The GOOD, the BAD and the CONFUSED. That's capital raising in general but certainly for the newest way to fundraise; ICOs. Yup, ICOs, or initial coin offerings, are rapidly changing the way capital is raised for startups and it's cutting into venture capital firms deal making. Venture firms were once thought of as the risk taking group for new ventures and for that got a big equity hunk and a big voice in how the company was run. Now, token sales have made VC firms look more like that big old stodgy investment bank (what, no ten year revenue track? Humph!!). But, as anything, there's good, bad and........the proverbial "catch". Nice read.
(Bill Taylor/Publisher)
"Are ICOs ready to disrupt the VC world? Spoiler alert: not yet.
I've spent my entire career doing venture deals for tech companies and I know the good, bad and ugly of fundraising. I've also seen private company shareholders, frequently small ones, stuck holding onto private company stock because there's never been an efficient way to sell it.
Token sales may just change all that.
In the bad ol' days (i.e. like six months ago), the development path for a software startup looked a bit like this:
Step 1: Incorporate
Step 2: Build team and product, generate revenue and huge user base
Step 3: Entice a VC to buy ~25% of your equity
Step 4: Repeat step 2 and step 3 at increasing values and bigger user base numbers until you can sell the company or take it public.
Token sales (also known as initial coin offerings – although your lawyer hates it when you call them that) seem to offer a great hack.
While VC firms expect to see a functioning product before investing, some software companies are raising millions on a white paper. And while not every project is an obvious choice for blockchain, certain network effect companies that once relied on scale to attract VCs are short-circuiting the process by selling tokens instead – in some cases raising 10x the value in 1/10 the time.