Analyzing: Funding Rounds

August 2, 2021
4m
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A developer team with a brilliant cryptocurrency idea and exceptional strategy will more often than not strike gold early on by acquiring capital through funding rounds. These rounds are a great way of raising funds that can be used to pay employees, hire new ones, develop platforms, spread the word by marketing, and so on.

From the perspective of an investor, especially a fundamental analyst, funding rounds are perfect for determining a project’s value. After all, if an investment firm or accelerator believes that it is worth investing millions of dollars into a cryptocurrency, why shouldn’t you?

How to investigate funding rounds

Funding rounds are great marketing material and news of them are often shared on social media. But since you do not want to spend hours scrolling through a Twitter timeline or Medium account it is better to simply visit Crunchbase and search for the project instead.

Crunchbase is a website where users can find company insights into early-stage startups, teams, and companies. The platform is particularly great for cryptocurrency investors since it features tons of data for crypto funding rounds.

Here is an example of Ledger’s latest Series C funding round. The hardware wallet producer managed to raise $380 million in funds on June 10 during a round led by 10T Holdings. We can see that a total of 33 investors participated along with their names. Strolling through the page also shows us a list of relevant news that discusses the funding round in-depth.

Why are funding rounds important?

Funding rounds reveal two categories of information:

  • Data pertaining to the project invested in
  • Data pertaining to the investors

Let us discuss the first category first. An investment round shows us the amount of interest expended into a cryptocurrency, it’s latest valuation, and the amount of funds that can be used for future development.

On the other hand, investor data shows who is interested in the project. There is a gigantic difference between being invested in by a local startup accelerator versus a big VC name like Coinbase Ventures. If already listed on the market an investment by Coinbase or a non-blockchain enterprise can have a large impact on a token’s price - both short-term and long-term.

What are the big names in crypto’s VC world? Here is a shortlist of the most important investors:

  • A16z crypto
  • Polychain Capital
  • Pantera Capital
  • Galaxy Digital
  • Draper Associates
  • Three Arrows Capital
  • Alameda Research

And many more!

Types of investment rounds

You might have heard of various series that are commonly included in the name of a funding round. What is their meaning, and what is the difference between a Series A and Series B funding round, for instance? We will thoroughly explain each type in the sections below.

Series A Funding

Series A is a common funding round that many projects opt for after developing a track record and creating a name for themselves in the market. Capital raised during Series A funding rounds is used to optimize products and services or scale them across different sectors.

To put it more precisely, Series A requires a business model that has plans for long-term profitability. The average amount of funds raised during these rounds ranges from $3 to $20 million.

Series B Funding

A Series B funding round is utilized once a company is well-established in the market and is ready to tackle problems and reach opportunities past the development stage. This funding round is carried out after a Series A round. Investors assist the project by spreading its reach and growing the company to a level where it can stay successful at a larger scale.

To do so, companies require capital for building more teams, hiring experts and advisors, as well as having enough money to build a great product. In crypto, Series B funding typically raises anywhere between $30 and $80 million.

Series C Funding

A Series C funding round is the last possible phase that a project can go through. This type of round is reserved for hugely successful companies and firms that require additional funding to build new products, expand to new markets, acquire other companies, and spend more capital on existing departments.

Again, Series C is most commonly used to provide a company with funds to acquire another company - usually a startup. Series C rounds are joined by hedge funds, private equity firms, investment banks, trading groups, and other institutional-level entities. The amount of capital raised during the C series is too diverse to define, but they typically have a bottom level of $100 million.