The Investment Revolution
How cryptoassets and token sales are changing the way we fund innovation
Firstly: why are startups important?
Startups are the engine room of the economy. They’re lean, mean, flexible and usually working at the cutting edge of technology. A lot of them don’t last long term, but a handful will go on to become giants. There’s a reason so many cities and countries are trying to replicate Silicon Valley’s success.
As an investment, they’re also completely out of reach for most people. You might be lucky to get a shot at them once they’ve listed on the stock market, often after their major growth has already happened. Crypto is changing that.
There are a few ways to fund a startup.
Path one is to bootstrap it. This means going it alone — getting by with no or little money, developing your product and marketing it yourself. It’s also really hard. ‘Bootstrap’ comes from that classic saying: ‘to pull yourself up by your bootstraps’. Which, as gravity dictates, is pretty much impossible. So, even in the romantic language of startups: this is difficult and usually not the ideal way to do things.
Path two is to raise money, and there’s typically two kinds of people prepared to put cash on the table: angel investors or Venture Capital. Angel investors are usually the well-heeled of society looking to back a winning project. It can be hard to find them though, and usually involves digging through networks and a bit of luck. It’s time consuming and often all-or-nothing for a company.
Venture Capital is the most common way for Silicon Valley startups to make it through. Australia has a handful of VCs, but there’s reason so many make the move to the US — there’s more funding available there, though more competition too.
VC firms typically have a lot of money at their disposal and focus on heavily vetting any startup that walks through their doors. They might back one out of every 100 projects that walk through their door. They’ll make strategic investments, knowing many will fail but one or two might succeed and make returns which cover all the other investments and then some.
The third way
Initial Coin Offerings (ICOs) or Token Sales are a relatively new invention — Ethereum was the first. Blockchain based companies offer tokens — not shares in their company — for sale to investors all over the world. These tokens are all different. Some can be redeemed for services from that company, or they might represent a real world asset, or whatever that company dreams up.
Running a token sale takes a lot of effort, but these companies can reach thousands of potential investors on the internet, show them their idea, and hopefully bring them into the fold as true believers of their product. Once they launch, they’ve got a built in audience of customers ready to go.
Here’s an interesting figure for you: so far, in 2018, ICOs have raised about three and a half times more money for startups than VC has. This is an overnight change which is shaking up the power dynamics of investing.
ICOs have the edge for a few reasons. The main one is that, compared to traditional fundraising routes, they can reach more people. Kickstarter and crowdfunding proved that people love to back ideas they like — ICOs are no different.
It’s also easier on the company in a lot of ways. It’s not only Silicon Valley startups raising money from ICOs: a company in Australia, New Zealand or India has just as much of a chance to get their project funded. Token sales are usually a faster way of raising money than closing with private investors too.
If we do some napkin maths, it’s not hard to imagine that ICOs are not only raising more money than VC, but are also kickstarting a lot more companies than would otherwise get started. And more startups means more new ideas and tech out in the wild. That can only be good for the economy.
At Every, we’re all about democratising investment. That means making it more accessible for everyday people who might not have had the chance to invest before, or hadn’t found something interesting enough to back with their own money, or didn’t know how to go about it.
Another way to look at cryptoassets is this: they’re a move towards decentralisation. Not just of companies or tech, but the ecosystem around it.
Instead of one or two big investors, there’s a shift to thousands. Instead of in-house research siloed away, there’s a crowd doing their own research and sharing it with the world. And instead of opportunities for the lucky few — this is an opportunity for everyone.
Every makes it easy for every Australian investor to get involved with cryptoassets and invest in ICOs. Sign up to our waitlist at www.every.capital.
Part of our portfolio is made up of promising ICOs, handpicked by our team of analysts and approved by our investment committee.
Every will begin rolling out to select customers in Q3 2018.