Publicly Traded Blockchain Companies

With what could be the last gasps of life for the bubbly global economy, we’ve all seen how HOT the current IPO market is. All of those household name unicorns and decacorns ($10 billion valuation) have trotted their way from the private to the public markets. Silicon Valley is awash with the spoils of the last decade of hyper-growth in valuations. Congratulations to the beneficiaries of Slack, Uber, Beyond Meat and of course WeWork… oh wait!

Other than that rather large WeWork blemish, it has been an extremely fruitful decade for startups, their growth, valuations, and finally. their launches on the public markets. Many of these companies have been able to keep their early growing pains out of the public eye, away from scrutiny, launch in new markets, release new products from stealth, test new features and make mistakes, over and over again. This will sound all too familiar to disciples of the ‘Lean Startup Methodology’ or anyone who has started a company themselves. It’s definitely not all rainbows, butterflies, standing desks and free beers at the office.

This “Me Time” that a startup gets in its early years provides vital respite and opportunities to explore true innovation and the not so obvious path. The whole venture capital industry is based on this discovery process and a startups right to try and find product market fit. These more sophisticated investors allow for time and testing, not a daily update. Slack was originally a gaming company who built and internal communication tool, before realising that this communication tool was their real business, now worth over $20 billion. Test, Pivot, Time, Test, Pivot, Time, Test, Test, Grow, Hope, For, IPO.

When a startup decides to list on the stock market, they must publish extensive details to the wider world about the decisions they have made behind closed doors. Then after they are listed they must provide detailed quarterly updates, answers for their mistakes, justify their decisions, inform the public about their upcoming plans, stick to deadlines and communicate all of this in a rational and hopefully optimistic manner. Stock market investors don’t always have a ten year investing time horizon like the venture capital industry. They want promises to be made and kept, quarter after quarter and no drama in between. In return, the company gets access to large liquidity or funding opportunities, as well as the potential for large payouts for those leading these companies. No pain, no gain.

Publicly Traded Blockchain Companies

There’s an elephant in the room in the blockchain industry, but it’s not entirely obvious to everyone. The nascent blockchain industry is full of hundreds of startups, many of whom are not so different to these giant tech companies, some of these companies may be the decacorns of the twenty-twenties. They all have a mission to grow their startup, create new business models, apply some of the startup wisdom from before and find product/market fit. But their companies are not ordinary startups, they are Publicly Traded Blockchain Companies.

The majority of startups in this industry have issued their own token through mining, ICO, STO, IEO and the like. The ‘Token Generation Event’ (TGE) is a significant moment for any of these companies, but it also triggers a sequence of events that can’t be put back in the box.

Birthing a token can be a full-time commitment. Something that many token Mommas and Papas are not totally prepared for, and it shows. Through the rest of this post, we’ll look at some of the parenting problems facing startups with a token.

Answerable

Many leaders of blockchain projects have a wealth of previous experience. They have launched companies or worked in startups and know what it’s like to have to answer to investors. Your VCs or angels want to know what you are doing, they check in from time to time, maybe meet for coffee, but they are usually limited to a handful of people and these people are investing with a ten-year time horizon in mind.

The major difference being, you are not answerable to 1000+ retail investors, which can be the case for the average blockchain company. The crypto markets are 24/7 and active in every timezone, at any moment of the day, somewhere in the world, there’s someone thinking “wen moon?”. Most investors in this space are not investing with a ten-year time horizon in mind, they want faster results and they want them NOW!

This is causing a huge issue for many legitimate projects out there. There have been so many scams and money grabs that people’s confidence in project teams as a whole is very low. Retail investors have been squeezed time and time again, so they keep an even more watchful eye on their token holdings.

The lack of confidence in blockchain projects as a whole, the above average risk profiles of the average retail investor lead and the publicly traded token lead to an overload of questions for project teams. This is both distracting and unless things are going exactly as planned (not common in startups) then it can leave teams in a difficult situation.

Communications

As many blockchain founders have found over the last few years, it’s hard to make everyone in your community happy with your communications, but it’s incredibly easy to blow your whole reputation with one miscommunicated statement.

Communications strategy is one of the most under discussed requirements for blockchain projects. Learning how to reason with an angry horde of 10,000 Telegram members is an important skill to have. It’s something every project should plan for, building a connection with your community so that they ultimately trust you and stick with you through the good times and the bad times.

Unfortunately, most members of blockchain teams are either inexperienced in corporate communications or expect that giving answers like a normal tech startup will suffice. The third scenario is always the worst and involves startup founders getting angry with their community for asking such probing questions and well this never ends well! Communication skills are a must have for Publicly Traded Blockchain Companies.

Testing

One of the keys to success for almost any startup is testing new products, features or pivoting entirely. Testing can take a lot of time, it can also fail and you may look back in hindsight and think it was never a good idea in the first place.

Frankly, no startup would succeed without testing new features and finding successful paths forward. The “Like” button for Facebook was once just an idea, as was Tinder’s “Swipe Right” feature. For every successful and potential company defining idea, there might be ten failed ones beforehand.

