Nearly two years ago i started to deep dive into the crypto world. It quickly felt like a natural playground for my next company: i became fascinated and obsessed with the blockchain technologies and saw in it the foundations of a future economy. As i started to think about how to build it and whether it would even make sense in the jungle of projects pouring from the sky, i was also wondering whether an ICO would be a good way to fund it.
After all, who does not like free non-dilutive money and, let’s call it, a little bit of hype.
2017 was undoubtedly a very tempting year to go all-in ICO. But very quickly i got turned off by the idea of going with an ICO, maybe because early on i was exposed to some projects that went sideways, i became aware of some issues i definitely did not want to be exposed to myself.
In those times where the crypto markets dry and the bears are stronger than the bulls, i wanted to share some thoughts about funding a crypto projects: i know many people are currently working on new projects and i hope it may help you guide your decision about funding.
The first question i asked myself was: “Do i need money *right now*”. The answer was a round *NO*. I knew, for reasons specific only to my project, where an important part was dedicated to research and feasibility, that no money could ever fund this. So i decided that it was best to bootstrap as long as possible. Along the road i would find a team that is attracted by the mission and obviously not by the money, or the names of the investors. It was a harder path, but looking back it was the right one.
The second question i asked myself was: “Does this project would require a token that make sense?”. The answer was a round *NO*. Could we achieve a similar if not better results without a blockchain or a token? absolutely yes. Would that mean we would never do an ICO? ever? no. But at this stage and for a good while we will not need a token. We even thought it may create a conflict of interest with the assets and projects we plan to serve. So the decision was quickly going to be easy. No token. No ICO.
The third question i asked myself was: “Where do i want to allocate my time and attention?”. I had only one answer: the product and the team. Nothing else. I would argue that when you decide to undertake the ICO route, it quickly become a massively time sink and attention vacuum cleaner. It’s like a restaurant: even if you never ran one and just visited as a casual patron you just know that would be quickly be enslaved by just owning one. ICOs are incredibly complex projects in the making (and expensive too). There is no free money. The ICO (and your token) quickly become your product, if not your primary product. You serve the token and not the service you are building, unless the service you are building absolutely depends on its token.
But worse: quickly the health of your token is affected by market forces you are not in control of, no matter how great is your work. At best your token gets listed in an exchange. At worst it’s not. In both cases you will suffer: you will suffer from major pumps and dumps, of its dependency on Bitcoin or Ethereum, on liquidity waves, on listing fees, on competition from other tokens, on news and rumor mills.
A young company is not designed to deal with those things. It is meant to build and ship awesome products. It’s as if a startup was IPOing in its first year when it did not even had the time to mature and face public exposure. And when i see the average quality of the products shipped by companies who raised tens or hundreds of millions of dollars i am quite confident in saying that ICOs may in most cases represent a threat to building great products. What kills companies is not the lack of money, but the lack of care for what you build.
The fourth question i asked myself was “How confident do i feel i will surf the uncertainties of the market?”. I hand only one answer: “no answer”. I had no clarity on Tax and legal regulations regarding ICOs. I knew would have to spend considerable hours getting updates directly or indirectly from regulators around the world. I would live by the tic toc of their clock which is not fast paced. I knew also it would be a nightmare to deal with Banks and justify the source of funds, i also knew that having a foundation as a band-aid would not serve us well in the short and medium term. How would deal with treasury? Indeed you end up raising BTC/ETH and the question is, when do you sell? do you keep half? how do you manage this? This is a full time job and source of regrets and burden i did not want to add to the long list of issues associated to the classical actions you have to deal with as a startup.
The fifth question i asked myself was “What if things go sideways?” Which is let’s be honest always happening in a startup? In a typical startup, you have a limited number of shareholders to deal with, who, most of the time if you pick them well, will be supportive in hard times. In the ICO world, things are different. Sure, your token holders have no right and in theory can’t do a thing. But you do not want to have a community or raging users in Telegram on your back.
And this is without mentioning your employees and dear advisors heavily rewarded in your super token: how great will that be when your token is worth a tenth of its original value? What will they feel about your project?
Managing all this negative energy when your token value goes south, or when you fail to get listed, or when your testnet sucks or when a bug is discovered is not great. If you want to know what it looks like, join the Telegram group of any random ICOs (minus some exception) that is more than 6 months old. A startup should spend zero seconds in dealing with those things. Having a supporting board with investors that can ride rollercoasters with you matter more than the millions than you can raise.
In the case of my project, an ICO was quickly going to become a toxic distraction from the core of the mission: building the best-in-class product of its category. So even if it meant, i would miss the market by a few months (which in hindsight was a good thing), even if it meant i would raise far less money (including less from our competition), that i would dilute my company it was well worth skipping the sirens of the ICO bells. It does not mean that as rule having an ICO is a bad idea. There are some outstanding ICO backed projects out there. Every project has it own thinking.
We had our own thinking and stuck with our own thoughts. We wanted to avoid the pitfalls of a hyped industry because we knew it would affect our ability to build our company the way we wanted. Instead of spending months (and millions). We wanted a path that allowed us to validate our assumptions, to build a team driven by mission, to find supporters willing to back us with strong names, records and pedigree. We wanted the core of the DNA of the company to look solid and aligned.
Many said that ICOs will kill Venture Capital. I do not think so. No one will kill anyone. ICOs, once better oiled (ie regulated, self-regulated), will be a serious alternative (or better said challenger) to certain type of projects where networks and security matter. Venture funds get more and more involved in cryptos to learn about the space, most of the time in pre-sales or pre-pre-sales. I am sure the industry will adapt. But one thing is certain the current burden represented by ICOs is way too heavy for any young companies unless you have a compelling reason to hold one. I am a strong believer in ICOs in the long term and i think they will represent a revolution in the way the economy is funded (not just crypto networks). But for now, any pragmatical entrepreneur should seriously ask himself whether an ICO is the right path.