Can ICO replace Venture capital?
In more recent times, opinion that “development of mechanisms of ICO can provide great opportunity to receive financing for students’ and entrepreneurs’ ideas” has been often expressed both by representatives of crypto society and by number of officials, who are related to the field of innovations.
The ICOscoring team has decided to find out how competent these words and whether are there actually problems with attracting funding for really high-quality projects.
The classical approach of venture investors
The choice of financial sources plays a crucial role for projects on early stages of development. There is the concept of “smart money” in the world of venture capital — it is an investment term, which assumes spent time, given advice for strategic development and know-how that investors provide” to the company in addition to money. Thus, apart from direct financing, the company receives investors’ long-term experience. In contrast to “smart money” there is the concept of “dumb money” in the terminology of venture business, when investors provide only financial support.
Unlike of investors of public market, who, in most cases, can monitor various indicators of the company, but do not have the opportunity to directly influence on its business, number of methods that venture capitalists possess is significantly higher — starting with the informal consulting of managers and teams and ending with strategic decisions, that they make as members of the Board Committee. All above allows company ‘management to decide on which indicators to focus on, how to improve them, and how (and when) realize exit from the project (where there are also many different options — varying from IPO or LBO to selling the project to a strategic investor).
Sentiment analysis of European Founders
According to the research of EVCA (European Venture Capital Association), most of the surveyed companies that attracted direct private investment recognize that funds bring in their companies something more than just finance: only 12% of respondents believe that their venture investors are ordinary “fund managers”, 52% — believe that they are “real partners”.
Only combination of two elements that venture investors bring to the company — the capital and professional participation in management — allows these companies to develop much faster and kick off with rising problems effectively. Companies’ managers, which were interviewed in the EVCA survey, highly appreciated the contribution value of venture capital funds. The overwhelming majority of them believe, that without this support their companies would not survive or would develop very slowly.
It seems logical that only a combination of venture financing and raising funds through ICO is capable of ensuring a harmonious project development. In this bunch, ICO allows reducing the “cost of money” for the project, while the participation of VC will provide all the advantages of “smart money” to the project.
Conclusion
Accordingly, the suggestion that the ICO mechanism can be a rescue either for teams with high-level management, which able to reduce the cost of capital, without damaging the project by the lack of “smart money” from venture investors, or for projects with inadequate quality, for which venture financing is not available due to their inconsistency with the criteria imposed by VC is raising. In this case, the experience of realizing such successful ICOs as Kin, Filecoin, Unikrn, etc. shows that as optimal financing structure should be considered bunch of VC + ICO.
#Blockchain #Ethereum #ICO #Bitcoin #Cryptocurrency
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