Contrary to popular belief, a bear market offers ideal conditions for founders and developers of startups to work on technological innovations. The absence of market frenzy and speculative investing helps startups focus on fundamentals, which are beneficial in the long run. However, bear markets dry up the sources of capital and liquidity becomes the proverbial mirage of an oasis in the desert sands. Thus, startups are turning to incubators that become messiahs with their network angel investors and venture capitalists.
As incubators hold the key to funding, they are powerful enough to make or break a crypto startup. And, as Marvel’s Spider-Man reminded us, “With great power comes great responsibility.” Incubators therefore play a crucial role in guiding startups to adhere to crypto regulations to maintain fiscal discipline. To that end, mentorship and advisory support helps startups navigate the tricky legal terrain while generating profits for investors.
But why should incubators focus on fiscal discipline? The answer lies in the past.
Ahistoricism Could Mean Doomsday For Crypto
The philosopher George Santayana said, “Those who cannot remember the past are doomed to repeat it.” Incubators have a lot to learn from the initial coin offering (ICO) craze of 2017 to avoid the same mistakes in 2022.
Crypto startups flooded the market in 2017, with ICOs quickly generating money for new ventures. However, the United States Securities and Exchange Commission (SEC) has heavily criticized crypto startups by applying the Howie test used for traditional securities.
A later report revealed that 80% of ICOs in 2017 were scams, and the legitimacy of crypto took a hit. But to be fair, there was an absence of crypto incubators to guide startups in the right direction.
Without incubators, startups were less able to comply with financial jurisprudence. The situation was a bit like a school without teachers to ensure discipline in the classrooms. However, 2017 brought important lessons for the crypto industry.
For starters, incubators realized the need for crypto startups to follow regulatory best practices. Therefore, some incubators have recruited special teams that have played an important role in helping startups comply with financial legislation. Compliance with national crypto laws is crucial if crypto companies are to continue providing services. One of the regulatory compliance strategies is to develop a strong tokenomics model for crypto projects.
Therefore, incubators have become responsible for overseeing a robust, utilitarian, and growth-based tokenomics with proper safety nets like token acquisition to prevent scams. By focusing on strong token economies, incubators ensure a safe investment space and sustainability for crypto projects. Besides tokenomics, incubators have other responsibilities to maintain fiscal discipline.
Strengthen incubated projects with mentoring
People tend to believe that the most important role of incubators is to provide cash for new projects. However, incubators have a bigger role in guiding and mentoring startups. Some incubators have their own crypto experts and professionals who help startups ideate and strategize. These in-house crypto veterans contribute during the ideation phase, using their extensive knowledge base to refine project ideas.
For one thing, seasoned experts reduce time to market, helping projects grow and scale faster. On the other hand, mentors guide inexperienced developers to prepare project submissions for grants and funding applications. Additionally, startups can benefit from the vast network of experienced professionals to connect with influencers, domain experts, and CEOs. These advisory forums provide the guidance needed to help startups stay on track.
However, mentoring is not selfless service. Incubators have a stake in the success of a company because they have a claim on a significant portion of a company’s equity. Thus, a successful company would turn the shares of an incubator into millions of dollars with more interest from investors. Thus, incubators have a huge responsibility in maintaining a startup’s fiscal discipline.
But there is a caveat.
Responsibility should never become a burden
The National Business Incubation Association has pointed out that 87% of incubated businesses survive after five years. That’s an impressive number considering that businesses that go solo have a success rate of just 44%. However, incubators cannot go too far to ensure the success of a project. After a while, incubators can’t do much if the founders of the project fail.
On rare occasions, startups ignore advice from an incubator team, abusing the support system. Rather than rejecting these instances, incubators can learn from these failed projects. On the one hand, incubators can strengthen their onboarding process and conduct rigorous due diligence. Ultimately, incubators need to work towards a more transparent and symbiotic relationship with startup founders and management teams.
Incubators are not just another cog in the crypto machinery. Rather, they provide the fundamental foundation on which crypto companies innovate to build a complete ecosystem. But incubators must ensure that their responsibility to maintain fiscal discipline never becomes a burden.
Gaurav Dubey is the CEO of TDeFi, a crypto incubator and advisor for blockchain startups incubating and advising decentralized finance, non-fungible tokens, gaming and other crypto projects for over 45 companies. Prior to joining TDeFi, he ran a Bitcoin mining company and made several investments in crypto startups.
This article is for general informational purposes and is not intended to be and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.