Due diligence: What investors look for in Web3 projects

As an advisor for Web3 projects, I often find myself across the table from eager founders who ask, “Nikita, we’ve built our MVP as you suggested. Why isn’t A16z knocking on our door yet?”

It’s a question that underscores many’s misconceptions: there’s a straightforward formula for attracting top-tier investors. Yes, an MVP is crucial, but in the intricate world of Web3, it’s just one piece of the puzzle. There’s a whole spectrum of considerations to capture the attention of discerning investors. Here’s a breakdown of what they genuinely prioritize:

Strong foundations: The (dream?) team

Investors are betting on your team as much as your idea. Ensure your team’s credentials are solid – highlight experiences in blockchain or related fields, reference well-known people in the industry who supported your project, and ask them to put in a good word for you to potential investors. VCs often decided to invest in projects I curated when someone they respect mentioned their excitement about the startup they passed on a while ago.

Are team members working full-time on the project? Side projects or divided attention can signal a lack of commitment. Make sure your whole team has up-to-date Linkedin, investors do check socials.

Technology and Infrastructure

One of the most evident aspects, yet important – whitepapers. It should clearly outline the project’s goals, technology stack, tokenomics, etc. Ensure it’s original content, not plagiarized. Make sure your project’s code is accessible and boasts quality. Get endorsements or feedback from third-party developers. Investors will thoroughly review your code. It typically takes 2-5 meetings for a VC to invest, during which they will want to understand the value of your technology.

Tokenomics

Tokenomics… I should write a book on it someday. But for now, diving straight in, it isn’t just the birth of a digital token but an intricate blend of vision, utility, and value. It’s the heartbeat of your Web3 project. Your token should have a clear function: a medium of exchange, a representation of stake, or a store of value. It should also encourage behaviors that drive platform engagement. Fair token distribution is vital, reflecting the commitment and ensuring long-term vision alignment.

Deciding on token supply—whether capped or inflationary—needs alignment with project goals, and if new tokens are introduced, transparency is key. Stable token value is crucial for many projects, often requiring a mix of collateral backing and adaptive supply mechanisms. Governance plays its part too; transparency is paramount if tokens hold power in decision-making. Safeguarding against market manipulations, ensuring liquidity, and aligning the token’s economic model with revenue strategies also sit at the heart of tokenomics. Ensure vestings are calculated in your favor; otherwise, expect a hell of a selling pressure early on. Mastering tokenomics is about crafting a robust, transparent, and visionary ecosystem. And perhaps that book isn’t such a distant dream.

And as you embark on this journey, remember: the finest minds in tokenomics design await you at Databas3.

Engage Your Web3 Community

Active participation and genuine community engagement are crucial for a successful Web3 project. Investors are attracted to a passionate community, which signals trust and commitment to the platform’s vision. Strategic alliances are also important, building partnerships augments resources and credibility. I’ve often seen angels and VCs investing in the projects only because of the incredibly active community, same thing with the listing on tier 1 exchanges, user base = money (a lot).

Roadmap

A project’s journey is as much about the path ahead as it is about the trails blazed. Craft a visionary roadmap grounded in realism, laying out ambitious goals you’re confident in achieving. And as you march forward, remember to look back and spotlight your proven track record, showcasing moments where you’ve met or surpassed expectations.

Regulatory Insight

Understanding your footing is paramount in the shifting sands of Web3’s regulatory landscape. Be crystal clear about your jurisdiction, offering insights into how you navigate the regulatory maze specific to your base. Beyond mere compliance, illustrate your proactive approach in foreseeing and addressing potential legal hurdles.

Stand Out in the Competitive Landscape

Amidst the vast ocean of Web3 initiatives, being another drop won’t suffice. Carve out a unique space for your project, detailing the distinct value proposition that sets you apart from the crowd. Then, shift the lens to the market’s vastness, underscoring the expansive potential that awaits and how primed you are to harness it. One of the first questions during the call with potential investors will be “Why are you different?”. Be prepared.

Robust Economic Model

At the heart of a successful Web3 project lies its economic foundation. Investors are buying into a vision and its sustainability. Articulate a robust economic model that isn’t just about the present but the project’s long-term financial health, assuring stakeholders of the project’s enduring viability.

Maintain Transparency and Foster Communication as a founder

I’ve lost count of how many times my VC friends have complained about portfolio companies not providing monthly investor updates. Don’t be that company. The cornerstone of trust is transparency, paired with a two-way communication street. Ensure that stakeholders never feel in the dark, continually illuminating the project’s progress, new collaborations, and significant milestones. But remember, it’s not just about broadcasting; demonstrate your willingness and agility in adapting based on constructive community feedback.

Achieving success in attracting top-tier (to be honest, any tier) investors requires a comprehensive and insightful strategy that encompasses all aspects of your project. While your MVP serves as a solid foundation, directing your attention toward these areas will entice investors and lay the groundwork for lasting expansion. Now go get that money, my friend!