Date: 6-7 June 2017
Place: Grange Tower Bridge Hotel, 45 Prescot Street, City of London, London, E1 8GP, United Kingdom
How about raising $8.2 million dollars in less than 20 minutes without giving up a lick of equity as a startup?
That’s what a Blockchain startup out of Poland called Golem Project did a few months ago.
Imagine open sourcing all your software and structuring the company as a non-profit foundation bypassing the VC route, designing your own currency and assigning a value to it and selling it… raising millions – and imagine doing all this without having even built any software and just putting an idea down on paper – essentially offering vapourware with a bit of math and text on a few pages called a ‘whitepaper’.
Swiss foundation DECENT did just that recently, pulling in 5881 BTC worth some $7 million in today’s BTC-USD price.
Today, Ethereum remains one of the largest ICOs to date, raising over £16 million in 2014 – and today has a market capitalization of close to £4 billion.
Welcome to the new world of Initial Coin Offerings (ICOs) – a phenomenon born from the Bitcoin community that is rocking some parts of the venture capital industry, who are now beginning to take a good, hard look at this new financial instrument which has both its benefits and its disadvantages as well as threats and opportunities to their own business model.
One VC is willing to buck the trend. Leading industry investor Blockchain Capital is set to raise its third fund via a digital token offering in the world’s first liquidity-enhanced venture capital fund via a digital token called BCAP.
Want to learn more? Attend CryptoFinancing 2017 in London and meet some of the Blockchain Capital team – as well as CEOs from ICOs that have raised millions and leaders of startups that have ICOs coming up.
Also known as token sales, this new fundraising phenomenon is fuelled by a synergistic convergence of Blockchain technology, new wealth, clever entrepreneurs and crypto-investors backing Blockchain-fuelled ideas that are raising funds by creating their own cryptocurrencies and offering discounted rates on digital assets before they hit the cryptocurrency exchanges – sometimes up to 40 per cent. The investors can then opt to cash out to a fiat currency early via Bitcoin or Ether or wait for the currency to rise.
In other words a digital asset is created, a value determined – and by consensus reached by investment, value is settled by a network of participants rather than by a central authority or government.
Want to learn more? Attend CryptoFinancing 2017 in London and meet investors who are making massive returns in the space on cryptocurrency exchanges.
Cryptocurrency pricing fluctuation is largely pegged to the Blockchain project’s performance and can be determined and influenced by a number of factors such as meeting milestones – but the principle pusher is the news cycle (new deals, partnerships, etc). Profits are moot as almost all the Blockchain projects that have done ICOs are still in development.
Utility of the cryptocurrency can also have impact, such as gauging if the coin just being used for fundraising and has no other purpose or does it play a role in the startup itself as a digital asset?”
Venture capitalists, who generally have been standoffish to the ICO phenomenon are now becoming more interested for a number of reasons. One is profits – cryptocurrency investors are making huge returns on not only Bitcoin and Ether but also emerging cryptocurrencies born from ICOs. Ethereum doubled in just a few days in March.
Yes in three days, people who invested in Ether doubled their money. Some cryptocurrency investors are earning massive ROI in weeks and this fact is spinning heads. Liquidity is the second reason VC are interested. Rather than tying up vast amounts of funds in a startup or Unicorn and waiting for the long play – an IPO or acquisition – they can see gains quicker in ICOs and pull profits out easily.
Want to learn more? Attend CryptoFinancing 2017 in London and meet other VCs who are already investing in the space, and others who don’t – some for good reason.
What traditional investors don’t like is regulatory uncertainty, high valuations and over-capitalization, lack of controls and lack of business use cases.
And like any industry, the ICO arena has had its fair share of outright scams, pump and dumps and blatant Ponzi schemes. However much of the criminal activity is now being mitigated by self-organised crowdsourced due diligence in the community and external parties such as Smith and Crown and ICO Rating who perform deep analysis on the ICOs.
ICOs are the Wild West of financing – they sit in a grey zone where the SEC in the USA and many other regulatory bodies are still investigating. The main problem is, most ICOs don’t actually offer equity in the venture, therefore are outside of traditional legal frameworks when it comes to securities.
They only offer discounts on cryptocurrency before they hit the exchanges after the ICO, therefore do not fit into the current definition of a security.
Want to learn more? Attend CryptoFinancing 2017 in London and meet some of the regulators – the lawyers and the challenges governments and the legal system are having with defining this new financial instrument – security or not a security?
Secondly, they are global instruments, not national ones and they are funded using Bitcoin, Ethereum and other cryptocurrencies which are not controlled by any central authority or bank. Anyone can invest and they can even do so pseudo-anonymously. Currently there’s no Anti-Money Laundering (AML) or Know Your Customer (KYC) framework though some companies are working on that such as Tokenmarket, who has teamed up with the Stock Market of Gibraltar to offer KYC and AML compliant ICOs.
Detractors of the new funding schemes scream for structure and protection, point out the scams, demand more control and say without equity there’s not enough skin in the game. Meanwhile, proponents retort there’s a real need for freedom to invest outside the accredited system which sees the wealthy get wealthier and the door needs to close on the domination of Sand Hill Road in Silicon Valley and other VC and investors in the tech industry who have been making massive returns off the backs of entrepreneurs for far too long.
Want to learn more? Attend CryptoFinancing 2017 in London and meet some of the CEOs from ICOs that have raised millions and leaders of startups that have ICOs coming up and let them tell you their stories.
For Blockchain startups it’s a win-win – there’s no equity stakeholders breathing down their necks and there’s many feel there’s finally a solution for non profit foundations who want to build open source software to find capital. As they hold a percentage of the total cryptocurrency in circulation (usually 10-20 percent) they also have a vested interest in building more value.
The market cap for Bitcoin is now 20 billion dollars and half of that is allegedly owned by less than one thousand people, called Bitcoin Whales. Many are in China, but there are also hedge funds and bitcoin investment funds who hold massive amounts of Bitcoin. Most made their money early by buying or mining Bitcoin when it was under 10 dollars in the early days (2011-2013) .
It’s now worth approximately $1200. They are currently the ones who make or break many of the ICOs. Some of the enormous profits they have made in Bitcoin are being channeled back into innovation as they seek to diversify holdings as well as support the ecosystem in general.
Over 270 million dollars has been raised in ICOs since 2013 according to Smith and Crown (not including the $150 million raised in The DAO which was returned).
Since 2013 there’s been about two billion dollars invested in Blockchain and Bitcoin startups from the VC community. ICOs are becoming more and more popular for startups seeking to get out of the self-funding, bootstrapping starvation mode and avoid being locked in by venture capitalists and watching their equity drowned in a sea of rounds.
ICOs are dominating the overall crowdfunding charts in terms of funds raised with half the top 20 raises coming from the crypto-community.