Why Small VCs Are Scared Of ICOs.
Disruption can take form many ways in any industry and it is happening at an accelerated pace.
The concept of co-working, which splits a floor or building into a space for many businesses with cheaper rent for all is a relatively new concept, yet it is already being disrupted by concepts like TwoSpace.
This trend turns restaurants and bars that would usually remained closed during the week into co-working spaces. It in turn removes the need for a central location and makes the rent even cheaper for the entrepreneur.
Disruption is now in venture capital land and it is scary for investors.
They have, after all, controlled the money for a few decades now and deals simply have not got done without their buy in. It was limited to their funds and based on their judgement of value. They held the power.
ICOs change that.
The world can invest in a global idea. The market decides what to invest in and the entrepreneur has another fundraising alternative — often giving them the ability to raise a lot more money then what was possible through traditional venture capital.
Oddup, a leading global startup insights company, that tracks venture capital investments across the globe recently added the analytics of ICO’s to their platform, had this to say…
“ICOs are replacing VC funding… first, they give startups faster access to capital, and second, they allow investors to realise benefits faster to match their portfolio needs.” — CEO and Co-founder James Giancotti
Setting aside what constitutes a good investment , because that is quite simply, subjective. The point I am trying to make is as follows:
Venture capital is being disrupted.
Disruption comes with access, and in this scenario that means allowing a new set of users (retail investors) the ability to invest in deals (traditionally reserved solely to ‘sophisticated’ investors).
This is literally Clayton Christensens definition of disruption.
So of course VCs are scared. Well, some are. The smart ones like Andressen Horowitz and Union Square Ventures certainly have already invested heavily in the space(see below).
It is scary to traditional venture capital because ICO’s completely level the playing field. New entrants can now invest alongside a16z and that means they can lose control.
If everyone can invest — you have the democratization of venture capital and the smaller funds will fall.
They will be replaced by ICOs and Equity Crowdfunding which is also another model that allows new entrants to play.
Unfortunately, with a flood of money into the crypto space the ability to create a new type of scam also occurred and it has tarnished the concept. The general public cannot separate the technology and its capabilities from ‘bitcoin’. Simultaneously, you also have the volatility of crypto currencies that has seen investors lose it all chasing lamborghini dreams.
Blockchain is here to stay.
All progress has its road bumps. The genius of tokenisation is the ability to make an investment liquid and trade-able and that is why it has been so widely celebrated. Most traditional companies have your cash locked up until they are acquired or until they completely fail.
If in two years in your roof falls in and you need extra cash to fix it immediately you cannot realize there value to solve the problem, but you can trade in tokens!
Whatever the circumstance, the globalisation or democratisation of fundraising has begun. If you have a blockchain startup be mindful of investors that suggest it is better to take less money through traditional channels (on the basis of ‘true valuation’) and understand that smart VC’s are investing in ICO’s.
After all, if the tables were reversed they would not suggest you knock back the $100m exit in favor of the $1m alternative that represents your true value.
