TokenReporter
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TokenReporter

What the heck is a token sale?

Photo by Pavel Churiumov on Unsplash

If you’ve been watching the news you might have noticed what amounts to an end-run around early stage VC. Token sales, like equity crowdfunding before it, is supposed to be the easiest and fastest way to raise money for a new venture.

Here’s the interesting news: it is.

To help ourselves — and all of you — make sense of this new space I’ve created Token Reporter, a weekly newsletter that appears every Monday. It is written with my friend Victor Marks, a prolific blogger and technologist and it aims to cover this space with an intelligent — and critical — eye.

So what is a token sale?

A token sale, or Initial Coin Offering, is the process of creating and selling a token, usually on the Ethereum blockchain. This token is not a cryptocurrency in itself but a subset of Ethereum and can be bought and sold at a certain price to anyone in the world. Some tokens can also unlock functionalities within systems and applications.

There are multiple kinds of token sales but the most important ones — equity and utility — are the ones we’ll be talking about most.

An equity token sale is connected to company equity. These are difficult to do in in the US and the value of the token is pegged, via the market, to the value of the company. These are only available to accredited investors. A utility token — which are not considered securities by the SEC — are tokens used in a process. An advertising agency can sell adcoins and a dentist can sell dentalcoins. If this sounds difficult and silly you’re absolutely right.

But imagine a world where every transaction is processed at lightning speed among, for lack of a better word, artificially intelligent systems that work on your behalf. Every doctor’s visit is negotiated in MDCoin and every piece of content is paid for using NewsCoin. The friction and insecurity associated with the current financial system would be all but destroyed.

But we’re not there yet. This is just the beginning.

I’m a VC. How scared should I be?

Very scared. Entrepreneurs don’t like VC already. What are they going to do when they see the startups holding token sales to raise capital instead of sitting in front of you and your handsome reclaimed oak desk? If there was ever a time that tech would eat the rich it’s now.

This is the new normal. The faster the ecosystem accepts this the better because token sales will represent nearly 100% of seed-stage cash in the next decade.

A wise man once said “You’d better start swimmin’ or you’ll sink like a stone.” This is one of those times when everything changes.

I’m an entrepreneur. Why would I issue coin instead of raising VC?

If you’re a startup issuing a token seems like a slam dunk. It requires a little legal expenditure, a burnishing of your online presence, and an understanding of cryptocurrency — all things well within the reach of even the least capitalized startup.

That said we are about to see a shakeout of epic proportions. There are hundreds of scam products out there and even more ICO attempts by companies with an idea and no product. We will focus primarily on companies that we can vet to the best of our ability and that have a product. The simple fact that there is no sane way to tell the good from the bad is exactly why we’ve created this newsletter.

What’s next?

This is an important change in the way early stage startups see the world. Rather than facing endless gatekeepers, a new company must face the world. For too long companies have told themselves to keep quiet and approach the great gods of capital finance for help. Now they must be loud, bold, and creative. It’s a good change and a scary one and it’s one we hope to chronicle is it unfolds.

We’ll have a few essays on how to build a token sale in the next few issues of the newsletter. Stay tuned.

Disclosure

We will run advertising in the newsletter and if would like to appear at the beginning or end of this newsletter please email joanna@typewriter.plus. We do not expect that we will run a token sale to fund this newsletter but Victor or I may run our own token sales later in the year.

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