Imagine getting invited to a listening party to hear your favorite artiste’s latest project before it is uploaded on streaming sites. That’s precisely what a crypto presale looks like.
It allows startup founders to invest in a developing digital asset before it hits the cryptocurrency market. If all goes well, this can rapidly increase the startup’s growth opportunities.
A crypto presale is an event held by blockchain startups to raise capital for the project’s development before it is officially launched.
It’s not just a fundraising scheme but also a way to gauge public interest, create buzz, and build a community of investors who want the product to succeed.
As a startup founder, while crypto presales may look like an appealing option for fundraising, it comes with a couple of risks. In this article, we dive deep into why investing in crypto presales your startup and any risks you need to know before making the big decision.
What are Crypto Presales
Crypto presales, also known as early-stage investment or token sales, are pivotal phases organized by blockchain startups before the Initial Coin Offering (ICO) or other fundraising methods.
They allow investors or interested parties to buy discounted tokens before the cryptocurrency’s official public launch.
Unlike alternative fundraising mechanisms for startups, such as venture capital routes, crypto presales offer discounted tokens to gather early support for the project.
This stage is crucial because it ensures that the developers receive the funds they need for the project and that investors obtain altcoins (short for “alternative coin”) in anticipation that their value will appreciate over time.
Before going on, you must understand what an Initial Coin Offering (ICO) is and how it differs from presales.
Cryptocurrency startups often organize ICOs to bypass conventional fundraising methods (like going through venture capital routes) to raise money in exchange for the cryptocurrency project they are working on. It is usually done after the presales phase, so it’s more official.
It is the cryptocurrency market version of the Initial Public Offering (IPO) done in the stock market.
Talking about presales, they let you participate in a new and exciting product that could level up the financial capacity of your startup.
If you want to participate in investment opportunities, presales may be a logical option. To make an informed decision, consider consulting experts in the cryptocurrency market, like ValueWalk.
Why Startups Should Consider Crypto Presales
There are many presale coins, each offering various access levels or benefits. The most common is a cheaper early pass to a new blockchain project. Here are some reasons why investing in crypto presales could benefit your startup.
Early Access to Disruptive Blockchain Projects
Crypto presales allow you to get involved with new and exciting blockchain projects by giving you access to the coin before it becomes publicly available.
You get the first opportunity to invest in groundbreaking solutions before the public gets the chance to do so, and if the project is successful, you can boast of massive returns since you got them at discounted rates.
High Potential for Returns at Discounted Prices
Everyone likes a discount, and getting discounted tokens available to early-stage investors is one of the most tempting aspects of crypto presales. This is because, for the presales event, tokens are often sold at a significantly lower price than during the Initial Coin Offering (ICO) phase.
Once your startup secures these tokens at discounted prices, it allows you to get massive returns once the project gains a lot of traction and the token’s value rises.
If your startup has the foresight to take advantage of these early investment opportunities, it can turn small initial investments into high financial returns.
If the blockchain project attracts institutional investors, your startup could gain significant capital appreciation.
Networking and Strategic Partnerships
It’s not just about buying tokens through crypto presales; your startup can also make valuable connections with other companies.
These early investment opportunities allow you to network with blockchain experts, other entrepreneurs, and the project’s team at its core.
Your startup gets to forge strategic relationships that may lead to future collaborations. The insights gained from these interactions will undoubtedly lead to more efficient company growth.
If you’re a blockchain startup building a blockchain-related solution, you can also develop productive partnerships with like-minded startups.
Diversification of Your Startup’s Investment Portfolio
One way to diversify your investment portfolio is to invest in crypto presales. They function just like traditional investments.
Whether your startup is related to blockchain or not, it can help your company lower financial risk while exploring novel prospects for growth in the cryptocurrency market.
How? It allows your startup to disperse capital across many digital assets, each providing unique growth potential. Your startup acquires the chance to gain from the spontaneous growth of one of these investment opportunities.
It also allows your startup to stay updated on new trends in the various projects and sectors of the cryptocurrency market, putting you on the front foot when making the best financial investment decisions.
