The model of quickly trying to raise startup money from venture capitalists is fast being disrupted by cryptocurrencies.
Rather than wait for outside investment, many startups, particularly in the esports and gaming spaces, are now turning within for the funding they need to build.
The idea is startlingly simple; the company creates its own cryptocurrency and then offers investment in that coin through an Initial Coin Offering (ICO).
These ICOs are quickly replacing traditional VC funding models, effectively cutting out the middle man by allowing companies to raise their own funds directly.
In the first half of 2017 alone, start-ups have raised a record $1.27 billion, selling stakes in cryptocoins, according to research from Autonomous.
The trend does not seem to be ending any time soon, with prices of existing cryptocurrencies continuing to excite potential investors as the market reaches new record highs. On November 2, Bitcoin breached the $7,000 mark for the first time.
“The crypto market is growing for several reasons,” writes investment analyst Charles Bovaird. “A steady supply of Initial Coin Offerings (ICOs), a rising number of [hedge] funds that trade cryptocurrencies and the sustained interest of investors are all contributing to this trend.
”With the ease of entry for new ICOs, and a growing public awareness of the potential upsides to cryptocurrency, Bovaird believes the positive momentum will continue to attract new money into the system. And all of this, ironically, makes ICOs incredibly attractive to the very same venture capitalists who are being “shut out” of their traditional funding role.
As venture capitalist Cyril Bertrand notes, ICOs are a threat to the traditional VC model.“Clearly, ICOs may save a lot of headaches to entrepreneurs, compared to the usual VC fundraising processes,” he explains, citing shorter time to market, no SEC compliance, no liquidity clauses, etc.
It is basically the Wild Wild West of investing. And some VCs are climbing aboard, eager to be a part of this brave new financial segment.
So what does a VC look for when investing? I looked to several industry thought leaders for insights, and also had a chance to interview two investors in DCoin, a new cryptocurrency issued by DMarket, for some specific input.
Blockchain Industry Thought Leaders Speak OutThe crypto industry knows it faces a bit of an image problem, with Bitcoin and the rest often viewed as part of the dark web. The U.S. Securities & Exchange Commission (SEC) has recently increased its involvement in the space, even issuing a statement that encourages investors to be "wary of investment opportunities" that may sound too good to be true.
While blockchain technology itself limits technical fraud, there are plenty of fraudulent or half-baked ICOs out there. Denis Dovgopoliy, founder at venture investment group GrowthUp, says it is important to look at what the proposed coin will actually do – beyond funding the project for the owners.
He is an early investor in DCoin, a currency for the massive online gaming industry that is being offered through DMarket and has raised close to $11 million as of now.“The blockchain technology is being used in many projects these days, even in those where it doesn’t bring any value,” Dovgopoliy explains. “The hype around the ICOs is the main reason for that.
Nevertheless, there are industries in which the blockchain technology gives a strong advantage, for example, services to confirm the ownership’ rights. I am pretty convinced that the businesses in this segment will drive the industry.”Samantha Radocchia, co-founder and CMO at Chronicled, sees strong potential in the world of supply chain management.
“Blockchain is one of those defining technologies that will change and improve many industries, particularly the supply chain space. And it’s set to enter that phase where implementation moves quickly,” Radocchia says. “It’s already happening as we speak, and the implications are enormous.”There is even an industry rising up to support ICOs.
Starbase, for example, offers founders a pre-built platform on which to issue tokens and run their own ICOs, connecting any project to rapid crowd funding potential, without some of the usual challenges.
"One of the challenges founders face when looking for funding is access,” explains Starbase founder Sato San. “In 2016, the number of Venture Capital firms in the U.S. declined from 1,009 to 798. With the hundreds of thousands of new businesses starting each year, it’s very difficult for a founder to create a partnership with a VC.
”San explains that once you find the right VC, founders go through several stages to secure funding, and when it is all said and done, VCs fund less than 3% of the companies they review.
One way to overcome this VC gap is to create your own funding through an ICO or, as San explains, by using a crowd funding platform like Starbase, where a community of investors and members come to together to support a common project, using the existing platform to run the ICO.
