Jan 2023#Opinion#Fundraising

How do crypto funds evaluate projects in 2023?

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Paul Moukhin

Partner, CBDO


8 min


It’s essential to carefully evaluate a project before investing, as this allows you to forecast future gains. This is a key decision-making step both for regular token buyers and for venture funds.

BDC Consulting has interviewed representatives of 12 Web3 investment funds in order to understand which criteria they use to analyze startups. 

It’s worth noting that in 2022, it became more difficult for crypto startups to raise funds. According to DeFiLlama (as reported by Binance), Web3 venture investments dropped from $8.7 billion in Q1 2022 to just $2 billion in Q4. The time needed to close a round has gone up, meaning that projects now have to prepare for the fundraising stage even more diligently. 

Nevertheless, funds are still interested in market segments like DeFi, L1 and L2, infrastructure and cross-chain solutions, as well as soulbound tokens and deep-tech.

As for GameFi and NFT, investors’ opinions are divided. The main issue is the lack of sustainable economic models in this market. Many investors are waiting for such models to emerge thanks to the arrival of Web2 gaming studios. Indeed, traditional game developers know how to build profitable games without using blockchain, tokens, or NFTs — which can be introduced for added value. 

The interest is still there, though: according to The Block, investments in GameFi and NFTs reached $8.3 billion in 2022. 

General startup evaluation

There are two main approaches to project evaluation: that of funds and that of venture studios.

Venture studios don’t get too deeply involved with projects. Their task is to help a startup attract venture funding. What matters most to studios is what helps it sell a project: presentation materials, founders’ sales skills, major partnerships, seemingly  low valuation, etc. 

Studios aim to reach out to as many potential investors as possible and attract as much money as possible; they don't focus on specific investor categories or profiles.

Funds conduct a detailed evaluation, deeply examining the product, team, strategy, roadmap, etc. The larger the fund, the more sophisticated its algorithm of analysis; for small and medium funds, external trust factors can be enough to make a decision. It takes time and expertise to analyze a project properly, and most investors don’t have either. 

Qualifying questions that funds ask projects

Below we’ve listed the typical criteria used for primary evaluation. Often they are part of an online form that a startup is asked to fill (here is a sample form by BDC Consulting). Much can be gleaned from how much attention and detail a team puts into filling such a form. 

  • Product: how it works and why the market needs it.
  • Current product stage: concept/prototype/MVP/live product etc.
  • Elevator pitch: a short pitch that can be read out loud in 30 seconds or less. This is a key point, because it shows how clearly a project can present its advantages. 
  • Fundraising status: no funding/Pre-seed/Seed etc.
  • Market: size (TAM), dynamics, statistical data, prospects (expert forecasts).
  • Business model: strategies for product monetization and token price growth (with calculations).
  • Fundraising model: equity/SAFT/Token Warrant/other.
  • Funding deadline: if there are less than 3 weeks left until the planned cutoff date, it’s too late to consider the project; 6+ months means not urgent, while 2 to 3 months means the project can be considered.
  • Partnerships: what sort of projects are or will be interested in a partnership, which agreements have already been signed or are being negotiated. 
  • Team: relevant experience, successful exits, social media presence, participation in events, public identity (or readiness to pass a KYC).
  • Competitors: their financial metrics and current product stages, advantages, weaknesses, etc.
  • Preferred blockchain: this question shows how well thought-through an idea is. 
  • Roadmap: what has already been done (+ a comparison with the original roadmap), quarterly plans, a separate roadmap for the public fundraising stage.
  • Risks: delays or a failure to release the product, competitors, market conditions, etc.
  • Unit economy: revenue and costs per unit (user, transaction, or something else) — this shows if raising money is justified.
  • Areas (apart from funding) where the project needs the fund’s assistance: technical development, marketing, legal, business analytics, key team members, partnerships, etc.
  • Traction: current number of users, earned fees, signed partnerships, mentions in the media, and so forth.
  • The key question is how the project’s needs match the amount it wants to raise: why does the team think that it needs this much money? Can the same result be achieved cheaper? How were the costs calculated?

The benefits of using templates

It can be very helpful for a startup to use a template, such as Lean Canvas. It visually represents the full model of a startup on a single A4 page, including sections like the problem and existing solutions, the USP, revenue streams, cost structure, acquisition channels, etc.

Lean Canvas and other similar templates can help a team to crystallize their offer to investors and validate the product before asking funds for money. Moreover, adding such an infographic to the presentation package can make a good impression on investors. 

In-depth evaluation

This is the stage of an investment committee, where a startup ends up after a successful primary evaluation. The criteria for in-depth analysis are specific to each startup: they depend on the market niche, product stage, fundraising target, etc., as well as on the fund itself.

What counts as traction?

Traction is a set of metrics showing how successfully a startup is bringing its idea to life. It’s common to see it on funds’ lists of requirements, but investors have very different opinions on what counts as traction.

Specific metrics depend on the project stage and type of product (niche, B2B/B2C). Of course, all investors want to see commercial traction (revenue and profit), but you can also include:

  • User number and its dynamics (including for an MVP);
  • TVL and other metrics of the product or prototype;
  • Number and frequency of GitHub commits;
  • Technical milestones: testnet/mainnet launch, feature releases;
  • Completed tests and the number of people who participated in them;
  • Positive reviews left by product testers;
  • Partnerships, advisers, investors, and projects that have shown interest (integrations, signed Letters of Intent to integrate or invest on specific terms);
  • If a project has none of this, it can provide some proof from connected niches that users are ready to test the product;
  • If there have been no test, a project can include feedback from friends or family who have tried the product;
  • Audit reports;
  • Agreements with launchpads or exchanges;
  • Publications in large media outlets, etc.

How important is a big community to funds?

For many investors, a large community doesn’t show traction. This is because most users in projects’ chats and channels are either bots or don’t use the product anyway. It’s much more important to have a group of actual users who have testers and positively reviewed the product.

Advice for early-stage projects that have no money, traction, or MVP

Funds aren’t interested in startups that can’t demonstrate any traction. Don’t despair, though: as can be seen from the list above, there are many ways to generate traction — as long as you dedicate time to it. Moreover, an MVP is a relative term: it can be a demo, a prototype, a testnet dApp, or even an existing Web2 product that you plan to expand to Web3. 

Early-stage startups should focus on looking for investors who will believe in their idea even at this stage. These can include friends and family members, angel investors, and grant programs.

In rare cases, such startups can also be interesting to funds, as long as the following requirements are met: 

  • a strong team with relevant experience;
  • a detailed Tech Paper (Blue Paper) and White Paper;
  • a serious technology that is partially or fully ready for use (coding is mostly done).

Investing in an early-stage project means that a fund will have to dedicate a lot of time to the startup, supporting it in all things. An alternative for startups is working with consultants and advisers who can help bring the project to a point where it will become attractive to a wider range of investors. 

When applying for a grant, remember that such programs often have restrictions in terms of how a technology has to be used and how it needs to be integrated into the grantor’s ecosystem. For example, it can require the product to be based on a specific blockchain or be support certain dApps. 

In conclusion

Crypto funds receive numerous applications daily, and they can dedicate only a few minutes to each of them. In order to have a chance to pass the primary evaluation, a startup has to look better than 90% of other submissions. That’s why you should never hurry when preparing to send your application: spending several weeks to package a project is totally justified. 

When preparing for the fundraising stage, it’s worth contacting a professional consulting company. If you aren’t sure how to make venture funds see the advantages of your Web3 project or how to demonstrate traction, write to BDC Consulting: we’ll be pleased to share our experience. 


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