A Must-Read for Web3 Entrepreneurs: What Pitfalls to Avoid in Financing, According to the Co-Founder of Delphi?

Author: Tom Shaughnessy, Delphi Digital

Compiled by: DeFi Dao

Delphi has invested in over 100 projects and has reviewed thousands, possibly tens of thousands, of projects. On March 21, Tom Shaughnessy, co-founder of Delphi Digital, shared some advice on fundraising for project founders on Twitter.

1 First, do not send a project presentation PPT; instead, send a simplified, executable product (MVP) or demo.

People prefer to see and experience something rather than just a PPT.

If you haven't reached the MVP or Demo stage yet but are sending your project introduction PPT to investors, I hope the following points are helpful.

2 Before you create a PPT, remember that it should be a TLDR (summary of key points).

You are facing a fund/DAO that has a lot of new capital and needs to complete transactions with limited time. The project introduction should be concise, and remember to prepare thoughtfully for calls and Telegram group communications. Brevity is the soul of wit.

3 Sell the story

Stories are memorable; when you take your audience step by step from today to a realized future, they can visualize your dreams. Great teams are great storytellers; if you can't tell an engaging story, you won't be able to persuade the masses.

4 Competitors

The team should have a clear understanding of competitors (if any) and their plans. If the founding team is unaware that a competitor has a better strategy and is ahead in progress, then launching a project out of thin air will be seen as ignorant.

5 About investors

Founders should have reasons to hope that a certain fund/DAO will participate. They should clearly understand what specific value the fund/DAO will bring to their project and community. Founders are also screening funds; it is a two-way street.

6 Saying "We will close in 24 hours" from a sales perspective must be one of the dumbest moves in the world.

First, it gives neither party time to build the arguments or beliefs needed during a bear market.

Second, this deal actually takes weeks to complete.

Provide a more realistic timeline.

7 Remember to be very selective about your investors.

In my view, passive capital is likely to be NGMI because fundraising is easy. Choose funds like DAOs that focus on specific areas, where owners and builders have aligned interests.

8 The last point about investors

Never tell anyone that a fund has committed to invest or is leading the round until they have agreed to participate or publicly announced it.

9 About deal terms

Do not be surprised by token valuations. If you are doing equity valuations, tell them the percentage of tokens that the equity entity can receive so that the fund/DAO can return to a real FDV.

"Surprise! Your investment is valued at double" ------ no one wants to hear this when the investment is almost done.

10 Token vesting should keep everyone aligned and be realistically feasible so that stakeholders know the founding team won't dump and exit.

A game that takes 5 to 10 years to complete sets a vesting period of 12 to 18 months ------ this makes no sense for anyone other than short-term speculators.

11 About legal documents

Make sure the law firm you choose is professional and can serve the crypto market.

Ask your potential major investors if they can help you draft documents, then your external legal can review them (to ensure you as a founder are also protected!).

12 For example

Delphi legal advisors @lexnode and @SHBrennan do this every day.

See LexDAO's codebase for details https://github.com/lexDAO

13 The last point about deal terms is to know your exit strategy.

We are all building a community-owned world where incentives allow anyone to build a project and get rewarded.

If you mention an IPO on the call, the fund/DAO will think you are calling from 2002. IPOs are basically not feasible.

14 About allocation

Be thoughtful about your token allocation table. Decide who gets a portion of tokens and who does not.

Do not expect funds/DAOs to complete this with checks of $25,000 to $50,000.

Make sure you get what you need from DAOs, funds, or angel investors, and that they have actual stakes.

/15 Team allocation is very important

Ensure you not only have enough resources for the current team but also plan to incentivize the killer talent needed for the next phase.

Batch ratios can shrink as the project grows in dollar terms, but plan accordingly.

/16 Tech stack

Aside from "they can give us money" and "the excitement is real," the team should have solid reasons for building on a specific L1 or L2.

Money comes quickly, but excitement is fleeting. If you are unsure, then investigate; that's fine, but be honest.

/17 A key point is that stakeholders want to know what you did last week and last quarter.

The crypto space moves too fast; investors can't wait until a funding round ends to start building.

What technical work have you completed? Tell investors where you have put in the effort.

/18 About token economics

In the pre-seed/seed stage, complete token economics do not have to be fully developed.

The key is the product, GTM (go-to-market strategy), value proposition, community, and team.

As long as the team does not prematurely give away all tokens, there is optimal optionality.

/19 Advice 1

Do not overlook the analysts or partners at the DAO/fund.

In the next generation of funds, these individuals are experts in certain fields, and their opinions are highly respected internally.

/20 Advice 2

Always remain professional. The crypto industry is small, and you may work together later.

I once heard a founder mock us for passing on a funding round, and I may never support them again.

/21 Advice 3

Keep your project introduction PPT to 10-15 slides.

If you can't persuade seasoned investors concisely, you won't be able to pitch to the world.

Direct interested parties to other more in-depth materials, such as whitepapers, podcasts, to understand what happens after the call.

/22 Advice 4

A team should have a clear strategy for building, growing, and incentivizing a community.

This is not just a podcast or a Medium article.

It is a clear strategy built on the interests of the public and stakeholders.

/23 Advice 5

No one wants to hear 30 minutes of promotion in a 30-minute call.

You can tell people the meaning of life, and they might hang up after 10 minutes.

Make a 5-10 minute pitch, then get everyone involved. Answer questions.

Be energetic, be passionate. If not, why are you doing this?

/24 Advice 6

Let your audience learn more at their own time and in their own way.

Provide podcasts or YouTube videos you've done, whitepapers, Twitter shares, or blog posts.