fake service company will disappear directly after collecting the fee, and then open another telegram ID to continue the fraud. A common method for these scams is to look for projects on telegram that can be started, then enter the project group and actively ask for DM, and then slowly lure the project party to take the bait. One scammer even opened an account on Linkedin and dressed up like an official contact window.

5. Expect lucky: I have encountered many projects come to me, and ask me to bring in investment by only success fee basis. However, these projects are neither celebrity platforms, nor do they have strong academic background & connections from prestigious schools. They do not yet have the ability to generate revenue, and they don't have any lead VC or angel investor. Under such circumstances, I basically will not accept such cooperation conditions, and I have never seen such a project successfully financed. Just imagine, those companies that already have celebrity platforms, the founders are from prestigious schools, have rich connections, the products have proven their revenue capabilities, and the cooperation conditions they offer the same success fee condition. As a consultant, why should I help with high-risk unknown projects?

As a startup founder, you should know there is a cost to starting a business, there is a cost to developing a product, and there is a cost to raising capital. As an entrepreneur, if you don’t pay any upfront costs, can your technology platform or product be born on its own? Or are there any developers willing to help you develop the product without charging any upfront fees and then pay you? If that's not possible, then why do you expect a financing advisor to help you get the investment first and then pay success fee after? I ask these entrepreneurs who are hoping for luck, why are you unwilling to offer more attractive terms to consultants so that consultants are willing to help you raise funds. Most of the answers are that they don't have the funds, or they are afraid of being cheated out of their money. Or other finance advisory only ask success fee. When I heard such answer, I just Ha Ha and close the conversation as soon as I can. Because it this is bull shit and waste my time. Because these are not a correct mindset from a real entrepreneur. I never see success project success.

Here, I would like to advise all project founder to learn what is an entrepreneurs. What is entrepreneurship? Getting lucky is not called entrepreneurship, but able to survive near-death challenges to execute his plan is so called entrepreneurship. If you are unwilling to take risks, sacrifice your rest time, and take money from your pocket to invest in your own business, but you fantasize about being lucky and get money from others, that is not called entrepreneurship, but a dreamer. If there is not near-death challenges during founding a company, then everyone will succeed in starting a business.

6. Too few investors: The only reason why a good project has not received investment is that it has not contacted enough investors. Let me ask a simple question, if you have already made a product, how can you sell as many products as possible? Do you expect buyers to come to your home on their own? Or just let 5 or 10 people introduce your product one by one? In an era where the Internet is so developed, no one in my project would use such an inefficient method to sell products. So here’s the question, if you are a web3 crypto project and you hope to sell tokens to raise fund, how do you find people to buy tokens?

Let me ask another question, how many institutional investors in the world? And How many angel investors are there? 50,000? 100,000? 200,000? I believe there are more than 200,000 institutional investors. This does not include some data that Google cannot collect, such as China region. As far as I know, there are more than 50,000 large and small institutional investor registered in China. For example, there are 4,370 traditional investment institutions in Beijing. This even not not include investment institutions and angel investors focusing on Web3. But I see that 99% of projects are still financing using classic way. They try to contact some people with investor connections and ask them to introduce investment institutions around them. Although this method may still work, it is far behind the efficiency of Internet financing. You need to have a macro understanding of the capital market. Global capital is a zero-sum ecosystem. Whichever project is taken first, the total amount will become smaller and smaller. Therefore, while you are still contacting investment institutions one by one through word of mouth, the smart project party has already used Internet marketing to promote the investment opportunity of the project party to all investment institutions around the world. Although 99% of these promotions may not receive any response, a 1% reply is enough for this project to obtain the required financing.

I once collaborated on a smart project. The founder was graduated from a prestigious USA university and had experience in large management consulting companies and investment firm. In 9 months, we contacted more than 3,000 VCs and more than 10,000 angel investors. In the end, they received $44M in investment, of which nearly $20M came from these financial promoting activities. This is Internet-style financing marketing. Products all require Internet marketing, and financing also requires knowing how to use Internet marketing.

I wish you have get some creative and instructive impact from this article.