What’s going on with startup funding or business funding in general, and cryptocurrencies?
Note: To save time, forgiving quotes, I’ll abbreviate the word ‘cryptocurrency’ as CC in this article.
Look at the first couple sentences of this recent Yahoo Finance article dated Dec 18th, 2017: Overstock’s $250 Million ICOAims to Disrupt Wall Street Trading,
“Overstock.com’s CEO wants to redraw an essential way Wall Street operates using bitcoin technology. On Monday Patrick Byrne, who allowed Overstock to accept bitcoin starting in 2014, launched an initial coin offering (ICO) for tokens for a new trading platform called tZero. Byrne says it will be the future of trading.”
Suddenly, the startup funding scene is being shaken once again, but this time it’s Initial Coin Offerings (ICO) successfully raising over $1 billion – with a couple heavy hitters like Overstock leading the pack with $100+ million campaigns inside 2017.
Glad you asked!
If you visit www,tZero.com (no, I’m not affiliated) what you’ll find is in essence an SEC-compliant mechanism or marketplace that seeks to host ICOs and coin trading. A quasi-Wall Street for CCs revolving around business but with less need for oversight & regulation (i.e. corruption).
Whether it’s ultimately successful, tZero and all the other incoming innovations in the CC realm are signs of incredibly fast evolutions taking place at the same time conventional business funding/investment systems seem to finally be cracking under the weight of their own devices – debt, manipulation & hyper-centralization.
Folks want what Byme talks about in the interview with Yahoo Finance,
- Lower transaction costs by 80% to 90%.
- Increased transparency through a social ledger – blockchain.
- Thus, far more honest business.
Is this it? Are we witnessing the beginning convulsions as the traditional IPO transforms into the ICO? Makes sense if CCs are the future of the digital economy.
Now to be prudent, let’s say you’re JUST starting to research what an ICO (or IPCO with ‘Public’ added) is and are wondering if it’s a viable way to fund your new startup or entrepreneurial venture.
What’s an ICO?
First, the current Investopedia definition then we’ll get into some examples:
Note: I’ve changed it to be more inclusive as their current definition focuses only on “crypto-based” startups which isn’t the case anymore. ICOs come in as wide a variety as crowdfunding.
“An unregulated means by which funds are raised for any new venture. An Initial Coin Offering (ICO) is used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks. In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies, but usually for Bitcoin.“
Okay, imagine you’ve got a new company called ‘Shwiggle’ that you want to fund and skip all the conventional VC/Banking/Investment hoops. Cool, so you raise money by issuing in a crowdfunded-style-way, digital tokens in exchange for more common digital currencies like Bitcoin or Ethereum without giving relinquishing equity.
Sure, your Shwiggle coins have no intrinsic real world value, but in the future or by some other means they can be used to get your products or services or some other arrangement. As your company gets more successful, their perceived value rises.
That’s the basic ICO structure. If you’re over the age of roughly 35’ish (which I am), it probably sounds insane. Hold up, because It gets better.
Let’s look at the example of Dragonchain, inspired from a Disney prototype. Here’s a quote from a Coindesk article, Blockchain Startup With Disney Roots Completes $13,7 Million ICO,
“According to the Dragonchain site, roughly 30,521 ethereum (ETH) and 622.47 bitcoin (BTC) were contributed during the two-stage token sale, which began with a presale in August and ended with the conclusion of a public sale that concluded earlier this week. The presale itself raised approximately $1.4 million (152.25 BTC and 2357.53 ETH).”
Here’s an international example to demonstrate ways ‘coins’ can be used by funders.
If we look to the recent India Times article, Startups Test a Brand New Cryptocurrency: ICO,
“For instance, the token offered by Drivezy, Rental Coins 1.0, offers shared ownership of the fleet of cars that the startup will buy in the event of a successful ICO. Investors who buy the Rental Coins can either use the digital tokens for renting a car or receive payouts each time a car is rented out by others. The tokens can also be traded.”
Keep in mind, we’re only in the beginning phases of all this. Right now, everything involving CCs is in a state of intermittent chaos. For example, here was the top showcased article for a while on ZeroHedge Dec 19th, 2017.
“Crypto Chaos: Bitcoin Spikes Back Above $17,000 After Flash-Crash, Bitcoin Cash Up 60%”
The following day, Wednesday December 20th, here was one of the big headlines on CNBC,
“NYSE Files to List Bitcoin ETFs, Bringing Cryptocurrency a Step Closer to Mainstream”
This is the storm before the calm. TONS of people are getting rich, of course, while others are securing funds for modern businesses, creating heavily diversified crypto-investments, and so forth.
For some insight on where this ICO trend is headed, let’s look at where the big $’s going.
5 Huge ICOs of 2017
Yeah there’s plenty more, but from some basic research these look like 5 of the biggest technically successful (raised needed funds) ICOs of 2017. There’s links to their current landing pages/websites, but these could change quickly. I also included their current focus.
Tezos – $222 Million in 14-Days: Working on common blockchain governance issues.
