Newton and Gravity: how early stage investors are critical for ICO success!

EUREKA: A developer named Newton was sitting under a tree and an apple fell on his head. He scratched his head, looked around. The closest form of force that possibly explained the cause, appeared to be a concept called ‘decentralization’. He went back to his garage and used his laptop to write a document.

He kept writing and writing.

MVP: Next day, he used a mix of languages, which his computer only understood, to write a program that simulated his experience. A prototype was ready after seven rounds of coffee and occassional disturbances from the neighbourhood dogs.

A blockchain based revolution had taken birth. An ICO was poised to be ready, atleast on the paper.

Coins and Tokens: He decided that he will ask people to fund it. He then released some ‘tokens’ symbolic of part ownership for the people. Those who wanted to be part of his endeavour to reckon this force, will now get to hold these tokens.

In return, they will own coins — ‘Newton’ coins.

Next week, some friends joined his pursuit. They were intrigued by the ideas that the young Newton had in mind. They had also seen the apples falling from trees. They gave him cash and took some of these coins that made them owners of this ‘Renaissance’.

The Startup: After about a month, there were now five friends, Newton leading the charge. Sitting at the garage, they had a ‘working’ minimum viable prototype and a white paper titled — ‘Gravity’.

ICO: The people will be able to convert the ‘Newton’ coins into something known as ‘ethers’ or ‘bitcoins’. The bitcoins were easy to convert into the ‘cash’-the form of money that they kept in their wallets. However, Newton needed some traditional ‘cash’ to begin with, to convince a large amount of people. He will have to spend on running TV ads, give talks on special websites and take flights to go to places known as ‘Silicon Valley’ to meet people like him.

ICO Consultant: Then, he met a person John, an ICO consultant. John was an expert in raising ICOs. Newton did not know such people existed until now.

He asked John for his help. John suggested that he will take care of his TV ads, talks and flights. He insisted on a fee for himself but in ‘cash’ to meet all these expenses. Newton did not have that kind of money.

So, Newton first went to his father and asked for some money. His father, not sure about his son’s career, asked him to go to a bank.

The bank refused to give him credit. The manager told him that they were rebuilding their bank and it will be amazing if he returns to be their customer, when ‘gravity’ starts earning him ‘cash’. The bank also told Newton that they did not have much history on Newton, so they will tread with caution.

Angel Investor: Dejected Newton was driving back home and saw a billboard. It said- ‘Upscale Ventures’. He contacted them and set up a meeting with Michael at Upscale.

When he went to meet him, he saw that Michael wore a very expensive suit and a golden watch. Newton had heard that Michael was the one who had helped someone by the name of Edison. Herr Edison is now a rich man and was able to make bulbs, his dream. So ‘Michael is your dreamcatcher’, Newton thought to himself.

The Pitch: Michael asked him some tough questions about how, when and what was behind Newton’s thought in floating ‘gravity’. Michael even dared to question his judgement, conviction and his testament behind ‘gravity’.

But most importantly, Michael also asked him how will he get the money back to him, if he gave it to Newton.

Newton suggested that he will return it the day, people buy his coins.

Rejection: They shook hands and Michael asked Newton to call him back tomorrow. When Newton called Upscale Ventures,the next day, the secretary picked up. She told him that Michael was a busy man and had asked her to politely tell Newton to keep working on ‘Gravity’. There is not much that they could do to help “Gravity”.

Photo by Francisco Gomes on Unsplash

In this story, Newton(s) are also the startup or many startups. They have observed an industry scenario and created a blockchain based solution. Then, these Newton(s) are publishing white papers. The whitepaper contains the scheme, their strength and few timelines, essentially their view on following:

1. How the solution works, a brief on future roadmap for development and business acquisition.
2. Team Strength.
3. History of their work on the product.