San believes this kind of crowd sourced approach removes even more barriers to funding successful projects Beyond the Hype, What Will This Do?
Oren Klaff of Intersection Capital and author of Pitch Anything says there are four critical questions to be asked in this much-hyped space. “First, is the proposed technology just an improvement, or will it change an entire industry? Second, has the Team delivered a software product before?
These technologies are easy to talk about, but very difficult to implement and this is not a good industry for beginners,” he insists.“Third, you have to read the company's White Paper and ask yourself, is this ‘cold fusion’ (eg. an impossible technology) or is it really possible to deliver the product?
Is the engineering plan properly described? And, last, but not least: Is there an actual demo or beta version of the product to understand the vision?
"When viewed through this lens, it becomes pretty easy to spot the bad bets and the ridiculous currency ideas. Like the aptly named Titcoin, billed as “the official porn currency.” With a current price of less than one cent, it is unlikely to see any big rise out of this one.
Then there is Trumpcoin, the currency that wants to “make cryptocurrency great again.” With a current market cap of less than $300,000, that mission is probably not going to be accomplished any time soon. The Importance of the Team Like any business venture, the team behind the ICO is the primary driver.
A solid team with the experience to get the job done is imperative.As VCs look toward ICOs as the next iteration of investments, there will probably weeding out of the projects that have what it takes to give the undertaking the serious attention it requires.
While initially a way around VC funding, many ICOs are now welcoming these venture capitalists into the fold. They are accepting what they offer beyond just the money and looking to their wealth of experience to help them growth.
Darren Heitner is the Founder of South Florida-based HEITNER LEGAL, P.L.L.C. and Sports Agent Blog. He authored the book, How to Play the Game: What Every Sports Attorney Needs to Know.
Forbes regularly publish several articles and reports covering blockchain and cryptocurrencies, find even more here: https://www.forbes.com/sites/darrenheitner/2017/11/03/why-vcs-may-be-climbing-abroad-the-ico-train/#...
Rather than wait for outside investment, many startups, particularly in the esports and gaming spaces, are now turning within for the funding they need to build.
The idea is startlingly simple; the company creates its own cryptocurrency and then offers investment in that coin through an Initial Coin Offering (ICO).
These ICOs are quickly replacing traditional VC funding models, effectively cutting out the middle man by allowing companies to raise their own funds directly.
In the first half of 2017 alone, start-ups have raised a record $1.27 billion, selling stakes in cryptocoins, according to research from Autonomous.
The trend does not seem to be ending any time soon, with prices of existing cryptocurrencies continuing to excite potential investors as the market reaches new record highs. On November 2, Bitcoin breached the $7,000 mark for the first time.
“The crypto market is growing for several reasons,” writes investment analyst Charles Bovaird. “A steady supply of Initial Coin Offerings (ICOs), a rising number of [hedge] funds that trade cryptocurrencies and the sustained interest of investors are all contributing to this trend.
”With the ease of entry for new ICOs, and a growing public awareness of the potential upsides to cryptocurrency, Bovaird believes the positive momentum will continue to attract new money into the system. And all of this, ironically, makes ICOs incredibly attractive to the very same venture capitalists who are being “shut out” of their traditional funding role.
As venture capitalist Cyril Bertrand notes, ICOs are a threat to the traditional VC model.“Clearly, ICOs may save a lot of headaches to entrepreneurs, compared to the usual VC fundraising processes,” he explains, citing shorter time to market, no SEC compliance, no liquidity clauses, etc.
It is basically the Wild Wild West of investing. And some VCs are climbing aboard, eager to be a part of this brave new financial segment.
So what does a VC look for when investing? I looked to several industry thought leaders for insights, and also had a chance to interview two investors in DCoin, a new cryptocurrency issued by DMarket, for some specific input.
