Originally published by Adrian Lai on X, this article explores the evolving dynamics of Web3 fundraising, tokenomics, and venture capital.
The ICO Boom: A Historical Context for Web3 Fundraising
The ICO craze of 2017–2018 was a pivotal moment for crypto fundraising, characterized by:
Minimal Lockups and Massive Returns: VCs entered projects at lower valuations (relative to retail) with no lockup periods and reaped outsized returns (eg @zilliqa's 50x post-ICO in January 2018).
Liquidity Concentration: ICO investors had limited options, with only few tokens launching weekly. This scarcity drove demand and amplified returns.
VCs as Signals: VCs were sought not mainly for their capital (note that most ICOs were pre-product so really not much capital was needed) but for their signaling power. Projects raised millions from a small group of prominent VCs to attract a much larger sum from ICO investors.
However, this era was unsustainable. Scams, rug pulls, and a lack of regulatory clarity eroded trust.
By 2019, regulations started shaping the fundraising landscape into a more structured approach. This period was characterized by:
Longer Lockups: VCs entered private rounds with extended lockups. The days of quick, day-one VC unlocks driven by hype were over, as the market couldn't sustain such behavior anymore.
Scattered Liquidity: The market became oversaturated with too many ICOs launching. Demand, which used to focus on a few projects, was spread too thin, and the hype which drove early successes started fading.
VCs as Builders' Capital: Founders by then would need VC funding to build products before launching tokens, marking a shift from speculative ICOs to a more product-first approach in the fundraising landscape.
After 2019, the market transitioned into what we now often call the “low-floating, high FDV” environment, where token launches typically feature lower circulating supply at launch and higher fully diluted valuations.
The Current Challenges for VCs
Despite their historical importance, VCs face increasing challenges in today's market:
1. Tokenomics Misalignment
Historically, VCs entered at low valuations with minimal lockups, leading to misaligned interests with retail investors. This created reputational challenges and reduced trust.
Poorly designed tokenomics, such as low-floating and high FDV, have caused projects to experience “consistent and expected dumping” post-launch.
2. Reduced Demand for VC Funding
Wealthier Founders: Successful founders who had made it no longer rely on VCs, leveraging personal resources to bootstrap projects.
Retail-Driven Models: Memecoins and high-floating launches (eg potentially @ HyperliquidX ) demonstrate that some projects can succeed without VC involvement.
Eroding Signaling Power: While some major VCs still carry weight in infrastructure projects, their influence in application-layer projects has diminished.
3. Wrong Product-Market Fit
For most Web3 projects to succeed, communities and users are the driving force. However, access to communities is not a core strength of VCs.
As a result, there has been a shift from traditional VCs to prominent angel investors, who tend to have closer connections and better proximity to end users. These angel investors, often well-respected within the space, are better positioned to engage with and influence the target audience, giving them an edge in fostering community-driven growth.
The Future Role of VCs
While the demand for VC funding might be uncertain, VCs remain relevant in specific contexts:
1. Know-how in the Trenches
VCs need to actively engage with the ecosystem, participating in activities such as farming, memecoin trading, and other retail-level operations.
To stay relevant, VCs must operate not just as institutions, but as seasoned players deeply embedded in the trenches. This allows them to provide unique insights and perspectives on evolving growth hacking strategies, tokenomics design, and go-to-market strategies.
2. Strategic Value-Adds
Founders increasingly prioritize VCs that offer tangible value, such as operational support, tokenomics guidance, market know-how mentioned in point 1.
Even though founders as angel investors offer help, they are not as focused as VCs in portfolio management.
VCs must shift from being passive financiers to active strategic partners.
2. Selective Involvement
VCs may focus on fewer deals where they can provide significant impact, while adopting a “spray-and-pray” approach for smaller investments.
Founders are leaning toward lean cap tables, preferring fewer investors who bring meaningful contributions.
Latest / Upcoming Interesting Project Launches
1. Hyperliquid ( @HyperliquidX )
Potentially high-floating, no-VC launch designed to test whether the market can sustain price stability without long-term lockups.
Success could anchor a new meta for other projects, but challenges like dumping pressure on day 1 remain.
