Investing vs. NFTs — How do They Connect?
This is just Fundraising 3.0- I’m not a lawyer and this is not financial advice!
Entrepreneurs continue to find innovative ways to raise funds. This is true with traditional startups as well as NFT and Web3 startups.
Much of what is happening in the NFT space reminds me of how ICO’s took off as a fundraising mechanism 4–5 years ago. NFT’s are inherently different, but they still serve a similar role for project founders.
Let’s take a typical scenario these days. A project with a solid creative and technical team aims to release a collection in the same style as CryptoPunks. A typical 10,000 piece PFP collection of avatars each with unique randomly generated attributes. Let’s call this collection “Angry Puppies.” (I made that up, but it probably exists somewhere).
At a mint price-point .06 ETH, which today is roughly $180 (ETH=$3,000), a hypothetical best case scenario of sell out will net 600 ETH, or roughly $1.8M. Thousands of projects have sold out- although most (probably in the range of 95%) fail to mint out, and 98% will most likely fail after this gold rush period ends, according to our boy Garyvee. For comparison, almost half of ICO’s sold in 2017 failed by February 2018. All things considered, the barrier to entry to raise over $1M for your NFT project is very low (all you need is an avatar and a dream).
Consider how difficult it is to raise capital for a traditional tech startup. A raise of roughly $2M is a solid seed round in today’s climate. The track record and amount of traction required to raise a seed round is no small feat. A VC or Angel investor will look for startups with real user traction, revenue, defensible technology, and a vetted talented team before they consider investing.
However, as the space becomes more sophisticated and projects evolve, the thought process behind investing in a startup and buying in an NFT project can be very similar.
Here’s a typical vetting process when I determine whether or not to buy into an NFT project:
- Artwork — does it look legitimate?
- Team — do they have the right tech skills and experience?
- Idea/Roadmap — does the roadmap have a unique vision or plan?
- Technology — are they building something that can scale? Are they incorporating other innovative blockchain technology?
- Tokenomics — is there a clear roadmap to establish future token value?
One can actually argue that buying into an NFT project offers holders greater benefits for “investors” than being an investor in a startup.
There are also regulatory issues when we call things “investments,” implying the securitization of an asset, dabbling dangerously into regulated financial territory. The SEC certainly thinks so.
What is the mindset of NFT collectors on this? Are we investing in NFTs? Are we investing in projects with roadmaps we believe in? Are we buying NFTs because we love the artwork or technology? Are we buying to be a part of something bigger? Or are there deeper philosophical questions here that really speak to the general zeitgeist of who we are as a people in today’s world? Comment below, and share your thoughts!