Now looking at blockchain companies, they obviously face the same obstacles to success. Blockchain founders are not superhuman, even if we might want them to be. The majority do not have established business models and the whole market is trying to find product-market fit. Publicly traded companies often have a strong revenue model to fall back on and that often gives long term holders confidence that a company can build on their previous success.

Blockchain founders with publicly traded tokens do not have this luxury. Their businesses need to operate like startups, they may need to pivot entirely but 95% of them do not yet have a proven business model or product-market fit. This makes it incredibly hard to establish long term investors, as any wrong turn or new direction can be taken as a sign of failure. There is also then a strong bias and exaggeration to how this perceived failure is treated. Everybody wants to react before everyone else and this creates a negative spiral on the token price and thus the community.

When blockchain projects start to enter a death spiral of negativity, which can often be started by a pivot and community misunderstanding, this can be hugely detrimental and time consuming for the founding team. Projects have to be aware and remember that every test they make as a startup might lead to a crowd demanding answers.

Stealth

The stealth startup is an extremely common occurrence in VC land. Often these companies are in high tech industries and they want to take time away from the bright lights to develop something totally revolutionary. Another situation is that these companies want to avoid detection for fear that competitors could latch on to their idea or technology and adversely impact their market potential.

With blockchain projects, trying to operate in stealth mode (post fundraising) is a very tough task. Many projects from 2016–2018 with their ‘whitepaper-only’ fundraises planned to go away for one or two years and build what they had promised, plenty of them are still doing that. While many of them would like to have operated in pure stealth, they have not been allowed to by many of their investors or other parties in the space. With all the scams we have seen in the ICO market, disappearing and building away from the cameras has not been very easy.

If they decided to release your token immediately, then there will have been a constant knock on the door from the community asking for updates, progress, moons and Binance. If you are trying to protect your market position from competitors and have some super exciting news that will help you grow exponentially, you would much rather wait until it’s fully baked. However, unfortunately, it’s sometimes hard to not appease the trolls and give them what they want. This is a real conundrum for everyone but the strongest and best communicators.

Fundraising

The final area I’d like to look at is fundraising. With the majority of projects from the last few years raising under the premise that they are a utility token for an ecosystem, the idea is that the fundraising mechanism is front-loaded and projects raise all of their money at the beginning to fund the lifetime of the project (with maybe some portion of the token supply geared towards further support).

For a traditional startup, this kind of inflexibility is madness. Firstly, you raised X million dollars, which you have to use as a runaway for a certain period of time. Most projects probably factored in 2–5 years, which is already a long time compared to traditional startups who might plan either (a) for their funding to last 1–3 years or (b) to reach a certain point of revenue generation or profitability. For Publicly Traded Blockchain Companies we have asked them to estimate their needs for a much longer time horizon (which inevitably many will have got wrong).

The second factor is that from this fundraise we are assuming that they actually have X million dollars. Unlike the traditional space, blockchain project could have raised in ETH that massively devalued in 2018, had exorbitant costs of executing the fundraising process or even potentially lost some through hacks/bad actors.

Then the third factor is that I’m sure pretty much every project had a model that calculated a certain appreciation in their token price. This, in turn, means the percentage of the token supply set aside to continue further development some years down the line was probably expected to be worth more a much higher amount than on day one. *Checks CoinMarketCap*. Well, that doesn’t seem to be going to plan for most Publicly Traded Blockchain Companies who are still away building.

With very little opportunity to reopen fundraising or issue new tokens, these factors will leave more and more projects in a funding quagmire that their traditional startup counterparts don’t have to deal with (unless venture money dries up). Token adoption is the best route out.

My Hopes

These thoughts were shared to highlight some of the differences and challenges I see projects facing. I really hope that the majority read this and as the market matures it allows projects a little more space to experiment and grow.

With Proof of Stake becoming the current en vogue consensus mechanism, I believe this will start to incentivise more long term believers in projects who stick with them. Many projects are currently offering added bonuses for stakers as a way to bootstrap their network in the early years, this should hopefully pay off with the best projects. Projects should look at as many mechanisms as possible to incentivise long term believers and their community will likely return the love.

Projects should really spend time on building trust with their community and being as transparent as possible on matters they can be, this is the easiest way to appease a horde.

Projects shouldn’t overpromise and should address problems head-on. Allowing problems or rumours to fester for a few days can lead to the escalation they never thought would happen. Be present as founders and make it clear when it’s time to speak to the community or private time. The reality might be that the team is doing nothing wrong or shady, but the perception of teams is against them.

There is one other force at work. There are definitely parties being paid to attack other projects. These trolls sometimes spend all day from multiple accounts slandering other projects for the benefit of another project. I guess they earn a living that way. I’m sure some of this happens in the real startup world, but I very much doubt on the scale we see in this space.

It’s a tough world out there for almost all Publicly Traded Blockchain Companies, their ability to innovate, their reputation and their ability to execute are all you have. Amongst all the scams and money grabs in this space, there are many teams with a real mission, who want to change the world around them. People shouldn’t forget it.

Attacking each other about the best way to achieve consensus is not going to help us achieve mainstream adoption. More time should be spent collaborating to educate the wider world about what we are trying to do here. 99% of the world’s population still have no idea what blockchain can really do. “No Sir, this isn’t about buying drugs on the internet!”