Private Rounds & Valuations
Last updated
Last updated
Most blockchain teams tend to raise money by selling tokens. This much should be obvious after a short amount of time in the space. It is also possible to sell a part of the development company or the token-issuing entity. Most investment tends to come through the token-issuing entity, which typically funds the development company. The development company may have limited revenue beyond these payments. The ownership of a company is divided into shares, where each owner holds a certain number of these shares (also known as equity).
Tokens or equity can be sold through contracts that promise delivery of the tokens or shares at a later date. In the earliest days, it is unlikely that a token will even exist, hence a promise of future delivery. These contracts are sometimes called SAFT (Simple Agreement for Future Tokens) or SAFE (Simple Agreement for Future Equity). SAFT is used specifically for token allocations, while SAFE is used for equity. There are numerous names for contracts that are essentially variations of the same concept.
In many recent early-stage blockchain deals, there has been a trend of “SAFE + Token Warrant” structure. This typically grants investors the right (though not an absolute guarantee) to receive or purchase tokens once they’re launched. It’s a way of merging equity-based investment (through the SAFE) with the possibility of future token allocation. However, if the token never materializes or the terms change, it can introduce additional complexities and risks for both founders and investors.
Neither tokens nor equity are forms of debt. There is no loan or interest to be paid. It is not typical for startups to take on debt, as that tends to occur at later stages when companies consider Private Equity investment. There is one corner case where a startup raises investment via convertible debt, which is like an implied loan but typically converts into equity at a predetermined valuation.
In blockchain there is an ideal of taking on no investment or not pre-selling tokens before launch. This is the notion of a "fair launch" and mimics how Bitcoin was launched. This is an ideal but it's harder to achieve in practise. Raising investment via private rounds naturally means taking money from more sophisticated or wealthy investors rather than from the public. It is a subject of much debate in the space. You can also hear of founders regretting of even selling a token as it entails much hassle and a lot of criticism from many people. Be forewarned!
Investors have a set of expectations they want to see in a project. Before seeking investment, it's crucial to have something tangible to show—whether it's a working prototype or an MVP, even an imperfect one will demonstrate your ability to execute. Conversations with investors are much easier when you can showcase a product instead of merely presenting an idea. Founders often don’t want to do the hard work upfront by building something first, but without a working prototype, there is little to discuss with potential investors.
In blockchain, open-source code is particularly advantageous. While this is not universally agreed upon, having a transparent public record of your capabilities can provide more credibility than traditional credentials.
First-time founders, or those new to the blockchain space, can benefit from having a checklist of what to prepare before speaking to investors. This checklist is a formalization of the informal process I use when assessing new projects. It’s designed to be a valuable tool for both project builders and new angel investors. For builders, it provides insight into what investors typically evaluate in new teams. For novice investors, it offers a structured approach to assessing potential investments in early-stage projects. Remember, everything gets easier with experience, and this checklist is a great starting point
.
Securing investment can take time, often requiring 50 to 100 calls. The process gets easier with practice, so stay persistent and refine your pitch as you go. The first 10 calls will likely be nerve-racking, but it gets easier with practice. It’s often best not to approach your preferred investor first—take time to refine your pitch before approaching the investors you most want to impress.
There's no strict sub-process for raising private rounds, but it’s typical to have multiple rounds of funding: build a bit, secure some funding, and repeat until launch. Continuously refine your product based on investor and user feedback. However, each round often comes with a higher valuation, which can lead to the problem of having an inflated valuation by the time the public sale (or token generation event) happens. In response, many projects implement vesting schedules to prevent early investors from immediately selling all their tokens (so-called “dumping”) once they’re unlocked.
At this stage, you are raising funds by selling allocations of tokens that don’t yet exist. A popular method for doing so is via a Simple Agreement for Future Tokens (SAFT). Be aware that the SEC isn’t a fan of SAFTs, so it’s essential to be mindful of potential regulatory challenges. Consult with a legal expert to navigate these concerns effectively. You can find an example SAFT online at the , but it’s crucial to work with a lawyer to ensure compliance and suitability for your project.
Here are some numbers to help calibrate your own round valuation. These numbers are the valuations for the initial private sale of tokens of teams. The valuation of tokens raised slightly from late 2020 going into mid 2021.
$7m - $12m
(Dec 2020 - Mar 2021)
$15m - $20m
(Apr - June 2021, mid-FOMO part of the bull market)
Round size at 5 - 10%: $750k - $2m.
From what I hear, the values are still typical in 2024. Just to be clear, the above shows that it is typical to raise an early round of funding around the $10m total valuation for all of your tokens. Selling 10% will raise $1m. Adjust the numbers as appropriate and as required by market conditions.
Not all who identify as VCs or investors bring the same level of expertise or support. The most renowned investors are often very selective due to a high volume of funding requests. While securing funding from top-tier investors may not always be possible, it's crucial to steer clear of investors with poor reputations. To vet potential investors, research their previous investments and consider talking to other founders they have worked with.
In private rounds, it’s common to establish clear unlock cliffs and schedules (often labeled as “vesting”) to promote a stable and responsible distribution of tokens. The idea is to prevent immediate sell-offs—sometimes called “token dumping”—that can undermine the market, while also aligning long-term incentives among investors and the founding team. A typical vesting plan might include an initial lock-up period (a “cliff”) followed by gradual token releases on a set schedule. Communicating these timelines openly builds trust with stakeholders and can foster a more sustainable token ecosystem.
However, there’s growing debate about whether traditional vesting structures always produce the healthiest outcomes. Some argue that vesting schedules merely delay inevitable sell pressure, potentially dragging down the token’s price over time. In contrast, a “full unlock” right at the Token Generation Event (TGE) can enable more immediate price discovery—although it may also intensify volatility if multiple private funding rounds with varying valuations preceded it. It is possible that you would struggle to get listed on a CEX, so may have to go for a DEX-focused launch.
Whether you choose a vesting schedule, a full unlock, or a hybrid approach, weigh the trade-offs carefully: your project stage, investor expectations, and broader market conditions all play critical roles in determining the best token release strategy.
The unlocks occur after the Token Generation Event (TGE): e.g. after network launch.
(highly recommended read)