The Short Stack 🥞 Vol #29
First emailed to newsletter subscribers on July 8, 2017
Good Morning All ✌️
Welcome everyone to the 29th Edition of the Short Stack.
With this week, I’d like to welcome two new members to the Jakt team — Steven Ko, our new UX designer, and Nick Francis our first ever marketing hire. Steven has a fascinating background in architecture and UX design, and we’re thrilled to have him working on some large-scale partner UX projects. Meanwhile, Nick brings his perspective on what it’s like to be completely location independent. He’s currently working from Lisbon, Portugal. Before that, Serbia. Where to next, Nick? (Eventually, he’ll join us in NYC.) Nick will be helping to grow Jakt’s brand presence and awareness. We’re thrilled to have both on board!
Inside this week’s Short Stack: The cryptocurrency market is quickly going mainstream. Major financial institutions are getting involved, including a new $100M fund dedicated solely to ICOs? What does this mean for the future of startup fundraising and company creation? Our thoughts below.
In addition, we released Episode 029 of The Journey video series — Build Products That Help Clients Win.
Making Movies 🎬
Episode 029, by our CEO Anthony Tumbiolo.
Inside the episode:
- Healthy Diet, Healthy Mind
- The Competitive Advantage of Business Vlogging
- Catching Up With an Old Client
- Thinking Long-Term About Marketing Investments
- How We Approach Pricing New Projects
- Building Products that Achieve Business Goals for Our Partners
☝️ Here are the things we’ve been thinking about this week.
ICOs, Blockchain, and the Future of Company Creation.
Earlier this week we came across a Techcrunch article titled “While investment firms ponder ICOs, this team is barreling ahead with a $100 million ICO fund.” For those new to cryptocurrency, ICO stands for “Initial Coin Offering” and is somewhat of a mix between an IPO and crowdfunding campaign, with a few important differences. Instead of stock offered to investors in return for shares in a company’s profit (equity), an ICO sells investors tokens (a.k.a. coins) that represent a percentage of a new cryptocurrency. These tokens can then be used to make purchases (of course limited to who will accept this new currency) or traded on a cryptocurrency exchange. Because ICOs are unregulated, they come with greater flexibility in how investors can participate and how deals are structured. For example, you don’t have to be an accredited investor, and ICO participants typically pay with cryptocurrency (e.g., Bitcoin) while keeping the option to pay with a traditional fiat currency.
They also offer flexibility to founders. As Techcrunch writes, ICO’s “enable startups to create their own digital currencies and sell them to users who can either redeem them later for the startups’ services or sell them on a coin exchange at a later date.” Up until recently, ICO participants looked more like backers to a Kickstarter campaign than financiers. But that’s all changing now.
With the success of Ethereum (which was funded by an ICO), the market for ICOs is beginning to explode with greater participation from traditional early-stage investors. In late 2016, hedge fund Polychain Capital raised $10M from Andreessen Horowitz and USV to invest in digital currency. Then last week, Pantera Capital, a firm run by Tiger Cub Dan Morehead with success in Bitcoin, announced it’s raising a new $100M fund focused entirely on cryptocurrency.
We found this article and Pantera’s announcement particularly interesting for several reasons:
First, we’re starting to see validation that cryptocurrency has the potential to disrupt the traditional VC model to a much greater extent than crowdfunding has. Crowdfunding has become a great way for founders to kickstart product development. Beyond the prototype/first product stage, there hasn’t been much traction in equity crowdfunding. The entire crowdfunding market (equity+reward-based) globally is ~$10B excluding P2P lending. Meanwhile, cryptocurrency’s total market capitalization is $100B+ with participation from major players like Goldman Sachs. Last quarter alone, ICOs raised more money than traditional VCs. Instead of fighting the trend, it’s fascinating to see some firms like Pantera embracing it. We think it’s the beginning of a much bigger shift that could help companies raise money much faster, although future regulation is entirely an unknown.
The second reason we found the article interesting, and of larger interest to us, is how ICOs will affect the future of company creation. Unlike traditional corporate structures where founders, management, and major investors occupy board seats and steer decision making, companies formed via ICOs are owned by the ICO community. As Techcrunch writes, “These token projects are so different. They’re owned by the community, meaning a lot of the decision-making and governance involved in most businesses isn’t quite as relevant.” The blockchain has the potential to flatten corporate structures and decentralize the traditional top-down leadership model. This not only includes financial capital and corporate structure, but team structure and operations as well. See Short Stack #23 on Aragon.)
On the one hand, we see blockchain and a booming ICO market disruptive to traditional fundraising, company creation, and even company operation (e.g., Aragon). Greater flexibility, transparency, and decentralized corporations and markets are all positives in our view. On the other, as large financial institutions such as Pantera and Goldman become major players, how long until can the market stay completely decentralized and unregulated?
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