Introduction

You’ve just won a hackathon and have a groundbreaking Web3 project. The adrenaline is still high, but reality sets in: How do you turn this project into a sustainable startup? One key component to turning your project into a sustainable startup is securing the right funding. This essential guide aims to navigate you through the complex landscape of funding options, tailored specifically for post-hackathon Web3 startups.

Bootstrapping: The Universal First Step

What is it?

Bootstrapping involves using your own resources or the project’s initial revenue to fund its growth. This is often a necessary phase, regardless of your subsequent funding path.

Pros

• Full Control: You maintain complete control over your project and its direction.
• No Equity or Token Dilution: You don’t have to give away ownership stakes or tokens in your startup.

Cons

• Limited Resources: You’re limited to what you can personally afford or what the business generates.
• High Personal Financial Risk: If the startup fails, you could lose your personal investment.

Best For

Startups with sufficient personal finances who want to maintain complete control over equity and tokens. It’s also a crucial phase that most startups will go through, even if they later seek external funding.

Funding Sources to Consider

Your own savings, revenue from early customers, or Web3-specific crowdfunding platforms. Note: While friends and family can be an early source of funding, this usually involves giving them some form of equity or tokens, and thus could be considered a separate early funding technique.

Expert Tips

• Financial Planning: Have a detailed financial plan. Know your runway and burn rate.
• Lean Approach: Adopt a lean startup methodology to minimize costs.

Angel Investors: The Network’s Power

What is it?

Angel investors are wealthy individuals who offer capital in exchange for equity or convertible debt.

Pros

• Willing to Take Risks: Angel investors are often more willing to take risks on early-stage startups.
• Valuable Mentorship: Many angel investors provide more than just money; they offer valuable business advice and introductions.

Cons

• Smaller Investment Amounts: The funding amount is often less than what VCs offer. 
• Network Dependency: Often, a previous relationship with angels or friends of angels is key to unlocking support. No network, no party. 
• Less Structured Support System: Unlike VCs, angel investors may have a less structured support system for the startups they invest in.

Best For

Startups with access to a network of potential angel investors. The value here isn’t just financial; it’s also about mentorship and opening doors.

How to connect

The best way to engage with angel investors is through network introductions. While platforms like AngelList exist, a warm introduction often makes a significant difference

Expert Tips

• Personal Connection: Angel investors often invest in people, not just businesses. Build a strong personal connection.
• Clear Terms: Make sure the terms of the investment are clear and fair to both parties.

Grants: The Universal Opportunity

What is it?

Grants are non-repayable funds provided by chains, foundations, large protocols, or decentralized organizations in the Web3 space.

Pros

• No Equity or Token Dilution: Keep 100% ownership of your startup and retain all tokens.
• Funds Don’t Have to Be Repaid: Unlike loans, grants are non-repayable.

Cons

• Time-Consuming Application Process: Applying for grants can be a long, bureaucratic process.
• Limited Scope: Grants are often for specific projects or sectors.

Best For

Any startup building something valuable for a specific blockchain ecosystem. It’s essentially “free money” that doesn’t require giving up equity or tokens.

Where to Apply

For those in the Web3 space, grants often come from blockchain foundations, large protocols, and even specific chains. Here are some platforms where you can find grant opportunities tailored for Web3 startups:

• https://web3grants.net/
• https://www.web3native.co/grants

Expert Tips

• Aligned Goals: Make sure your startup’s goals align with the grant’s objectives. 
• Strong Application: Grants are competitive; make sure your application stands out. 
• DAO Involvement: Some grants are awarded by a vote from a DAO. In such cases, it’s advisable to discuss the utility of your proposal in community forums like Discourse before the official proposal is voted on-chain. This can help you gauge community interest and make any necessary adjustments to your proposal.

Accelerators and Incubators: The Fast-Track to Success

What is it?

These programs offer a structured environment that provides more than just funding. They offer mentorship, resources, and access to a valuable network.

Pros

• Comprehensive Support: Get access to mentorship, resources, and a network of alumni and investors.
• Structured Program: Benefit from a structured program that guides you through every stage of startup development.

Cons

• Understanding Equity or Token Terms: While some programs may require equity or tokens in exchange for their services, it’s essential to read the terms carefully. Some may have clauses that could be considered less founder-friendly.
• Time Commitment: These programs require a significant time commitment, often several months.

Best For

Startups looking for a well-rounded support system that goes beyond just funding. Ideal for those who could benefit from a variety of services, such as mentorship and technical guidance, among others.

Where to Apply

For Web3 startups, consider applying to specialized accelerators such as HyperNest, LongHash, and SeedClub. These programs offer tailored support and resources specifically for the Web3 ecosystem.

Expert Tips

• Choose Wisely: Not all accelerators are created equal. Choose one that aligns with your startup’s industry and growth stage. 
• Leverage the Network: Take advantage of the accelerator’s network for future fundraising and business development. 
• Connect with Peer Startups: Utilize the accelerator program as a platform to network with other startups. Collaborations can lead to mutual growth and shared resources. 
• Maximize Perks: Many accelerators offer perks like cloud credits, legal advice, and other resources. Use these to reduce your burn rate and extend your runway.

Friends and Family Round: The Early Believers

What is it?
This involves raising a small amount of capital from people you know personally, often in exchange for equity or tokens.

Pros

• Initial Capital: Quick access to initial funding to kickstart your project.
• Low Formalities: Generally less formal and quicker than other funding rounds.

Cons

• Strain on Relationships: Mixing business and personal relationships can be risky.
• Limited Capital: The amount raised is generally smaller compared to institutional rounds.

Best For
Startups in need of initial funding who have a network of family and friends willing to invest. The stronger the relationship and the more informed they are about your space, the easier it will be to secure this type of funding.

Where to Network

Personal connections are often the key to unlocking support from angel investors. Building a strong network can be invaluable in this funding stage

Expert Tips

• Clear Agreements: Make sure to have clear and formal agreements to avoid future misunderstandings.
• Token or Equity Exchange: Be transparent about what friends and family will receive in return—be it equity or tokens. Additionally, make sure to clearly communicate the risks associated with the investment.

Final Recommendation: The Interconnected Path 

After winning a hackathon, you’re in the ultra-early stage of your startup journey. Your primary focus should be on forming a strong team, validating your product concept, and potentially developing a minimum viable product (MVP).

• Bootstrapping: Most startups will go through a bootstrapping phase, regardless of their next steps.
• Grants: These are almost always a good idea if you qualify.
• Angel Investors: Most effective when you have a strong professional network.
• Friends and Family Rounds: Less about your professional network and more about the strength and quality of your personal relationships.

Accelerators and Incubators: Ideal for those who need comprehensive support, not just financial backing. Being part of an accelerator or incubator provides you with invaluable resources such as mentorship from industry experts, access to a vast network of potential partners and investors, and tailored programs covering various aspects of startup growth, including but not limited to, marketing, token economics, security, and leadership. The goal is not just to fund your startup but to equip you with the skills, knowledge, and connections that will help you succeed in the long run.