What is venture funding in crypto?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 5 min
In short
In crypto, venture investment is often structured around tokens rather than equity. Investors buy in at a price set before any public sale and can sell once a lock-up expires. That price gap and the timing of unlocks become supply-and-demand factors for everyone who arrives later, which is why the allocation table and lock terms are worth reading.
Key points
- Deals often grant rights to tokens rather than equity
- Investors enter below any public sale price
- Unlocks increase the sellable supply
- Allocation shares are usually in the published documents
Definition
Early-stage investment in a crypto project, structured so the investor receives an allocation of tokens to be issued later, either alongside equity or instead of it.
Traditional startup investment buys equity, but in crypto the token itself carries the value, so contracts promising a future token allocation are widespread. Formats include the SAFT and hybrid agreements covering both shares and tokens.
Entry prices are set per round — seed, private and so on — and are normally below any public sale price. In exchange, investors face a lock-up after the TGE that releases in stages. Whether that release schedule is published is genuinely important information.
The names of a project's investors are often cited as evidence of credibility, but an investment is one bet within a diversified portfolio and says nothing about an individual outcome. The more useful figures are what share of total supply investors hold and when it unlocks.
Watch out for
- · A well-known backer is not evidence of success or price support
- · Investor unlock dates are dates when supply increases
- · 'Buy in on the same terms as the VCs' is a standard scam line