ICOs. A New Frontier in Startup Finance?
Are ICOs part of a digital gold rush that will leave behind a ghost town investor landscape? Or, as many more reflective voices saying, are ICOs a revolutionary, disruptive method of financing that will bring huge advantages to investors, innovators and society. ICOs generated more money in 2017 than the previous three years combined, with a record breaking $1 billion raised in December.
The tabloid press has been predictably full of stories of get rich quick schemes and Instagram celebs endorsing this ICO and that. Cable TV has been full of analogue talking heads adding their soundbites about tulips and bubbles. Here are my thoughts:
The Good:
Financing: If you’ve got a great idea and a team of people committed to that idea you can simply create a token and get investment quickly. Startups can raise funds through issuing tokens without giving away equity, allowing the founders to maintain complete directional control over the business. The company doesn’t have to chase short term quarterly shareholder returns and can concentrate on the long term value goals of the business.
Trust: With blockchain technology and crypto tokens, an organization can incentivize collective action. That could be for social impact projects or business ventures. A benefit is that trust is wired into the system by the rules/ protocols that are embedded into the smart contracts that dictate the use of the tokens.
Returns: In a very short time bitcoin was able to build a decentralized platform by incentivizing people to donate time and effort in exchange for coins that were worth a couple of pizzas. The biggest holders of bitcoin in 2018 could probably buy Papa Johns now. Being a part of the future of finance can be as easy as being a part of the crowd.
The Bad:
A radical new way of raising huge sums of money has, unsurprisingly, led to a few scams. The majority of ICOs will fundstartups that fail. Caveat Emptor has been around a long time for good reason. And global banks and financial institutions talking about fraud brings the phrase ‘pot calling kettle black’ into mind.
The Bubbly:
Asset bubbles in tech, property and- yawn- tulips have been around forever. However, as outlined in this article, bubbles can give rise to innovations and new and better ways of doing businesses.
Conclusion:
Madness and money markets go together like a horse and carriage. The ICO and crypto craze of 2017, from the perspective of previous technology driven bubbles, can be viwed as the beginning of a disruption that will eventually bring huge benefits to societies and some early investors.
About the author: Paul Henderson is a content strategist with a background developing digital content projects for companies including Bloomberg and Microsoft. He is the founder of Blockheads, a consultancy that advises blockchain and fintech startups on content strategy and social media marketing.
This story is published in The Startup, Medium’s largest entrepreneurship publication followed by 289,682+ people.
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