2. BIO protocol (@ bioprotocol )
Combination of VC round, and public auction which allows participants to swap WETH or original sub-DAO tokens into $BIO.
Leveraging the community of each sub-DAO by public auction with original sub-DAO tokens, meanwhile expanding to new community members by introducing VC investments and public auction with WETH.
3. Universal Basic Compute $UBC (@ UBC4ai )
Memecoin-like fair launch with no team allocation, no presale, and no airdrops.
Potential New Fundraising Models
To evolve from the low-floating, high FDV environment we will need an experimental period of coming up with sustainable solutions. Here are some models we anticipate:
1. VC & Retail Entering at Similar Valuations
Instead of entering at significantly lower valuations, VCs will invest in projects at similar or even the same valuations as retail investors. VCs may enjoy a larger allocation than retails, but also be subject to stricter vesting. This alignment ensures that VCs and retail participants share the same incentives, reducing the risk of VCs dumping on retail users. This approach may promote healthier, more organic growth for the project.
2. No-VC Model
Projects may raise funds directly from retail without seeking funding from VCs. This will test whether the market can sustain price stability and growth without significant lockups or VC involvement. If successful, this model could set a precedent for other projects which are striking a balance between a memecoin tokenomics and operational / funding needs.
3. Memecoin-inspired Model
The success of memecoins is influencing structured projects to adopt simpler, community-driven tokenomics.
No Foundation-owned Pools: Projects with no community / ecosystem pools, team & advisory pool, nor treasury pool. Founders/Dev would need to buy tokens on the open market, aligning their interests with retail participants.
100% Initial Float: Ensures liquidity and reduces reliance on long lockups.
Projects such as Universal Basic Compute @ UBC4ai led by NLR AI Innovation Hub, and $URO and $RIF launched by on @pumpdotscience, adopted a memecoin-like launch approach, even with no VC funding, team allocation, airdrop, or presale.
The Path Forward for Tokenomics
As the market continues to evolve, the ideal tokenomics structure (for non-memecoins) is becoming clearer:
Aligned Incentives:
VCs enter at valuations similar to retail participants, with lockups to ensure long-term alignment.
The trade-off is VCs can enter with much bigger relative size vs retail.
Relatively Higher Initial Float:
While referencing memecoin-inspired tokenomics, projects should aim for 60% - 70% vested on day one, ensuring liquidity and reducing the potential for manipulation.
Change in Token Pools Structure
However, unlike memecoins, projects would require continuous operational funding, so they can't be 100% vested on day one. A treasury pool (for future fundraising), team & advisor pool and investor pool combining 30 - 40% could be locked.
Expectation of First 7-day Volatility
For projects that have adopted the airdrop strategies, day 1 we will see a huge unlock of supply distributed to farmers and NFT holders, especially if following a high-floating approach. We have seen similar scenarios before - consider the direct listing of companies like Spotify , which had significant floating supply on day 1. The result? Extreme volatility during the first 7 days.
Conclusion: The Future of Web3 Fundraising and VC
The Web3 fundraising landscape is at an inflection point. While high-floating, no-VC models are challenging traditional norms, the role of VCs remains critical for sectors requiring significant upfront investment. The future of Web3 fundraising will likely blend the best of both worlds :
For Founders: Lean cap tables and reinvented tokenomics will allow projects to engage communities while maintaining alignment with investors.
For VCs: The focus will shift from capital deployment to concentrated value-add services, ensuring their relevance in a rapidly changing ecosystem.
For the Market: Growth hacking will rely on product innovation and improved tokenomics rather than legacy mechanisms like airdrops.
As the market experiments with these new paradigms, successful case studies will pave the way for broader adoption, creating a more sustainable and equitable fundraising environment for Web3.
Disclaimer
This material has been made solely for informational and educational purposes, and does not include or contain any information or indication that might be considered a recommendation or used as a basis for any investment decision. We will not be responsible for any losses incurred by you as a result of decisions made based on any information included in this material. We do not guarantee or take responsibility for the accuracy, completeness, reliability and usefulness of any information. Newman and its affiliates may have invested in or hold a position in some of the projects and/or tokens mentioned in this material.
