Why ICO is a good funding for startups and a better choice for investors
I like to read. I didn’t in school but now it is one of my favorite things to do. From time to time I read a book (like the normal one about dragons :P) but usually, it is a stuff about my work and for my work (or some motivational things just to understand that I read it already). As I consider my self entrepreneur and Angel investor I have to read and express my opinion about what I have read (sometimes only to my self..), you know — to keep up to the hype and to show that I know stuff. But that is a usual drill for cultivating business..
For the last 6 months, I read a lot about Blockchain and especially about ICO. Oww what a glorious thing it is and what a bad thing it is and how governments don’t know what to do with it… I would not explain what an ICO, there are a lot of posts about it. So many stories about huge ICOs and unsuccessful once. Well about unsuccessful not so much as nobody is interested in fails at this phase of crypto boom and crypto media would not want to show a lot of info about failed ICOs as they want your attention and money to be in ICOs on the positive side (guess where the money for media is from..). But this is not about the big guys in crypto and the media of the crypto.
I want to talk about if ICO is a proper way to rise money and invest your money. I agree that we see some scam ICO and they are spoiling the market, but in general, ICO is a great way to rise money and a great way to invest some of your Etherium or Bitcoins. Also, commutinty of investors in ICO are very good on spotting the scam ICOs, so the bad guys are having a hard time to scam the backers. Of cause, much of this ICO thing looks like a poker game but is the regular startup funding any different? I would not compare ICO with IPO (Initial Public Offering) as it is in another league of regulation and maturity of the company but ICO is definitely like a seed round for a startup only some times with much bigger sums. We are usually used to seed round of 500k to 2M and 2M is a big seed. ICO is another case. The fresh company with few team members can rise 10–15M like Mysterium or rise in a scope of 200M like Tezos and Filecoin. Do they need so much money for a start — probably not, but ICO works that way if a market has a demand for specific tokens and ideas behind them — ICO hosts gives them those tokens, simple supply, and demand. After ICO the initial buyers (or “contributors” if we want to avoid SEC) are selling it usually during first minutes after appearing on the exchange for 5–10x more and everybody is happy. Well everybody until the roadmap of a company comes to a product delivery date (which is not yet as this market is very new and all startups, for now, have not failed contributors) — and that date of delivery, when it comes my friends will be not much different from a regular startups — 9 out of 10 will fail or will pivot or will be gone. That is a fact with which nobody will argue. But unlike a regular startup — it will leave the market with its tokens on Bittrex or Kraken or any other exchange. And you will still be able to trade those tokens (of cause on much lower value) like Dogecoin — this project is declared dead and then resurrect (not by me) for some time, but you can still trade these tokens and lets look at the market cap of them, the day of this article it is still https://coinmarketcap.com/currencies/dogecoin/ yep — 200M . Not a bad thing for a project with lots of google search results or “Dodgecoin Dead”
SEC in USA or MAS in Singapore or any other country will try to regulate ICO. Some people will get burned (and that is why government will try to regulate it even more) but if you do your due diligence, if you read about the team and talk to the team, if you spend time investigating about the product — your chances to get 10x return will be far better than with a regular startup funding. Why? Simple:
1. You need to be a well known Angel investor or established person to be invited to invest in a good startup the old way (seed round);
2. Regular startup takes a lot of legal work to invest and complicated agreements;
3. If the stars are on your side and your startup is growing — you will anyway wait on average 4 years to exit this investment and take the return.
Yes in real investment you get your share of the company. But wait — you are anyway interested in making money and exit — correct? So why bother with complicated investment schemes?
With ICO — you will spend some time on due diligence, invest with no specific background from you required and cash out probably a month after ICO (if you decide to do so and will not wait for the promised products to be delivered, no drag along, tag along or liquidation preferences rules..). Sounds attractive? I believe so and that is why we have so many new people come to this market every day. Like millions (if you don’t believe, see Coinbase user growth — 300k per day..)
ICOs will go on and it is just a beginning. Of cause, some of them will not be 5x or 10x return and a bit of regulation will be OK as it will rise the bar for entering the ICO for the startup thus fewer scammers will be around as they will have to initially invest more in product, team and legal side of ICO. If you look at it — now it has zero regulations but market and competition are doing the job. It takes a lot of work to do a good ICO. I know that haters will say that you can go on Waves platform and issue tokens in 5 minutes but so what? Who is going to buy them? Google some ICO tracker pages and see how many raised decent sums? Not so many… To do an ICO you have to build a team, prepare a good white paper (and that takes loads of time and competence), code MVP and invest in marketing.. and invest a lot. The sum which should be prepared for your ICO launch is starting at 150k and it will grow… It is a snow storm outside with ICOs popping every day. How will you beat all the noise on the market and attract investors? That is a huge challenge. The market will beat the bad guys or the guys with out the initial funding for the ICO funding (that is also true). But a regular people will be able to invest and play the game, that is very important and that is what drives the crypto market now. Unprofessional investors will have to learn how to do it and start liking reading and chat on Telegram, Slack and download Etherium wallet, set it up and learn how to do a transaction (for regular folks that is already a challenge) but at the end of the day they could end making the income of the year in one month and that sounds like repeating the long forgotten American dream again (not necessarily by living in America..)