Pitch-Hikers Guide to the Galaxy
Failed fundraises & Small fundraises in the World of Web3
Fundraising is tough — whether you're a first-time founder or a seasoned builder, it can feel like navigating a storm without a map. This essay could easily go to dark places—but today, we’re keeping it constructive.
In the first part, we will dive into the foundations of crypto angels and VCs. Understanding what drives their investment decisions is crucial to understanding why they accept and reject deals.
We will talk about what are their primary goals when they choose to invest. How do they approach deal processing, and what are the top three criteria they use to evaluate potential investments?
Then, we'll explore common failure points, drawing from personal experience and second-time founders who’ve learned to navigate this rocky terrain. By the end of this, I hope to arm you with the knowledge to approach fundraising with a clearer perspective and better prepare you for the highs and lows it can bring.
Lfg, anon, we got this.
Your Angels
Founders often raise their first angel round from Twitter friends and Discord family. Here, cap table construction is critical. Too often, founders onboard loud but empty angels who vanish when it’s time to make introductions or provide meaningful feedback. The harsh reality: If someone has done 150+ deals in the last year, they’re probably not the strong signal you need.
What Drives Angel Investments?
Angel investments are highly network-driven. Some angels, like Polygon’s founders, back ecosystem projects, while others, like GMoney and Zeneca in NFTs, operate within niche spheres of influence. But in the end, ROI still drives the majority of angel investors.
There’s a small but undeniably annoying subset of angels who invest solely for signal—they want to be in the “sexy” cap tables to leverage that into more cap table invites. While I don’t hold them in high regard, if used wisely, they can still help get a few connections rolling. This brings us to the two north stars of Angel rounds: signal and insights.
Signal vs. Insight
Here’s the distinction: Signal is sector-specific. In Solana DeFi, getting Mert or Anatoly is a win. In gaming, getting Ellio Trades shows understanding of the space. But getting the head of an ecosystem at Avalanche for a ZK project? Probably not as useful.
Insight, on the other hand, can compress months of work into weeks—someone like DCF God sharing TVL strategies, for example. At the angel stage, you want both signal and insight, but know that your cap table will likely be 90% signal and 10% insight.
Cap Table Construction & DD
Getting the right angels in place not only signals credibility but also sets the stage for follow-on rounds, where the stakes grow higher.
You are giving away ownership at the most discounted rates, so you must have clarity on the value add that every angel brings to the (cap)table, and you should know how to extract it effectively. Anchor angels will leverage their networks to help you fill up the cap table. Most angel rounds are high-risk, high-reward—they could lead to a major Tier 1 fund down the road, or they could crash and burn. They are very network driven and the due diligence (DD) is often light at this stage—a barebones pitch deck is often enough to get started.
The smartest founders keep their rounds open until Series A, allowing for valuable stakeholders to join at a steep discount. VCs typically don’t mind this "back door" approach because it increases the company’s overall value.
Once you've filled your cap table with early-stage angels, you're entering the bigger leagues: venture capital. In the following section, we'll look at how VCs operate.
Adventure Capital
In this section, we’ll walk through the other side of the desk. Who is bossing these investors around, what the ROI expectations are from Limited Partners of the fund, and how VC circles operate. We’ll also dive into the micro details of why VCs invest the way they do, how deal processing typically works, and why ROI remains the supreme driving force behind most investment decisions.
LPs: Top of the Liquidity Chain
At the top of the liquidity chain are the Limited Partners (LPs) that provide capital to venture funds. In crypto, these LPs are often early crypto adopters—investors, operators, and miners who’ve made fortunes in previous cycles. Having experienced exponential gains, they now expect rapid, high returns from their VC investments.
In crypto, investments are typically made in tokens, with vesting schedules, liquidity events, and market cycles that move at warp speed compared to traditional equity. As a result, the expected return timeline is much shorter. The opportunity cost of holding capital in slow-moving, long-horizon projects is high, so LPs demand faster ROI, pushing VCs to perform at a pace that matches the volatility and speed of the market.
Now, the pressure more LPs does not directly transmit to investment teams, there is a lot of legal insulation between them but the bottom line is that funds know that in order to raise a Fund-3 and Fund-4 they must make their LPs happy by catching that 1000x.
At its core, this dynamic sets crypto VC apart: the capital is impatient, the stakes are high, and the margin for error is slim. VCs know they must not only outperform the competition but also deliver quickly enough to keep pace with the rising expectations of LPs. This dynamic is changing though, with more mature capital from pension funds, family offices and web2 VCs (again) entering the space.
On the Investors Desk
An interesting combination arises because this LP capital is often matched with analysts and associates are often fresh out of college, with little to no operational experience (yours truly included). These analysts are expected to handle 360+ deals a year across wildly varying sectors, from ZK to modular infrastructure.
