Crypto Projects Embrace Influencer-Turned-Investors as VC Alternative

Crypto projects are turning to a new breed of influencer-turned-investor known as Key Opinion Leaders (KOLs) to fund their risky ideas instead of relying solely on traditional investors such as venture capitalists (VCs) and angel investors. KOLs are individuals with large social media followings in the crypto space who provide “alpha” (insights) about which protocols and tokens to watch and invest in. These KOLs participate in KOL rounds, which are similar to initial coin offerings (ICOs), but instead of charging fees for promoting tokens, they put money in the projects themselves, although these arrangements may not disclose their financial relationship with the projects they are promoting. This new trend is gaining momentum as the multi-billion-dollar “creator economy” reshapes online life, with crypto possibly supercharging the trend. According to a report by Coindesk, which interviewed over two dozen insiders, including founders, developers, investors, and other stakeholders who preferred anonymity to discuss fundraising from influencers, KOLs’ prominence is only set to grow as the consumer base of digital creators expands. However, there are concerns about the lack of transparency regarding KOLs’ financial relationships with the projects they are promoting. According to a lawyer familiar with these arrangements, failure to disclose such relationships could violate U.S. consumer protection laws, as it could mislead customers who rely on these endorsements to make financial decisions. Despite this, KOL arrangements are becoming increasingly popular due to the ease of selling tokens compared to equity sales. KOLs may be able to sell their tokens sooner than other private investors are allowed to, as the terms of these arrangements include discounted valuations and options to sell tokens earlier than other private investors are allowed to. Some KOLs can receive as much as 23% of their token allocations on the day of the token launch, enabling them to sell their tokens immediately after the token debuts. While some KOLs can charge tens of thousands of dollars for a single tweet, others can earn millions annually in the crypto space. The KOL economy is becoming increasingly efficient at extracting value, with multiple crypto marketing agencies compiling lists of hundreds of KOLs for a fee. Smaller KOLs are beginning to form syndicates to secure better deals during KOL rounds. However, according to a KOL marketing executive, around 95% of crypto teams get rejected because they are “random bullsh**t.” Only the top tier of projects can afford to be selective about which KOLs they use to promote their products, as they believe that if KOLs promote failed projects, they will lose their audiences’ trust. Ultimately, KOLs are crucial to these projects’ marketing efforts, as they can attract users and help drive token prices higher.