Venture Capital vs. ICOs
ICOs are a huge trend today, and many start ups are opting to go that route for funding as opposed to the traditional venture capital firm. Is this an industry destined to fizzle out, or a true disruption to the VC process? What would need to be true for ICO to become the go to fundraising protocol for start ups?
52 months ago
The process of convincing thousands of individuals to purchase tokens is markedly different than courting a single large investor to lead a VC round. If a VC raise is analogous to a B2B sale, an ICO is primarily B2C.
Venture capitalists (aka Vulture Capitalists) are savvy business people and can often spot a “fraud”, weak team, or unfinished or untested product from a mile away. The venture capital due diligence process is taxing, and the timelines can be unnecessarily lengthy. It is a significant distraction to the actual running of the company, and often some of the requirements feel more like a test to see if the team is serious, rather than a necessity.
An ICO with smart marketing and a white paper masquerading as innovation can allow unscrupulous or inadequate teams a much higher chance to successfully raise — the VC due diligence process is not a surefire guarantee of success, or even of a working product, however — Here’s a compelling article from Forbes: Theranos debacle.
ICOs — Explainer videos, FAQs, public AMAs, live streams, podcasts, PPC ads, influencer marketing.
VC — Pitch decks, private meetings with key stakeholders, detailed financial projections, product demos.
Both VC and ICOs have advantages and B sides. ICOs is positive for tracking individual sales but as unregulated could generate uncertainty for investors. It could be spread among a large number of potential investors, a VC could have just one or a limited number of contributors. Using VC you need to surrender part of your equity while ICOs do not and start maybe with an initial public offering. VC has a better public perception, its goal is to generate profit for the stakeholders.
Someone has to build the blockchain, issue the tokens, and maintain some software.
So to kickstart a new operation, entrepreneurs can pre-allocate tokens for themselves and their developers. And they can use ICOs to sell tokens to people interested in using the new service when it launches, or in speculating as to the future value of the service.
If the value of the tokens goes up, everybody wins.
The reverse; if not!
37 months ago