This toxic investor-founder dynamic, fueled by rampant speculation, has led to a frothy fundraising environment. And, sadly, the founders who suffer the most from this flawed system are those outside traditional success circles—think Ivy League colleges, Singapore VC networks, or London’s web3 running groups. These founders are often disadvantaged because they a) don’t understand how deal processing works on the venture side of crypto, and b) have limited access to capital deployers, forcing them to pitch purely on the merit of their ideas, with little room for error.
It’s a harsh reality, but if you're an investor reading this I would strongly encourage you to invite 5 out of the box pitches every month. We can remove this systemic problem in our industry, 5 deals at a time. Now, back to the scheduled program.
Deal Running
For an investment committee (IC) to approve an investment the stars must align on a Monday morning, the deal lead should have a 20-page investment thesis distributed on Thursday of the previous week (with last-minute changes incorporated on Sunday night) and the CIO’s coffee must be at the right temperature.
The first point of discussion is usually a thesis fit. The deal must align with the firm’s thesis of investing in infra or gaming or Bitcoin ecosystem etc. Next up, the deal lead runs the IC through her thesis - why this is an exciting problem to solve, what is unique about this solution, why is this the right team to solve this problem and what type of return can be generated by participating in this round.
At its core, what a deal lead signs off on is the ROI and risk.
The ROI
Let’s understand an average portfolio construction, to see what typical ROI expectations look like:
Anyone looking to climb the ranks at a VC firm hopes to land that home run deal, and more mature investors are willing to take a 1 in 100 shot at striking gold. The 30x returns are important but if a deal is sufficiently de-risked then even a 5x return can be very attractive from a portfolio construction PoV.
To put this in further context, consider this: getting into a deal at a $25M valuation with the potential to exit at $250M offers a far better risk-adjusted ROI than joining a hot $1B seed round, where the likelihood of a 10x return is slim. Although, WLD did it.
In this current cycle, funds are increasingly wary of investment lock-ups. A project with a 60x TGE that bleeds down to 2x by the time funds are unlocked is far from a winning bet. We’re seeing a polarization in the space—either you’re raising a $7M seed round, or you’re struggling to scrape together $1M from tier-3 investors. There’s very little middle ground left.
The Review
VCs spend roughly 40 seconds per deck, so adhering to their investment framework is crucial to surviving the madness of crypto VC. Over time, this framework distills into a one-line opinion about most sectors:
Bitcoin infra has too many projects and whales aren’t interested;
NFTs are considered last cycle;
DeFi? Most primitives are already built.
The best investors are dynamic about their views on sectors and keep reading up / catching up with thought leaders to update their stance on a problem statement.
The actionable insight here for founders is that by 2024, the person you’re pitching to has likely seen a deal similar to yours and may have even burned money in the space already. Your job is to pitch not only why previous attempts failed (showing your understanding of the sector) but why you’re poised to win. Whether it's through execution insights, customer validation, or tech prowess, you need to redefine what ROI means for your project. With every cycle, the benchmarks get more mature.
In my time, I used a strict framework to evaluate deals, but, in all honesty, (more often than I’d like to admit) a strong deal lead and founder-problem fit has swayed my decisions.
Saying No, Sucks
That is why investors usually have cookie-cutter responses when they say no to deals, like "not the right timing" or "not a fit with our thesis." But here are a few real reasons I’ve personally passed on deals:
No Founder-Problem Fit: If the founder doesn’t have the right experience, it’s a red flag. For example, custodians need enterprise sales experience, so the founder profiles are tightly bound for this problem.
No Edge Over Competition: If the project doesn’t have a competitive advantage—whether that’s better distribution, more TVL, more users, or stronger technical capabilities—it’s hard to back. It’s tough to pitch the 17th stablecoin when a Ph.D. from Stanford in cryptography is already building a similar solution.
Low ROI / High Risk Sector: Some sectors simply don’t generate the kind of returns that most funds looking for. DAO deals tend to fall into this bucket. Similarly, most funds don’t invest in game titles because the risk of failure is too high.
Zero Knowledge Problem: Sometimes, a great project isn’t aligned with our thesis. For example, I wouldn’t invest in a ZK-heavy project unless it’s led by someone known for their deep technical due diligence.
SAFT > SAFE: Equity require more diligence and often come with less flexibility than token raises.
Pivotoor: Founders who pivot too much, just to align with the current market trend, often lose trust with investor circles.
Distribution Choke Points: If Metamask or another big player builds a similar feature, your distribution advantage could vanish overnight. I can’t risk coming in to the deal
Of course, not every pass has aged well. Some deals that I turned down have gone on to do phenomenally well. My anti-portfolio is painful and while polling my VC friends Celestia and Botanix came up as the most common misses in my circle.
Fundraise Like a Winner
A lot of tech-focused founders dread pitching—it feels too 'salesy.' But surviving without building that muscle is wishful thinking. Pitching to investors is a specialized skill—your deck and data room are like a good pair of running shoes. Sure, you can finish a 5K without them, but why would you?
