Venture Capital + ICO = True Love!
With all this noise and media coverage about Initial Coin Offerings, “Crypto Bubbles” and that all new startups are going for ICO instead of VC money — let’s talk about what VCs will do to stop that? Or will they just join the party?
I think it is obvious that for a new born team of smart entrepreneurs — ICO is much better way to raise capital. Of course, if they are a freshly born kebab chain (yes kebab) or a gadget producer it might be tough to explain to blockchain community why they are doing ICO (for now..). Eventually, ICO will be the way to rais capital no matter what the project is about and does it use some kind of Blockchain at all. Why? Because to raise 10M or even 1M in a small market or for global expantion — is very very hard. You have to dedicate a lot of time and “love” for VCs. Do a lot of pitches, prepare a lot of presentations and smart business plans. And at the end — the chances to raise a substantial sum are very low. I mean practically zero… Your seed round will be 250k on avarage which means that after raising it you will have to start looking for the next round immediately…That is why everyone now will try to do ICO — it is fast, very global and really takes less effort selling your idea. Also — the judges of your idea are the community of Blockchain — of which 90% are speculators :) They are in for quick money, not necessarily a super new technology which will change the world. You need a good White paper, credible names on the advisor’s list and smooth marketing. That is it. Not a lot of very hard fundamental and drilling questions are asked by the community on Telegram or Slack channels, certainly not so hard as with VCs who listens to 50 pitches a week. Some members of course are doing the homework and try to do good due diligence — but the mass of the contributors don’t.
Thus startups are in for ICO and what about VCs? They of course will go for ICO money… they will invest and invest hard. Why? Because it is also easy money for them.
For the last three months, a whopping 30bilion USD were pulled out o of the stock markets. All investors are starting to feel pressure from crypto. The stock ROI is low and the risk now is unpredictable as all economic factors start to look like 2008… uhh crisis (or at least a healthy correction) is coming and more investors agree on that.
So, we have unemployed money in the market, we have crypto which skyrockets with profitability and we have thousands of startups running for ICO. So fuck it — funds are going to invest!
Main benefits for VC?
1. It takes from 4 to 10 years for VC to exit startup. A long time compared with 3–6 months after the end of ICO.
2. Exit when you want. Since all the tokens are in the market after 2–4 weeks of ICO, VCs are free to decide when they want to sell the tokens and take profits or even increase the stake in startup token pool. And no supper complicated ageements!
3. Good returns. If VCs are in — everybody wants a piece of that company, it is a mark of quality if VC is investing, no need for others to do due diligence. And you can expect 2x-10x returns in short run and maybe much bigger if the project is really good and you decide to stick with the token for a while.
Actually, some of the traditional funds are already investing big sums into ICOs like Sequoia Capital, Andreessen Horowitz, Union Square Ventures and there are some special new funds for that like Polychaine capital, Pantera capital, Blockchain capital.
So the way I see it — everybody is more happy with ICOs. Startups can get a quick funding from all around the world and VCs who can do a quick buck, exit when ever they want and go on investing in a new promising idea for 6 months. All looks good — until of course the delivery day of the product will come and somebody will be stuck with tokens from startup who is missing the deadlines and everybody starts to see that the ship is sinking. And how long we have till that day? I predict that a year. Since all the ICO mania started Spring 2017 and roadmaps of a majority of companies are spread across 2 years — we will see first bubbles blow next summer. Then the party will be over for everybody, at least for some time (like in dot-com times). Everyone will want to drop the “shit coins” they invested in and go to fiat, Bitcoin, Etherium or another TOP crypto. We will see a lot of negative media coverage (now we do not see it as it is not beneficial for crypto media to show negative things now), and “I told you so” attitude from governmental institutions like SEC. But a handful of companies will remain strong as they will deliver. Good companies are born in hard times like Google and Amazon were born in dot-com times.