A Taxonomy of ICO Founder Types
Roy Naquin is an experienced Corporate Financial Planning & Analysis professional and Founder & Principal at enVentur Strategic Partners. Over the last year, Roy has worked with many Initial Coin Offering (ICO) projects, pre- and post fund raising, to coach them on sound financial practices. Roy also is a financial management coach at Slush Tokyo. When he joined the Tokyo FinTech Meetup #20 — Startup Booster recently, we had an opportunity to learn more about his experiences with ICO founders.
Q: Hi Roy, over the last year, you have supported quite a few founders with their ICOs, could you share some of your key experiences?
A: For many founders, for different reasons, an ICO is *the* opportunity of a lifetime. Naturally, preparing for, marketing and executing the ICO becomes all consuming. Once the fundraising is completed, those millions in ETH, BTC and BCH you have just raised? You need a plan for that. The ICO is merely the beginning of the journey. I have worked with founders who would have burned through their money in less than a year if we hadn’t tightened the reins on unnecessary expenses which would have almost certainly prevented them from building the product they intended.
The amounts of money that are still currently raised, although the market has become much more demanding compared to the end of 2017, are significantly higher than traditional seed funding rounds. There are a multitude of issues to work out, depending on the jurisdiction of the venture, for example: how the fund raising is being treated (currently classified as revenue in Japan), tax planning, and treasury management (you need to risk manage those crypto-currency holdings).
Q: You have presented an interesting taxonomy of ICO founder types — could you please elaborate?
A: With tongue in cheek, I have developed five different founder types, the “last ditchers”, existing businesses, scammers, waveriders, and “impatient visionaries”. Let’s take a look at each of them
- Last ditchers have not raised money through traditional methods, either because they did not know how, did not try, or because they have been unsuccessful in convincing investors to put money into their enterprise; ICOs seem to be a relatively straightforward avenue to them, with less barriers, and so they are taking a shot
- I have seen quite a few existing businesses looking at ICOs, many of which might have operated at losses for several years, or barely breaking even; their business is not on a growth trajectory, and debt or equity capital markets seem to be closed for them, so they are looking to reframe their business with blockchain to make it more attractive
- Obviously, we see a lot of scammers trying to take advantage of the hype; a huge warning sign for me is aggressive discounting during the token sale; these schemes are often structured so that early investors still make money, especially when elaborate (and still legal) pump & dump strategies are being employed, however, the majority of the investors will be left holding the bag; if you read the whitepaper, and replace every mentioning of “blockchain” with “database”, and the whitepaper still makes sense, stay away from that project
- The waveriders are fresh entrepreneurs looking to raise capital; often, traditional venture capital and private equity avenues would be open to them as well, an ICO simply creates optionality; they are blockchain & crypto opportunists
- Impatient visionaries on the other hand feel like traditional fund raising avenues are just too complicated and take too long; they understand the markets that are developing, and have a clear vision of what needs to be built; however, is their timing right, and will others buy into their vision?
Q: So when you look at ICOs in comparison to traditional fundraising routes, where do you see the opportunity?
Clearly, at this point, ICOs offer an opportunity to raise capital quickly, although not necessarily cheaply as the fees on some channels are quite exorbitant. I would expect this to settle, though, as the infrastructure becomes more robust and there is more competition in the market. To date, little or no equity had to be offered in an ICO, and hence the opportunity cost is quite low — the total investment in a whitepaper, marketing and conducting an ICO is still not very high. Obviously, the regulatory landscape is changing, and one has to watch out for nuances in different jurisdictions.