The cryptocurrency startup arena is still in its infancy, along with investment strategies of many venture capital firms in the space. 

Since the initial inception of the Amsterdam Stock Exchange and its first Initial-Public Offering (IPO) for the Dutch East India Trading Company, the idea of investing has changed very little. Investment decisions are still based on information, knowledge, and speculation.

Fast forward several hundred years to the present day and you may encounter a landscape becoming increasingly tricky to navigate.

The fast evolution in web3 technology and the innovative marketing strategies that follow create uncertainty for investors trying to choose the right opportunities. 

 

How Reliable is Investment Research?

Research efforts can easily be derailed by agenda-driven misinformation. Former CIA Cyber Officer, Dan Woods, claimed that at least 20% of content posted on Twitter comes from bot accounts, with more realistic estimates breaching 80%. Innocent misinformation paired with purposeful disinformation campaigns present challenges in digesting and understanding the truth to make a well-informed investment decision.

Little regulation exists both inside and outside of the cryptocurrency industry, governing the spread of news and updates across media sources. Unfortunately for investors, the truth is hard to come by, and a “guarantee” should never be trusted. 

This is why it’s important to constantly evaluate and fine-tune your research approach toward investment opportunities. Understand where improvements can be made, and learn lessons from past mistakes. 

 

Has Venture Capital Been Successful?

The past year alone saw many titans falling from the height of Venture Capital notoriety like Three Arrows Capital whose risky leveraged trading resulted in insolvency, and Alameda Research whose criminal financial activity surfaced after collateralizing their treasury with volatile exchange tokens. 

Even venture capitalists that avoided the front page of the media cycle, like Animoca Brands, are surely suffering considering the sheer volume of investments they made in startups that failed to gain traction over the past twelve months. 

 

Price chart showing comparing FTT Token (FTX and Alameda Collateral Asset) and Bitcoin (Market Sentiment)

 

A survey of the recent bear market uncovers the remnants of the spray-and-pray method many VCs took through the cycle, and many are surely suffering for failing to practice responsible risk management. 

Arcanum Ventures is no exception, as we admit to backing a number of projects that were swept away after encountering a major hurdle – whether it’s a financial roadblock or market sentiment shifting away from now obsolete business models.

Through the ups and downs, we’ve been able to continuously improve our research process and more closely align it with our long-term investment ethos focused on building the future of the industry. 

We are proud of our process and the research that we do to help uncover the most viable startups in the space among a sea of founders desperately seeking investment. 

 

Arcanum’s Web3 Fundamentals

We understand that every firm has its own philosophy, its own horizon, and its own resulting approach. But we also recognize the value in providing a different perspective and sharing lessons across the board to accelerate the forward progress of this industry.

It’s with this goal in mind, Arcanum Ventures is excited to announce, we will be publishing web3 Fundamental Analysis reports that highlight some of the investment research we conduct for startups. Our organization will be releasing a number of these reports focused on promising or controversial startups. 

These reports highlight the strong points and gaps across many focus areas. These are the various aspects we focus on:

• Business Viability
• Token Economy and Financial Management
• Marketing and Community
• Team and Advisors
• Analysis of Competitive Landscape
• Investors, Backers, and Partners
• Product, Technology, and Security

 

The context, hopefully, will provide not only an overview of our analysis but also some interesting points we’ve noticed that can become a basis for further analysis or discussion with founders or other investors. Our video interview below with founders in InnMind’s network showcases some of these points and helped these founders better understand how to create a stronger foundation for their own startups.

The Tenets of Our Analysis

Our analysis is simple, we evaluate everything everywhere. Our research is performed based on the information our team is able to uncover through various sources including:

• Investor documentation
• Corporate website and related webpages
• Parent company information
• Business profiles
• Social media channels
• Publicly made visual, written, and audio content
• Company-focused communities
• And sometimes, conversations with the team themselves

 

The goal of our process is to analyze the full extent of publicly available information that ultimately holds projects accountable. Our analysis is typically performed before we hold initial meetings and introductions with a cryptocurrency startup in preparation for asking difficult questions and understanding the gaps in the business models. The focus is not only on learning more about how a company will address issues we identify but also on how it communicates that in a professional manner.

With that said, our reports will not include any information provided by the company of focus themselves, unless otherwise stated. In the same spirit, we will be providing full disclosures of our association, communication, or collaboration with the projects we release reports for. We pride ourselves on being unbiased for the sake of learning and streaming helpful information into a sea of speculation and falsehoods.

 

Here’s What to Expect

We take a lot of inspiration from systems and processes that are tried and true, otherwise why reinvent the wheel? Our report is structured similarly to a traditional investor report, nine to twelve pages, and segmented up by focus area. 

We analyze a number of different fundamentals and metrics that are critical for any business, regardless of market hype in a fast-and-loud startup landscape. We offer summary metrics and scoring to help condense the research into a more digestible format. We also include a list of highlights, lowlights, green flags, red flags, and any other pertinent information that we believe to be significant contributing factors when assessing investment viability.

We don’t claim to know everything. Arcanum Ventures has always been about building together and learning from each other in a more collaborative manner. We hope these reports can serve as a catalyst to bring both founders and investors together to encourage healthy discourse that will lay a stronger foundation for the cryptocurrency startup space.

 

If this content interests you and you find alignment with our message, reach out and ask about how we can collaborate on your startup. We hope to inspire others to become better investors and ask the right questions.