A Closer Look at Breed VC’s Due Diligence Approach
Guiding Early-Stage Crypto Founders
Due diligence is crucial for any investment, but it’s especially vital in the high-stakes, rapidly evolving world of early-stage crypto ventures. At Breed, we don’t claim to have all the answers. Instead, we’ve developed a nuanced evaluation framework that aims to reduce risks while uncovering opportunities. This guide is intended to help startup founders understand what we’re looking for and why we consider each aspect important.
Knowledge is Power
Insight 1: Evolving with the Times — A Modern Approach to Crypto Due Diligence
The blockchain and crypto industries are redefining how we think about finance and decentralized technology. This necessitates a fresh approach to due diligence, one that evolves alongside the technology itself. In our view, due diligence in this sphere needs to be as dynamic and adaptable as the market it serves.
The Dynamic Crypto Landscape: The crypto world isn’t just about currencies anymore; it encompasses a range of assets and technologies. Our due diligence adapts to these diverse types of opportunities, considering both their unique attributes and universal business principles.
Evolved Due Diligence: In our experience, traditional venture metrics alone are not sufficient for assessing a crypto startup’s potential. We take a broader approach, evaluating not just the balance sheets, but also the product-market fit, team capabilities, and regulatory standing.
The Regulatory Landscape: Understanding the constantly shifting regulatory environment is key to avoiding unforeseen pitfalls and ensuring the long-term sustainability of a startup.
Insight 2: Team Dynamics — The Human Factor in Success
We believe a company is as strong as its weakest link, which is often human capital. Cohesion, leadership, and commitment are harder to quantify than financials, but they’re no less critical. In this chapter, we dive into the qualitative traits we look for in a startup team and why these factors often make or break a venture.
Prioritizing Proven Leadership: We pay close attention to a founder’s history of leadership. Experience, especially involving both successes and setbacks, brings along a learning curve that we consider invaluable for navigating the often-turbulent crypto markets.
Emotional Investment: When founders are deeply invested in solving a problem, often because they’ve experienced it themselves, they bring an irreplaceable passion to the venture. This often translates into a more empathetic approach to both product development and customer experience.
Cohesion and Inspiration: We look for teams that display strong cohesion and the ability to inspire each other. In our view, a team that can work well together, especially under stress, is far more likely to overcome the inevitable challenges that arise in the startup journey.
Adaptability: In a field that’s constantly changing, we value teams that demonstrate the ability to adapt without losing sight of their core mission.
Insight 3: Assessing the Product — Where Opportunity and Innovation Intersect
In a crowded marketplace, differentiation is key. The product, therefore, needs to offer something unique while also addressing a clear need. This chapter unpacks the criteria we consider critical for a compelling product offering.
Identifying Market Gaps: We value products that not only solve a problem but also fill a noticeable void in the existing market. Meeting a previously unmet need or solving a problem more effectively than existing solutions captures our interest.
The Multi-Dimensional Role of Tokens: In the crypto world, tokens serve a variety of functions, from governance to utility. We’re particularly keen on projects where the token has a well-defined role and adds real value to the ecosystem, beyond just serving as a medium of exchange.
A Meticulous Competitive Analysis: It’s not enough for a product to stand out; it must also stand up against competitors. We look for startups that have a clear understanding of their competition and can articulate a solid strategy for differentiation.
Feasibility and Scalability: We give preference to projects that demonstrate a realistic and achievable roadmap for scaling their product or service.
Insight 4: Beyond the Basics — The Overlooked Facets of Due Diligence
In our experience, due diligence is not complete without delving into several often-overlooked areas. This chapter provides insights into these additional layers of analysis that help us make more informed investment decisions.
Market Scale and Potential: We look for startups that aim to serve a large Total Addressable Market (TAM), as this usually offers greater potential for growth and profitability. However, we balance this with the consideration of how achievable capturing this market really is.
Regulatory Compliance: Compliance is a strategic asset. Understanding the regulatory landscape is critical, not just to mitigate risks but also to identify opportunities that others may overlook due to regulatory complexity.
Cybersecurity Measures: Given the digital nature of crypto, a robust approach to cybersecurity is not just optional but fundamental to a startup’s viability.
Conclusion: Beyond The Initial Investment — A Continual Commitment to Partnership and Innovation
Our relationship with each investment extends far beyond the initial transaction. We view due diligence as a continuous commitment, aimed at fostering long-term partnerships and contributing to the rapid evolution of the crypto space. This short guide has been designed to demystify our nuanced approach to due diligence and to provide startup founders with valuable insights into what we’re looking for. We believe that this multifaceted evaluation is crucial for any venture aiming to thrive in the complex, ever-changing crypto landscape.
If you are a founder building something that aligns with these criteria and values, we wholeheartedly encourage you to reach out to info@breed.vc We’re committed to engaging with innovators and entrepreneurs who aim to shape the future of crypto!