In a bid to fund their product, which is built on blockchain, they see crowdsourcing. (read Most of blockchain based solutions are systematic networked application over Web 3.0.). If the crowdfunding takes the form of issue of token against the ownership of a blockchain project, these got to be called Initial Coin Offerings(ICOs).

But running an ICO is becoming expensive these days. In the initial years of ICOs, it was a simple crowdfunding exercise in a close knit community built over time, on Internet RTC channels, & forums.

Today a regulatory framework is inching closer to ICOs across different jurisdictions.

And amidst a lot of ICOs, Newton(s) need to spend money on running ads, public releases and outreach, only to stand out. They need to spend money to acquire confidence of influencers.

Influencers are akin to early adopters , journalists covering blockchain, administrator, tech titan CEOs, Heads of state, celebrities studying “Graviton” etc.

So ICO becomes more of a branding exercise than simply a research team getting together to get their blockchain innovation funded.

So these Newton(s) will do what they used to do, just like how Newton went to Michael of Upscale Ventures. They will be presenting to angels and early stage investors, to get this ‘cash’. They will bring different methods of startup valuations, IP valuations to present their standing in the Internet community.

The gap that exists here is that :

1. Most of early stage investors have not come to terms with startups that mention blockchain. There is a clear lack of understanding. They are not yet sure how a blockchain enabled product is better in the space, the startup is working in.
2. Startups tend to convey investor’s exit to completion of ICO and their capability to return money post an ICO. This is a scary high risk investments for investors with a lot of regulatory burden.
3. In an uncertain world with massive fraudulent business practices, fake Newton(s) may simply set upon ICOs to raise funds & disappear. They may have no plans to work in the future.
4. This is an area where laws and regulatory framework are being established rapidly. Newly shaped legal structures are racing with this industry’s growth. In some cases, for eg- digital currency like bitcoin, the laws in some countries had curbed down its growth for some time.

It’s important that early stage and angel investors quickly scramble themselves into a form that assists ‘Newtons’ in acheiving their dream.

It’s important that they provide power to blockchain based ideas.

Factually, majority of blockchain technology startups are being funded at later stages as compared to non blockchain startups. The biggest reason is that the investor community had been looking at them as visionary products.(read over the timeline of 2010–2020)

Some of the funded startups decided to foray into blockchain technology at later stages to increase valuations. Interestingly, blockchain and investments have become mutually inclusive at later stages of startups.

However, at the bottom of the startup pyramid, a consistent challenge to raise money from early stage investor exists.

Newton(s) must clearly articulate their business plans, roadmaps in terms of product lifecycle, marketing to address the gap.

Newton(s) must understand that ICOs are not powerful with incomplete ideas that have weak pillars. Startups should focus on following:

1. Articulating the product, its commercialization and significance of using the blockchain technology.

Many startups are writing lowly detailed documentation. It shows less experience and thought in the product.

2. Responsibility in educating the startup eco-system, potential small investors taking part in its ICO, prospective early stage investors.

Many startups are creating educational campaigns to share their knowledge in the specific field. Again, they are hungry for a successful ICO.

The knowledge sharing has to take place to attract talent towards their innovation. These campaigns must achieve the objective of simple and unbiased learning for their use case.

3. Creating a community of engineer and domain experts. They are ideal for the product’s future growth not just their ICO.

Many startups are creating communities to prove their credibility for a successful ICO. The real goal is to help engineer the product and shape the phenomenon of ergonomics around it.

4. Tying up all loose ends when it comes to nascent regulatory framework.

Startups must avoid getting boiled down in legal restrictions post an ICO.

Law is critical for any business, be an ICO dependent blockchain startup or a normal food catering service.

Eventually, there is a shared responsibility to address this gap as a newer technology is emerging.

If Sir Isaac Newton hadn’t discovered gravity and shared with the world, the world as we see, would have been different.

Note: Characters are fictional in stories. If there is any co-relation with the real world then it’s purely incidental. Isaac Newton did deliver gravity to the world and did not need any ICO. But “Graviton” needs public support.
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