Blockchain Industry Thought Leaders Speak OutThe crypto industry knows it faces a bit of an image problem, with Bitcoin and the rest often viewed as part of the dark web. The U.S. Securities & Exchange Commission (SEC) has recently increased its involvement in the space, even issuing a statement that encourages investors to be "wary of investment opportunities" that may sound too good to be true.
While blockchain technology itself limits technical fraud, there are plenty of fraudulent or half-baked ICOs out there. Denis Dovgopoliy, founder at venture investment group GrowthUp, says it is important to look at what the proposed coin will actually do – beyond funding the project for the owners.
He is an early investor in DCoin, a currency for the massive online gaming industry that is being offered through DMarket and has raised close to $11 million as of now.“The blockchain technology is being used in many projects these days, even in those where it doesn’t bring any value,” Dovgopoliy explains. “The hype around the ICOs is the main reason for that.
Nevertheless, there are industries in which the blockchain technology gives a strong advantage, for example, services to confirm the ownership’ rights. I am pretty convinced that the businesses in this segment will drive the industry.”Samantha Radocchia, co-founder and CMO at Chronicled, sees strong potential in the world of supply chain management.
“Blockchain is one of those defining technologies that will change and improve many industries, particularly the supply chain space. And it’s set to enter that phase where implementation moves quickly,” Radocchia says. “It’s already happening as we speak, and the implications are enormous.”There is even an industry rising up to support ICOs.
Starbase, for example, offers founders a pre-built platform on which to issue tokens and run their own ICOs, connecting any project to rapid crowd funding potential, without some of the usual challenges.
"One of the challenges founders face when looking for funding is access,” explains Starbase founder Sato San. “In 2016, the number of Venture Capital firms in the U.S. declined from 1,009 to 798. With the hundreds of thousands of new businesses starting each year, it’s very difficult for a founder to create a partnership with a VC.
”San explains that once you find the right VC, founders go through several stages to secure funding, and when it is all said and done, VCs fund less than 3% of the companies they review.
One way to overcome this VC gap is to create your own funding through an ICO or, as San explains, by using a crowd funding platform like Starbase, where a community of investors and members come to together to support a common project, using the existing platform to run the ICO.
San believes this kind of crowd sourced approach removes even more barriers to funding successful projects Beyond the Hype, What Will This Do?
Oren Klaff of Intersection Capital and author of Pitch Anything says there are four critical questions to be asked in this much-hyped space. “First, is the proposed technology just an improvement, or will it change an entire industry? Second, has the Team delivered a software product before?
These technologies are easy to talk about, but very difficult to implement and this is not a good industry for beginners,” he insists.“Third, you have to read the company's White Paper and ask yourself, is this ‘cold fusion’ (eg. an impossible technology) or is it really possible to deliver the product?
Is the engineering plan properly described? And, last, but not least: Is there an actual demo or beta version of the product to understand the vision?
"When viewed through this lens, it becomes pretty easy to spot the bad bets and the ridiculous currency ideas. Like the aptly named Titcoin, billed as “the official porn currency.” With a current price of less than one cent, it is unlikely to see any big rise out of this one.
Then there is Trumpcoin, the currency that wants to “make cryptocurrency great again.” With a current market cap of less than $300,000, that mission is probably not going to be accomplished any time soon. The Importance of the Team Like any business venture, the team behind the ICO is the primary driver.
A solid team with the experience to get the job done is imperative.As VCs look toward ICOs as the next iteration of investments, there will probably weeding out of the projects that have what it takes to give the undertaking the serious attention it requires.
While initially a way around VC funding, many ICOs are now welcoming these venture capitalists into the fold. They are accepting what they offer beyond just the money and looking to their wealth of experience to help them growth.
Darren Heitner is the Founder of South Florida-based HEITNER LEGAL, P.L.L.C. and Sports Agent Blog. He authored the book, How to Play the Game: What Every Sports Attorney Needs to Know.
Forbes regularly publish several articles and reports covering blockchain and cryptocurrencies, find even more here: https://www.forbes.com/sites/darrenheitner/2017/11/03/why-vcs-may-be-climbing-abroad-the-ico-train/#...