New Trend in Crypto Financing: Extending Seed Round Financing Time

Author: Jack Kubinec, Blockworks; Compiler: Songxue, Golden Finance

As the crypto winter appears to be easing, investors and industry participants have begun to take notice of the issues with extended seed round financing.

The extension of seed funding allows startups to access new investor funding without having to meet Series A requirements.

Between funding rounds, startup teams can also avoid diluting their equity in the event of a potential bull market.

In the traditional venture capital field, Series A is often the "first round of pricing" financing for start-up companies. Founders and investors formalize governance and preferred shareholder rights, according to Matt Luongo, CEO of venture capital firm Thesis*.

This is not necessarily the case in the cryptocurrency space, however, where protocols may not go the traditional route of young companies appointing boards of directors to issue shares. “In crypto, your Series A is often just a marketing ploy,”Luongo noted.

Luongo added that investors are now more cautious and "remaining on the sidelines on follow-up financing until the market recovers better."

When Adam Bialy ) was raising money for his banking-as-a-service provider, Fiat Republic, when he noticed rising requests for Series A funding.

Bialy said:“The venture capital landscape is changing. The threshold for Series A financing has increased significantly, partly due to changes triggered by events like the SBF case.”< /strong>

Raising Series A funding during adverse market conditions may result in less favorable terms for the startup. Blockworks spoke to several startup founders who also said that extending a seed round provides a way to attract working capital without diluting equity, which happens when new investors are brought in, thereby lowering The founder’s shareholding ratio in the startup company.

One example is cryptocurrency project Brahma, which attracted investor interest after demoing an on-chain execution and custody product called Brahma Console. Known for its role in the DeFi space, Brahma is a non-custodial protocol that manages liquidity and interactions between multiple chains and dapps, aiming to simplify yield generation and capital deployment.

Brahma co-founder Alessandro Tenconi mentioned that although the company can use this round of funding to develop its Console concept, the company does not expect that the product will be fully Developing and expanding versions will create more favorable conditions for future funding. Therefore, the company strategically chose an extended seed round.

Tankoni noted: "Our goal is to make Console a reality first...and then raise a full round if needed, which will prevent raising an unnecessarily larger round at that time. This was excessively dilutive." Tankoni added that the extended seed capital allowed Brahma to extend its funding, conduct new hires, and conduct a security audit while awaiting a potential future Series A.

Interest in an extended seed round could also be a sign that funds are diversifying their portfolios, especially given some of the uncertainties hanging over the market.

Bill Qian, chairman of crypto venture capital firm Cypher Capital, said: “The current market volatility, coupled with the limited liquidity of small coins, makes early-stage investment a regional diversification strategy. Choose."