Blockchain start ups vs. traditional start ups. What are the differences?
The decentralization effects of blockchain-based cryptocurrencies are hitting the venture capital industry in more ways than one. In short — the traditional venture capital industry is BORING, the crypto tech industry is far more EXCITING.
As a Founder of a traditional start up, I am now deeply interested in the power of blockchain and keen to further explore the differences for early stage companies and what to expect from this innovation craze.
First and foremost I want to give ode to the Blockchain community who are nothing like the traditional tech community. People here are commited to the cause and building powerful solutions that can change the world for the better. The essence of it all is in collaboration, transparency and being servile to one another to make this change happen for real. We need the masses and I believe we are at the cusp of something big and beautiful.
So what are the key differences we should pay attention to?
Return on investment time: Whereas the return horizon for traditional VC funds is squarely in the 7–10 year horizon, we are currently at the beginning of an inflection point in cryptocurrency-led valuations, resulting in much shorter liquidity options for early investors, in the 1–5 year range.
Ownership model: Traditionally, VCs receive preferred shares by buying private equity. With the new models, they can acquire shares and/or tokens/cryptocurrency that have been issued by the startup.
Entry phases: Angel, Seed, Early to Late Stages are the known trajectories for conventional startup investments. The new continuum has another progression lingo with it: pre-mine, genesis, initial cryptocurrency offering (ICO), listing on an exchange, or private sale of crypto-tokens directly from the company.
Business model: A traditional startup is typically focused on developing and marketing a tangible product or service. A blockchain-based startup could have a product/service as part of what they are developing, but their stride is best hit when they are also creating a self-sustaining circular economy that is supported by their own currency or tokens, and where there is a transactional loop between earning and spending these tokens within their ecosystem.
Legal structure: Startups typically incorporate as a Limited Liability Corporation (LLC) or any other traditional way according to the corporate laws in their given jurisdiction. In the new environment, the LLC could be creating a base open source technology/protocol, but they will run a proprietary separate business on top of it or adjacent to it (e.g. IPFS and Filecoin), or they could create a valuable ecosystem around it (e.g. Ethereum). In extreme cases, the organization is non-registered and operates as a distributed autonomous organization on the blockchain (e.g. BitNation).
Limited partners mix: The same traditional mix of institutional, high net worth individuals, family offices and funds of funds that typically invest in venture capital funds will be attracted to this emerging segment, only if they are progressive, innovative and forward-thinking, with the ability to allocate discretionary funds under strategic considerations pretexts. In addition, given the more relaxed crowdfunding rules that exist in several jurisdictions around the world, a new venture fund could also get a mix of participation from a publicly crowdsourced segment of investors.
Fund currency: In addition to fiat currency, a new VC fund could also accept cryptocurrency (especially from the crowdsourced segment), because of the frictionless capabilities that exist for accepting cryptocurrencies online. However, it would be prudent to immediately convert these funds into fiat as the initial reference currency for investment vehicles, in order to avoid being caught in cryptocurrency value downturns, and to remove any perceived intent of currency speculation which is outside the mandate of a venture capital fund.
Market approach: The best candidates for this new model will be blockchain startups that are purposely creating new business models, and not supporting existing ones. The reason is that these new business models are more fertile grounds for innovative circular economies, new ecosystems, and new value creation, which are important conditions for success.
The potential for projects or early stage start ups are vast with the new technology and systems in place. The landscape is changing fast and with adoption growing globally, we might just see a whole new world of venture building in the very near future.
For more information on the future of venture building, get in contact with me: maz@hypergrowth.consulting or https://www.linkedin.com/in/maz-%E2%9C%A8-cohen-329b4620/
(Source: William Mouyagar blog)
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