The Risks of Investing in Crypto Presales
As is the case with every investment, the potential to reap great rewards also leaves room for the potential to experience significant losses. Now that you’ve understood why investing in crypto presales your startup in the previous section, here are some probable risks that you should consider to help you make a calculated decision:
Exposure to Scams and Rug Pulls
During the 2017 ICO boom, more than 800 ICOs were formed. Eighty percent of these ICOs raised millions of dollars but disappeared shortly afterward.
The reason? Most were duds put out to scam investors by promising innovation and a chance to revolutionize various industries. These scams, also known as rug pulls, present a significant challenge to startups looking to invest in crypto presales arrangements, especially in regions with thin or non-existent regulatory mechanisms.
This risk is further amplified in early-stage investment opportunities, so it is essential to assess the credentials or track record of any blockchain startup you plan to invest in.
Extreme Market Volatility
The volatility or unpredictability of the cryptocurrency market is a primary concern for startup founders looking for investment opportunities.
Though getting discounted tokens initially seems like a bargain, their value can fluctuate once they hit the market.
Bitcoin, for example, sent shockwaves when it plummeted to about $16,000 in November 2022. Since then, its price has spiked by over 300%, sitting at $105,378.20 as of today.
The nature of these digital assets makes presale tokens way more volatile than most conventional investments,
For startups, you need to know that it’s “make or mar season;” it could come back with massive returns or no return at all.
This is why allocating a reasonable amount of money to various investment opportunities is essential in case the market shifts unexpectedly. Putting all your eggs in one basket may come back to bite you more often than not.
Regulatory Risks and Legal Uncertainty
Most industries’ growth is heavily affected by thorough regulatory landscapes; the same is true of the crypto space.
As crypto presales grow, countries must determine how to regulate them, especially fundraising methods and token sales. Many regions still consider presale events illegal or subject them to
For example, PWC’s 6th Annual Global Crypto Hedge Fund Report pointed out that 56% of digital asset companies cited regulatory concern as a top concern.
To summarise, various regions have different regulatory frameworks, so ensuring that the presale you invest in complies with those regulations to avoid legal implications is crucial.
Overhyped Projects with Unrealistic Promises
Running into a product offer with superb marketing doesn’t guarantee it can deliver. Most blockchain startups will rely on excessive marketing campaigns to gain traction in their presales.
However, they often promise massive returns that do not match the project’s true capabilities. A prime example was the ICO Boom of 2017 when over 800 ICOs raised 5.6 billion dollars; however, most of these ICOs were valued at hundreds of millions without a working product.
Before committing your startup finances to blockchain projects with unrealistic or nonexistent roadmaps, assess the product’s feasibility and the team’s experience with such products.
Inexperienced or Unqualified Teams
The primary determinant of a successful project is the team makeup, which is valid for any industry.
Most blockchain projects are engineered by teams with little to no experience in community building, directing token sales or building scalable products. It’s essential to evaluate the team’s credentials when assessing presale investments.
Of course, everyone starts from somewhere, but it’s best to invest in a team with solid expertise for scalable projects like this, as they will likely be more equipped to navigate any potential obstacles easily.
Technological Risks and Development Delays
Even if you discover that the blockchain startup you want to invest in has the most solid team, there are still technology risks.
The development of blockchain-based solutions is quite complex, often leading to technical faults and extended delays.
In fact, according to the CoinTelegraph, most blockchain projects have a failure rate of about 90%. Any presale project that finds it challenging to keep up with development milestones may delay product launch, causing investors to lose confidence and negatively affecting the tokens’ value.
It would be ideal to demand transparency in the development stage and monitor the technical capacity of the project.
Conclusion
As a startup, it can be tempting to invest in crypto presales since they offer one of the most highly sought-after returns. However, as with any investment, they do come with some risks. These risks could range from regulatory uncertainty to market volatility to scams.
This is why every startup must investigate thoroughly and carefully review each presale project it plans to invest in.
Conducting thorough research, such as reviewing the team’s qualifications, examining its competitors, and demanding transparency, allows your startup to make informed decisions that could yield high returns.
Now that you understand why investing in crypto presales your startup, have you ever worked in a startup that wanted to or has explored this strategy? Let’s continue the conversation in the