Filecoin – $200 Million in Less Than 1hr: “A decentralized blockchain-based storage network and cryptocurrency.” You can earn these coins through file hosting.
EOS – $183 Million: “The Most Powerful (Scalable, Flexible, Usable) Infrastructure for Decentralized Applications”
BANCOR – $153 Million: “Decentralized Liquidity Network that allows you to hold any Ethereum token and convert it to any other token in the network, with no counter party, at an automatically calculated price, using a simple web wallet.”
STATUS – $93 Million: “An interface to access Ethereum, built for Android & iOS. Enjoy encrypted messaging, a cryptocurrency wallet, and seamless access to DApps.”
Question is, how would you get started hacking your funding issues through an ICO, especially if you have absolutely no connections to the emerging crypto-economy or history/education on the subject?
How to Begin Setting Up an ICO
I’m going to keep this very basic because of how volatile everything is. The digital economy of 2020 (assuming it still exists), a mere 2 years away, will be A COMPLETELY NEW generation…but built on the foundation being laid as these words are being typed.
Step #1: Design How the CC Will Work
With a grasp of what an ICO is, skip forward to this penetrating question,
“Is an ICO right for my business concept?”
For this, I’m turning to CoinTelegraph:
“It depends on whether you can integrate the cryptocurrency, sold during the crowdsale, organically into your product…whether the ICO digital token can be integrated into the business model in meaningful way.”
It’s a crowd-sale. It’s crowdfunding technically, just in a new form with integrated CCs. So…
“A fundamental problem for any digital token released during an ICO is that it’s going to come under massive speculative pressure as soon as it hits the markets. The only thing which can counteract that, and prevent the token from ending up as a useless gimmick, is a similar level of demand for it. And that demand can only be produced by real utility.”
Focus not on what’s in it for you and your startup venture, but what’s in it for contributors who invest in your CC. Protect their interests. Be prepared to CLEARLY define and communicate your goals (which includes their goals) to your audience.
Step #2: Study Current ICO Resources/Marketplaces
Below is a mix of ICO resources and marketplaces for you to dig deeper within the blooming industry. It should be more than enough to keep you busy and provide fodder for a self-taught ‘ICO 101’ session or four. Their current focus is included, but you can find tons of ongoing ICOs and learn about what it takes as well.
Waves: “A blockchain platform for storing, trading, managing and issuing your digital assets, easily and securely.”
CoinSchedule: “List of Cryptocurrency ICOs and Token Sales, Milestones, Roadmaps and Events for Bitcoin, Ethereum, Waves, Ripple and other altcoins.”
ICO Alert: “ICO Alert maintains the only complete calendar of all active and upcoming ICOs, token sales, and crowdsales, giving you exclusive insight and analysis of new cryptocurrency ICOs.”
TokenMarket: “Token sales, cryptocurrencies, blockchain crowdfunding – organize your token sale and ICO.”
Ambisafe: “Integrated ICO Agency – Global blockchain services company and ICO solutions provider.”
IcoBox: “Launch your ICO in 2 weeks… the first and the biggest new generation Blockchain Growth Promoter and Business Facilitator for companies seeking to sell their products via ICO crowdsales.”
Step #3: Study Up on Crowdfunding Too!
Head over to marketplaces like KickStarter or GoFundMe and spend some time researching how quality campaigns are structured, how they work incentives into the framework, and so forth. This will be invaluable when it comes to designing your ICO campaign. It’s different, but increasingly similar depending on the platform you choose.
Step #4: Legalities & Red Tape
Let’s be clear, I’m not a lawyer or business attorney and nothing I’m saying here should be considered legal advice. Frankly, I haven’t the slightest clue as to how legal any of this is. Actually, ‘legal’ isn’t even the right word since CCs are still in a grey area. You can invest in Bitcoin, and you can set up an ICO without trouble, but I can’t tell you what it looks like long-term and what kinds of legalities/implications are involved when it comes to the SEC, IRS, and so on.
If you can’t afford an attorney familiar with all of this, or any legal protection (insight) whatsoever, at least seek out a consultant. Or, you can spend some time surfing relevant online forums and social media groups. Just be sure you know what you’re getting into.
Don’t jump blindly, because your startup and ideas are valuable.
Step #5: Design & Implement a Solid ICO
What, you thought I was going to design it for you? In a few years, the process will be streamlined and more firmly embedded, but nothing’s stopping you. All it takes is a great team, a concept that lends itself to CCs, a dependable and stable host/platform, and quality presentation. Also, hey, it’s exciting to make your startup a part of something so revolutionary, like the early days of the net, or television.
Wrapping Up: Too Complicated?
Aren’t you glad there are still private investors like myself. While I haven’t yet been involved with an ICO, I’m invested in CCs directly and through other means – exciting time to be alive! In fact, after putting together this article, I may start looking around the ICO market because there’s tons of ideal candidates for the 2018 Startup Hunt my company’s hosting. Thanks for your time, and may this year be your most prosperous and transformative yet!