Yes, Please Make a Deck
As we discussed earlier, investors are bombarded with deals. Unless you’re walking into investor circles with an already strong network, having polished sales materials (your deck, your data room) is what will help you secure an anchor or lead investor faster.
Pitch, pitch, pitch
Another critical step is getting as much pitching practice and feedback as possible. You need to know your pitch inside and out—you can’t afford to be awkward about it. The more you talk to people (whether they’re marketing folks, BD people, or techies—anyone who will listen), the stronger and more refined your pitch will become. Demo days and VC events are great opportunities to test your pitch and get real-time feedback from a diverse audience.
As I mentioned before, people hate saying no—it’s basic psychology. As a result, investors often give generic rejection statements. With investors you respect, don’t hesitate to pursue more pointed feedback. Most won’t oblige, but those who are confident enough to have that conversation with you will provide valuable insights. This can help you truly understand where your thesis might be invalid.
The Hotter, the Better
Crypto is a small world, and warm intros go a long way. Cold DMs are inefficient, as I found out by sending 60 DMs and getting only five responses. Instead, spend time building real connections on platforms like Twitter and Telegram—relationships here are everything. Similarly, submitting pitch decks through websites is another dead end—99% of the funds I know either have an intern reviewing them, or worse, no one looks at them at all.
The beauty of crypto, however, is that everyone is on Twitter. It’s an open platform, and you can leverage it to make real connections. Rushi from Movement is a great example of someone who effectively used Twitter to generate leads for his project. The best path is through warm intros—via people you chat with on Twitter, Telegram, or meet at conferences (though, in my opinion, conferences are quite inefficient). Spending a month being active on Twitter before your fundraise is the best way to build relationships with investors. Founders introducing other founders is ideal, but unfortunately, many are stingy with their investor intros.
Even my investor friends from the class of 2020, who turned into builders this cycle, have struggled with pitching and securing intros. So, yeah—this is HARD.
The Sun Will Come Out Tomorrow
Start-ups have a 99% failure rate. Many, many things can go wrong—whether it's chasing a weak product-market fit, struggling to build the right team, poor execution, low ROI in the sector, or simply bad timing.
In fundraising, though, there are specific failure points I’ve seen over and over. On the execution side, failure often comes from a weak demonstration of founder-problem fit, inadequate research, poor documentation, or a sloppy pitch. Medium-ROI sectors, oversaturated markets, and relying too heavily on cold intros can also quickly derail a deal.
What to Do if You Fail to Raise?
This is a very hard question to answer - should you proceed with building even if there is little investor interest? The answer is: it depends.
Being dynamic about your fundraising process is essential. If you fail to raise a round or are considering giving up on your project, remember that the design space is wide. Good investors are willing to back you again if you can demonstrate growth and learning. Always be learning.
Take it from Anon, anon - a second-time founder in the space. He shared this critical lesson:
There’s a difference between knowing it’s time to stop and actually admitting that to yourself. With [project 1], I pushed it to the very end because I believed (and still do) that venture was wrong—there’s eventually going to be space for options and derivatives in DeFi. But I knew from the start that capital would be tough to secure.
Looking back, the big mistake was raising an ad hoc party round and releasing a product while raising—it quantified the opportunity before we were truly ready. It’s much better to wait until you’ve raised enough capital to make your product great before going public. That was a hard lesson learned.
At the end of the day, what worked with [project 2] was the opposite: building credibility, securing interest, and closing big. I had one investor offer me $2M to do whatever I wanted, but only because my cap table was clean and I had earned their trust as a serious builder.
- Anon, anon founder
If you truly believe in your project, raising a small round to survive until the next phase can be the smart move. Use that time to hit your traction milestones or build out your technology platform, then go for the bigger round. At the same time, please set a quantifiable invalidation point - be it in terms of TVL, number of users or trading volume and if 6 months the project doesn’t hit these KPIs, then it’s time to let go.
Where Do We Go From Here?
Being in crypto VC has been such a roller coaster. I started fresh out of college and saw the boom of 2021 in my first year in the industry. From then to now, my investment criteria have evolved. Today, my primary focus is on how well founders handle risk and failure. There isn’t a due diligence questionnaire (DDQ) comprehensive enough to capture this, but thankfully, processing countless pitch decks is no longer a key performance indicator for me. This freedom allows me to interact more intimately with founders, giving me the opportunity to discern who I believe will be successful and to invest more time in those relationships.
The truth is, fundraising is often gut-wrenching and more common a struggle than a success. But through every failure comes growth. The conversations I’m having now with founders and investors are more dynamic and more insightful, as we focus on resilience, adaptability, and the grit required to push forward.
At the end of the day, this journey is ever-evolving. Stay resilient, and keep going.
Life is fun, anon, don’t be so serious.