Cryptocurrency incubators have a responsibility to maintain financial discipline

Contrary to popular belief, bear markets provide ideal conditions for startup founders and developers to engage in innovation. With no market frenzy or speculative investment, startups can focus on fundamentals that are profitable in the long run. But bear markets will deplete capital resources, and liquidity will become the proverbial mirage of an oasis in the sands of the desert. So startups look to savior incubators with networks of angel investors and venture capitalists.

Incubators hold the key to fundraising and are powerful enough to make or break a cryptocurrency startup. And, as Marvel’s Spider-Man reminded us, “With great power comes great responsibility.” play an important role in To this end, mentoring and advisory support help startups navigate difficult areas of the law while generating returns for investors.

But why should incubators focus on financial discipline? The answer lies in the past.

Ahistoricism Could Doomsday for Cryptocurrencies

Philosopher George Santayana said, “Those who cannot remember the past are doomed to repeat it.” Incubators have much to learn from the initial coin offering (ICO) craze of 2017 to avoid making the same mistakes in 2022.

Cryptocurrency startups flooded the market in 2017, and ICOs generated quick funding for new companies. However, the U.S. Securities and Exchange Commission (SEC) has strongly condemned the application of the Howie test, which is used for traditional securities, to cryptocurrency startups.

According to subsequent reports, 80% of ICOs in 2017 were scams, a blow to cryptocurrency legitimacy. But to be fair, no crypto incubator was there to steer startups in the right direction.

Related: CFTC action shows why cryptocurrency developers should prepare to leave the US

Without the incubator, startups would not have been able to adapt to financial jurisprudence. It was like a school without teachers to ensure classroom discipline. However, 2017 taught an important lesson for the crypto sector.

First, the incubator realized that cryptocurrency startups must follow regulatory best practices. As such, some incubators have hired special teams that have played a key role in helping startups comply with financial laws. If a cryptocurrency company must continue to provide services, it is very important to comply with national cryptocurrency laws. One strategy for regulatory compliance is to develop a strong tokenonomics model for crypto projects.

Thus, incubators have become responsible for overseeing robust, pragmatic and growth-based tokennomics with appropriate safety nets such as token vesting to prevent fraud. By focusing on a strong token economy, the incubator ensures a secure investment space and sustainability for crypto projects. Besides tokenomics, incubators also have a responsibility to maintain financial discipline.

Enhancing training projects through mentoring

People tend to believe that the incubator’s most important role is to bootstrap fluidity for new projects. But incubators have a bigger role in guiding and mentoring startups. Some incubators have their own cryptocurrency experts and experts to help with startup conception and strategy. These in-house cryptocurrency veterans contribute at the conception stage, drawing on a vast knowledge base to refine project ideas.

On the one hand, experienced professionals reduce time to market, thereby accelerating project growth and expansion. Mentors, on the other hand, guide less experienced developers to prepare project pitches for grant and funding applications. Additionally, startups benefit from an extensive network of experienced professionals, connecting with influencers, domain experts and CEOs. These advisory forums provide the guidance your startup needs to stay on the right track.

But mentoring is not selfless service. Incubators have a stake in a company’s success because they have a claim to a significant portion of the company’s stock. Successful companies therefore convert their incubator stock into millions of dollars and increase investor interest. Therefore, incubators have a great deal of responsibility to maintain startup financial discipline.

However, there is a caveat.

responsibility is not a burden

The National Business Incubation Association highlights that 87% of incubated businesses survive after 5 years. This is a staggering figure considering that only 44% of companies operate alone. However, the incubator cannot go overboard to ensure the success of the project. After a while, the incubator won’t be able to do much if the founders of the project aren’t doing well.

In rare cases, startups ignore the advice of the incubator team and abuse the support system. Incubators can learn from these failed projects rather than dismissing these instances. For one, incubators can enhance onboarding procedures and conduct rigorous due diligence. Ultimately, incubators need to work towards a more transparent and symbiotic relationship with startup founders and management teams.

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An incubator is more than just a cog in a crypto machine. Rather, it provides a foundation for crypto companies to innovate to build the entire ecosystem. But incubators must ensure that the responsibility of maintaining financial discipline does not become a burden.

This article is for general information purposes and is not intended, and should not be construed as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author and do not necessarily reflect or represent the views or opinions of Cointelegraph.