According to Blockworks, as the crypto winter begins to thaw, investors and industry participants are showing interest in fundraising through extended seed rounds. These seed extensions allow startups to access new investor capital without having to meet the stricter Series A requirements that emerged during the bear market. Additionally, extended seed rounds enable startup teams to avoid diluting their equity as they anticipate a potential bull market.
In the traditional venture capital world, a Series A is often the first priced round for a startup, where founders and investors formalize governance and preferred shareholder rights. However, this is not always the case in the crypto industry, where protocols may not follow the conventional path of young companies by appointing a board or issuing shares. Matt Luongo, CEO of venture capital firm Thesis, explained that in crypto, a Series A is often just a piece of marketing.
Luongo also noted that investors are currently more cautious, holding off on later-stage fundraising until the market shows signs of recovery. For example, when Adam Bialy was raising funds for his banking-as-a-service provider Fiat Republic, he observed higher standards for a Series A round. Fiat Republic announced its extended seed round on December 19.
Raising a Series A during unfavorable market conditions can lead to less favorable terms for startups. Several startup founders told Blockworks that their extended seed rounds allowed them to attract operational funding without diluting their equity. One such example is crypto project Brahma, which gained investor interest after demonstrating an on-chain execution and custody product called Brahma Console. The company plans to use the funds from this round to develop its Console concept, anticipating that a fully developed and scaled version of the product would result in more favorable conditions for future fundraising.
The crypto industry has seen ups and downs in recent years, with the infamous crypto winter dampening investor confidence. However, as the market begins to recover, crypto startups are taking advantage of extended seed rounds to secure the necessary funding for their projects. These rounds provide a way for startups to access fresh capital without having to meet the stringent requirements of a traditional Series A round.
Unlike in traditional venture capital, where a Series A is a pivotal moment for startups, the crypto industry often sees it as a mere marketing exercise. Matt Luongo, CEO of Thesis, a venture capital firm, highlighted this difference, emphasizing that in crypto, startups may not follow the conventional path of appointing a board or issuing shares.
Investors are currently exercising caution and holding off on later-stage fundraising until the market shows clear signs of recovery. Adam Bialy, founder of banking-as-a-service provider Fiat Republic, experienced this firsthand when he encountered higher standards for a Series A round. To navigate these challenging market conditions, Fiat Republic opted for an extended seed round.
Extended seed rounds offer startups the opportunity to attract operational funding without diluting their equity, a particularly appealing aspect when the market is still uncertain. Startups like Brahma have successfully capitalized on extended seed rounds. By showcasing their on-chain execution and custody product, Brahma Console, they attracted investor interest and secured funding. The company plans to use the funds to further develop their concept, anticipating that a fully realized and scaled product will provide more favorable conditions for future fundraising efforts.
Overall, these extended seed rounds in the crypto industry allow startups to navigate through market uncertainty and access the necessary capital to drive their projects forward. As market conditions improve, these startups are positioning themselves for future success, all while avoiding the potential pitfalls of raising a Series A during unfavorable market conditions.
