Web3 startups have raised over $5.4 billion in venture capital during the first three quarters of 2024. This figure reflects a significant investment trend, with $1.4 billion raised in the third quarter alone.

Investors are increasingly targeting emerging markets at the intersection of blockchain and artificial intelligence (AI). Projects focused on decentralized blockchain infrastructure have also recently attracted substantial capital flow.

However, despite these promising statistics, securing funds for Web3 startups is no simple feat. As a Web3 journalist, I have observed the challenges in this dynamic landscape firsthand. Conversations with founders and investors reveal a mix of potential and uncertainty.

There is no doubt that startups are emerging with innovative concepts. Yet, they face an investment environment that demands more than just a compelling pitch—it requires strategic precision, robust fundamentals, and a clear, executable vision.

To help Web3 startups navigate the fundraising process, I interviewed Jay Hao, Co-Founder and Global Chief Operating Officer of CIFDAQ and former CEO of OKX. In this exclusive interview, Hao shared practical tips on building a solid foundation, crafting compelling pitches, and optimizing tokenomics. He also provided guidance on identifying investment needs, attracting the right investors, and negotiating deals.

Building a strong foundation

Every great Web3 startup begins with a rock-solid foundation. According to Hao, building a solid foundation is more than a preliminary step—it is a critical determinant of a startup’s potential success. Hao emphasizes that this foundation rests on three fundamental pillars: team, technology, and business model.

“A strong foundation for a Web3 startup hinges on assembling a visionary, skilled team, developing innovative and secure technology, and crafting a business model that leverages blockchain’s decentralization,” Hao explains.

This holistic approach goes beyond mere technical capabilities, focusing on scalability, real-world impact, and creating a unique value proposition that captivates both users and investors.

Central to a startup’s foundation is the ability to tell a compelling story. According to Hao, a powerful narrative combines the mission with an engaging story about how the project solves an urgent problem in an innovative way. This approach is not merely about marketing—it reflects a profound understanding of the problem and presents a visionary solution capable of transforming existing paradigms.

When asked about the importance of tokenomics, Hao emphasized its role in aligning the interests of all stakeholders. He explained that effective tokenomics goes beyond simply creating a cryptocurrency.

“It involves creating a model with fair token distribution, real utility such as governance, staking, or transactions within the platform, and mechanisms to balance supply and demand. This fosters trust among investors and the community while driving ecosystem adoption,” Hao adds.

The right funding strategy

Having established the foundational elements of a Web3 startup, the next challenge is securing the right capital from the right investors for the right reasons.

The first question any startup must ask is whether funding is necessary. Hao offers a clear perspective:

“Investment is essential only if it addresses critical growth gaps like product development, scaling, or market entry. One should avoid the allure of fundraising for PR hype; instead, ensure funding directly accelerates achieving your startup’s long-term vision.”

This perspective demands a strategic, precise approach to fundraising. Startups must move beyond the glamour of raising capital and focus on milestone-driven funding that propels genuine growth. Meticulously forecasting costs, aligning funding with specific growth targets, and benchmarking valuations against market trends are paramount.

Finding the right investor is equally nuanced. Startups should not raise funds from just any investor but from a partner who comprehends the unique challenges and potential of their Web3 venture.

“The right investor understands your vision, brings strategic value beyond funding, and aligns with your long-term goals. Whether it is an angel for early validation or a VC for scaling, prioritizing those who can offer expertise, connections, and credibility boosts the success of a startup,” Hao emphasizes.

Key Opinion Leaders (KOLs) are increasingly stepping into the investor role. While they can offer massive exposure and credibility, their involvement requires careful consideration. The equity they demand must be proportional to their tangible impact, measured not by social media followers but by their ability to drive meaningful community growth and user adoption.

Closing the right deal

Negotiating investment terms is another critical moment for Web3 startups. Founders must balance financial strategy with collaborative partnership, viewing investor discussions as opportunities to align mutual goals and create shared value.

Hao emphasizes the following key tactics for getting the best deal:

1. Do not limit yourself to one source of funding. Having a range of options gives you leverage in negotiations and avoids unfavorable terms.
2. Be upfront about your startup’s valuation and the reasoning behind it. A clear, well-supported explanation shows investors that you understand your worth and the market.
3. Focus on terms that benefit both sides, such as vesting schedules, governance rights, and token lockups. These provisions help align the interests of the startup and investors over the long term.
4. Always involve legal experts to ensure agreements are fair, enforceable, and protect your startup’s best interests.

After the funding

Securing funding is not the finish line. The transition from fundraising to execution is where many Web3 startups falter. Successful teams understand that investor confidence is continuously earned, not just initially obtained.

This is where the roadmap developed during the fundraising process becomes a critical navigation tool, guiding the startup’s strategic decisions and demonstrating commitment to its original vision.

“Post-funding, the team must focus on disciplined execution, strategically hiring talent, and delivering on the promised milestones,” Hao advises.

This approach extends beyond financial management. It is about building trust, maintaining transparency, and demonstrating the ability to transform potential into tangible results.

Hao shares these key strategies for fostering strong relationships with investors:

1. Keep investors in the loop with regular updates on progress, challenges, and new opportunities. This helps build trust and ensures alignment with the vision.
2. Involve investors in key decisions when appropriate. Their expertise can be invaluable, and their stake in important choices strengthens their connection to the project.
3. Encourage investors to get involved in the ecosystem, whether through roles like validators, token holders, or advisors. This deepens their engagement and makes them feel more invested in the startup’s success.

“By sticking to the roadmap you’ve built, you naturally boost confidence among both the community and the team,” Hao concludes.

Critical to this process is building a loyal community, tracking key performance indicators (KPIs), and maintaining organizational agility. Every funding dollar must be viewed as an investment in growth and innovation, requiring constant evaluation and strategic reallocation.

The Web3 landscape is unforgiving to startups that cannot translate capital into meaningful progress. Success demands more than a compelling pitch or an impressive funding round—it requires relentless execution, strategic talent acquisition, and an unwavering commitment to the original mission.

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