Synaps presents: Investor due diligence checklist for Web3 founders
Here’s what you need to know to optimize your fundraising efforts and impress investors.
Jun 11, 2024
5 min read
You’re gearing up for a funding round. Here’s what you need to know to optimize your fundraising efforts and impress investors. This checklist will ensure you're fully prepared for thorough investor due diligence, helping your project stand out.
Understanding due diligence in Web3
Unlike traditional sectors, Web3's technological complexity and regulatory uniqueness demand a thorough examination. You need to validate the business model, technology stack, legal compliance, and market potential of your blockchain project. Here’s what you need to focus on to ensure a successful fundraising journey: Market analysis, business model evaluation, team credentials, whitepaper review, tokenomics, regulatory compliance, community engagement, and development progress.
Stages of Due Diligence
Pre-revenue stage: Before revenue generation begins, investors focus on the market viability, team’s capability, and product's feasibility. Essential checks include:
Market analysis: Understanding the target market size, competition, and growth potential.
Business model evaluation: Assessing how the project plans to generate revenue and achieve financial sustainability.
Team credentials and motivation: Evaluating the founders' expertise, experience, and their drive.
Pre-token launch stage: Prior to the launch of the token, due diligence intensifies around:
Whitepaper review: Detailed analysis of the whitepaper to understand the project's foundation.
Tokenomics: Examination of token distribution, utility, and economic model to ensure it supports long-term project viability.
Regulatory compliance: Ensuring the project adheres to the relevant legal frameworks and has necessary approvals.
Post-token launch stage: Post-launch, the focus shifts to the operational execution and community engagement:
Token performance and market Response: Tracking token performance and market acceptance.
Community engagement and support: Assessing the strength and activity of the community which is crucial for decentralized projects & Web3.
Development progress and milestones: Evaluation of the roadmap adherence and milestone achievements.
DAO launch stage: If the project involves a DAO, it necessitates reviewing:
Governance structures: How the DAO is governed and the mechanisms for participant engagement.
Decentralization level: The extent to which governance is distributed among stakeholders.
Legal framework: Ensuring the DAO operates within legal bounds and has a clear legal structure.
Importance of team credentials and motivation
The backbone of any startup is its team. For Web3 startups, where the technology is complex and rapidly evolving, your team's ability to adapt and innovate is paramount. Investors will consider your team's background, their commitment to the project, and their capacity to navigate challenges.
Legal and regulatory considerations
Navigating the Web3 legal landscape is complex due to its uniqueness and varying regulations across jurisdictions. Here are some practical steps to ensure comprehensive legal compliance:
Intellectual property rights: Ensure all your tech, code, and branding are protected.
Jurisdictional compliance: Understand the regulatory requirements in each area (Europe, USA..) you operate.
Token classification: Properly classify your tokens (utility, security, etc.) to avoid legal issues.
KYC and KYB procedures: Implement robust KYC (Know Your Customer) and KYB (Know Your Business) checks to comply with anti-money laundering regulations. This not only ensures compliance but also prevents fraud and builds trust with investors. For more details, read our blog post on KYC benefits for crypto companies.
Data privacy laws: Ensure adherence to GDPR and other relevant data protection laws.
For specialized legal assistance in crypto project, consider reaching out to:
Tokenomics and governance structures
Tokenomics is important for Web3 projects as it directly impacts sustainability and investor returns. Effective governance structures are equally important to ensure scalability and alignment with stakeholder interests.
Key Components:
Token supply and distribution: Clear understanding of maximum supply and distribution mechanisms, such as vesting schedules and burn mechanisms. Learn more.
Utility and demand: Tokens should have clear, practical utility within the ecosystem to drive demand.
Security and transparency: Regular security audits and transparent operations build investor trust.
Successful tokenomics examples:
Binance Coin (BNB): Strong utility, clear burn mechanisms, and extensive ecosystem integration.
For a deeper dive into token distribution models and legal considerations, check out this Legal Nodes article.
How Synaps empowers Web3 founders in fundraising & private sale ?
Synaps is your strategic partner in navigating the complexities of Web3 fundraising and private sales. Our platform, Synaps Hub, provides a comprehensive space where you can publish your project and all necessary information for the due diligence, ensuring transparency and credibility. This builds trust with investors, making your project more appealing and benefiting from a wider exposure to top-class investors.
We also offer native KYC (Know Your Customer) and KYB (Know Your Business) solutions withing your project page on Synaps Hub. It’s essential for verifying the legitimacy of investors and complying with anti-money laundering regulations.
Synaps ensure efficient and compliant private sales, allowing you to confidently engage with investors and focus on scaling your innovations. By using Synaps, you ensure your project is legally sound, trustworthy, and ready to attract substantial investment.
Essential documents checklist for Web3 founders
Pitch deck: Summarizes your company’s vision, market, strategy, and team.
Business plan: Detailed description of your business model, market analysis, and growth strategy.
Whitepaper: Outlines the technical and economic aspects of your project.
Financial statements: Includes profit & loss statements, cash flows, and financial projections.
Governance structure: Details on your project’s governance model, especially if you are setting up a DAO.
Tokenomics documentation: Details on token distribution, token economics, and utility.
Legal documents:
Incorporation papers and shareholder agreements.
Intellectual Property registrations and proof of ownership.
Regulatory compliance certificates and legal opinions.
Cap table: A current cap table showing equity and token distribution.
Team backgrounds: CVs and background checks for key team members.
Market and competitive analysis: Research that supports your business plan and market entry strategy.
KYC/AML policies: Documentation of your Know Your Customer and Anti-Money Laundering procedures.
Technology roadmap: Development timeline and milestones achieved.
User data and metrics: Engagement metrics, user growth, retention rates, and acquisition channels.
