Evolution of investment process. The road to ICO
The investment process for the last decades has changed. The main factors that drive change is the technology that is growing fast. The lifecycle of a project needing money is shorter every year. Developed technology needs to be built and tested almost instantly to survive. The traditional investment process is a pain in the ass for most founders.
Most investors need numbers and at least initial product validation not connected with an opinion from a friend or family member. Founders without or with limited resources can’t deliver the product fast enough to be a real player in the world of modern business.
The market must adapt to the situation and raise the companies and initiatives that create a different layer in investment approaches. That’s how crowdfunding was born. Product crowdfunding and equity crowdfunding allow companies to validate the product before it reaches the traditional investor. In simple words, the traditional investor sits in a position of funding the expansion, not the existence of a product. Crowdfunding takes this process to a new level, allowing people to think about the product first and validate an idea in a timeframe that wasn’t possible before. When crowdfunding campaigns started to be visible on the market, they were a holy grail for a lot of new born founders and initiatives.
Crowdfunding was, and it is still a good thing, but as history shows, It Is not the best solution and definitely not for everyone. Crowdfunding confirms the hypothesis that the marketing and sales quality was a key for fundraising money. And you can easily find successful companies, but much more scam companies that take the money and never deliver the final product. Crowdfunding also uncovered problems that weren’t visible before. First, campaigns were mostly controlled by a private company that helps in fundraising (such as Kickstarter), and what’s more important, it wasn’t for everyone! Crowdfunding campaigns were limited to founders that incorporate a company in one of the countries and that was often a huge problem for a lot of founders.
Crowdfunding built a lot of possibilities for product companies, but this wasn’t a good fit for other types of business. Still if you’re a founder of a software company, for example, you needed to go to investors for money. The market developed a solution for those problems also in the form of a huge number of accelerators on the market. The idea was simple; help companies in business development and market validation and prepare it for the investment process. That ideology helped companies to fundraise money faster, but if you looked in details, it wasn’t something that worked with product market validation because the decision was done by the investment committee, not society. When blockchain technology was born and ICO was developed, the new era was born in the process of fundraising money.
Giving the power of investment into the hands of people without border limits solved all the problems of the existing investment processes. First, the speed of investment is helping to take a product to market in an amazingly fast timeframe. Second, the investment process saved in blockchain makes the investment not controlled by a single person and organization.
Third, it gives investors something that wasn’t possible before… a fast track for liquidity event. Traditional investors that allocate money in the company in the early stage usually commit to long-term investment terms and could not think about the return fast. The return from his investment was limited to major events in a company, such as Exit, IPO, and rarely next funding rounds. Only experienced private investors knew how to manage the process to see investment return in the timeframe of a year. ICO took this to a new level, making the asset tradable, which is a protection of investors, which was impossible before. The investor in an ICO stage can decide based on his own judgement if he wants to stay with a company or sell the asset. 95% of ICO investors are focused on trading and speculations of emitted cryptocurrency, but this will change when traditional capital will join the market, and more institutional investors will join the market. This will improve the market, as ICO will be treated as an Investment mechanism not currency speculation mechanism, and that’s the future.