Crowdfunding, ICOs and much-needed evolution

Crowdfunding and ICOs (Initial Coin Offerings) are close relatives. It could even be said that ICOs are crowdfunding’s digital dream-child, following in its parents’ footsteps and making many of the same mistakes, but ultimately coming out ahead.

Both methods follow the same rubric and are based on the founding principle of the ‘crowd’ or the community as a driving force of untapped capital.

Here’s a basic explanation of how crowdfunding and ICOs work:

Companies like Kickstarter, Indiegogo and GoFundMe provide a capital-raising platform where startups market their products. There’s a ‘raise’ period for individuals/entities to pledge money. The target amount is raised, providing the startup with a much-needed financial infusion to begin delivering on its promises, usually sample products or other benefits for backers.

A risky business

This type of funding isn’t risk-free. Of course, there were great success stories such as Oculus in 2012, 3Doodler in 2013, or the quirky card game Exploding Kittens in 2015, but crowdfunding isn’t a golden ticket.

Less than 40% of Kickstarter projects meet their goals and remain unfunded. Some of the most exciting companies who attracted considerable interest and funding either flopped or were outright scams.

Flops range from the honest failure of a team to meet their production goals, like Tiko’s 3D printer (with almost 3 million dollars raised), to the personal scam of Jennifer Cataldo in 2016, who lied about not having money to pay for medical bills, and even more reprehensible scams that were nothing more than marketing schemes, like Crystal Wash in 2015.

And we can’t forget Triton’s 2016 questionable underwater breathing device, which successfully raised almost $900,000 but was later forced to come clean and refund their backers. Because of bad experiences like these, the crowd wised up and getting backers has consequently become more difficult.

ICOs have gone through the same initial phases in only a few months compared to what crowdfunding experienced over many years: massive success, epic failure as high-profile companies don’t make it, destabilisation of the investor base and rampant distrust in future endeavours.

ICOs rely on community

Bouncing back from this, one advantage ICOs have over their crowdfunding counterparts is their ability to offer more than simple donor perks. Blockchain-based services are driven by community participation. Donors not only get a fixed perk for contributing to a project but can also benefit through the value appreciation if the token is used.

Ethereum is the prime example of this. Not only can participants use the product (ETH), but they can also help run the system (miners and nodes) and are rewarded for their efforts with ETC. The more people use this token, the higher its value becomes. This fundamental difference — the incentive structure built into blockchain — has allowed ICOs to evolve much faster than crowdfunding has.

Red flags

A common criticism of crowdfunding is that it has not proven to be superior to traditional VC funding. So far, all ICOs have followed the simple crowdfunding approach of offering a project to a crowd of followers who can choose to back or bail.

The obvious red flags are: there is neither a qualification process nor selection process by experts.

In 2017 and 2018, we saw more funding take place without crowd investment. This means tokens were only offered to funds and accredited investors. This development isn’t beneficial for the growth and momentum needed by blockchain projects. It weakens the inbuilt reward structure of tokenized systems and prevents projects to access the wisdom of the crowds.

A smarter, safer approach

Moondock addresses the glaring shortcomings of the blockchain funding experience. We achieved this by establishing a selection protocol that combines the best of the VC world’s selection process with the intelligence of the crowd.

Our selection process includes dimensions that Kickstarter or Indiegogo lack. Experts from the Moondock community look at several factors before accepting a new project into the protocol, such as the quality of the MVP, due diligence, proof of concept, or previous successful startups, these being only a few criteria applicants are asked to meet.

Chosen companies are provided with an ecosystem of multipliers, advisors, industry experts and early adopters that help develop the product and build a first user base.

We also offer investors transparency and give them the opportunity to get in on vetted opportunities and not blind investments.

Moondock’s interest in the blockchain community as a whole is a critical component of our business model, especially when considering that projects cannot thrive without an active community.

These are solid advantages in an otherwise anonymous and unstructured space because they increase the security of all participants, an ongoing problem with crowdfunding and the internet in general. We’re looking to make Moondock the go-to platform for all blockchain enthusiasts.

Summary

Today’s funding landscape opens investors to more risk because of a lack of expert insight and a structured opportunity selection process. By creating an environment predicated on smarter, informed investments fuelled by due diligence, industry expert analysis, advisors, an environment of multipliers to drive blockchain startup success and community growth, investors and blockchain startups are positioned for success.