VC vs ICO Macau presentation
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This document compares and contrasts venture capital (VC) and initial coin offerings (ICOs) as forms of startup funding. Some key differences highlighted include: - Tokens from ICOs do not confer ownership in a company, while VC investors own a piece. - ICO funding is faster with potential liquidity within weeks, while VC funding has longer timelines. - ICO investors can include anyone, while VCs tend to be institutions or accredited investors. - Governance and regulation are less clear for ICOs currently compared to established rules for VCs. The conclusion is that while ICOs have exceeded VC funding in recent times, the ICO market is still immature and not a
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- 1. VC vs ICO December 2017 Are ICO’s the future of Venture Capital? December 2017
- 2. VC vs ICO December 2017 VC ICO VC vs ICO December 2017 Blockchain Angel Investor Token Sale Advisor 2 Co-Founder, Crypto Explorers Venture Advisor Tech Startup Angel Investor Ken Berger Hen Tekle
- 3. VC vs ICO December 2017 VC ICO VC vs ICO December 2017 Investor Characteristics 3 Tokens do not confer ownership They provide holder access to the network Could be almost anyone, in many cases Faster liquidity (within weeks of an ICO) Own piece of the company Institution, or Accredited Investor: “Smart money” Formulaic returns expectations VC ICO VC vs ICO December 2017
- 4. VC vs ICO December 2017 VC ICO VC vs ICO December 2017 1. Disruptive (liquidity, marketing) 2. Scalability 3. Team / advisors / use case 1. 2. Potential via community / reach 3. Tokenomics 1. Disruptive idea 2. Scalability 3. Team / advisors / why i. 2. Current traction & engagement 3. Valuations Product 1. Project 1. Company 4 Investment Characteristics
- 5. VC vs ICO December 2017 VC ICO VC vs ICO December 2017 Determined by i-bankers Market Liquidity Valuation 5 Funding Pricing (e.g. at IPO) Trading price (e.g. share) Source Controlled invest / exit times VC determined/based on metrics Buy / sell anytime (e.g. devs) Arbitrarily set by team (e.g. at ICO) Arbitrarily set by team (e.g. token) Community / market Small circle of insiders Community
- 6. VC vs ICO December 2017 VC ICO VC vs ICO December 2017 Usually decentralized; monetary policy (supply, scarcity) and token type (i.e. utility) decide how token behaves Unclear at the moment, hence high speculative value. Lack of regulatory burden, responsibility for community management, engagement and transparency (constraints) 6 Investors try to protect their interest with board seats, liquidation preferences, etc Usually well-known and established. Can be cumbersome (e.g. Sarbox) Governance & Regulation Regulation Governance
- 7. VC vs ICO December 2017 VC ICO VC vs ICO December 2017 Strategy Short-term arbitrage (flips), long- term investments (hold) or Small bets across many projects (10x or better mindset), syndicate pools follow-ons / future payoff paths undetermined Make tiny amount of portfolio additions per year, stay very hands-on (USV, Benchmark) or Write a bunch of small checks, monitor what pops, double down on winners (500 Startups) 7
- 8. VC vs ICO December 2017 VC ICO VC vs ICO December 2017 Pros: Money available with no strings attached Cons: 1. Ecosystem level: bubble and potential regulation 2. Company level: scams and hacks 8 Pros: Money, elite connections Cons: VCs who no longer add value are threatened by the ‘hands on’ investors, at least by perception State of Market Early stage startup investment in ICO exceeded VC investment last 6 months
- 9. VC vs ICO December 2017 * * *Potential for some disruption as it already exceeds other types of funding, and is growing Will accelerate innovation, because funding will be more widespread Non-traditional teams get funded (very young, located anywhere, etc) 9 ICO is still very immature. We are not in a post-ICO world yet. Conclusions
- 10. VC vs ICO December 2017 Thank you December 2017
Editor's Notes
- VC: Own piece of the company Must be an Accredited Investor (US) ICO: Gain rights to use the network (The token is not equity, but an attempt to facilitate the distribution of rewards to its stakeholders) Some offerings require investor accreditation
- VC 3. Easy to verify Fred “are they just commuting it to the Blockchain?” William “future tokens should invent what we don’t yet see” 4. How many users ICO 4. Could even be just an idea 5. Twitter followers, slack channels, news, public hype in general etc 6. Nature of investments have changed during this year and will continue to.
- Price determination. In vc, term sheet dictated by vc. IPO happens, price determined by ibank and co based on known metrics. in ico, arbitrarilty decided, and then after the fact, money is determined by community sentiment-- almost no ICO understands this. Set hard cap and token price, choose amounts that are more likely to have psych effect on investors. Choose numbers they think investors expect, rather than what they need, token price determined by what people are more likely to support. Set high to create perception of value, others set it low to be accepted. Very immature. Range each can be used is very different due to diff in history and maturity. Range is so large. Token price is volatile and flexible, bancor raised $150M, lost 50% of token value since!
- Price determination. In vc, term sheet dictated by vc. IPO happens, price determined by ibank and co based on known metrics. in ico, arbitrarily decided, and then after the fact, money is determined by community sentiment, almost no ICO understands this. Set hard cap and token price, choose amounts that are more likely to have psych effect on investors. Choose numbers they think investors expect, rather than what they need, token price determined by what people are more likely to support. Set high to create perception of value, others set it low to be accepted. Very immature. Range each can be used is very different due to diff in history and maturity. Range is so large. Token price is volatile and flexible, bancor raised $150M, lost 50% of token value, still Hen: I like this Ken. Agree with your assumptions.
- 2 main approaches, some people invest tiny amount in lots of ICO’s. 2nd approach is funds pool lots of people aiming at 5-10X, doing 100-500k/time. Funds examples: preico, cosyndicate. Lots of randos: not any more. Icostats.com Hen: Yes, agreed. Main camps are flippers vs. hodlers (short vs long). The latter are betting on the idea that one of these protocols could potentially be worth a trillion dollars in the next decade. Love the icostats.com website and relied on it to come up with a “moneyball” strategy based on the projects that rank at the top in the best ROI since ICO section.
- ICO 1. Valuations out of control, don’t match values. 2. Way overheated, valuations out of whack. Problems already blowing up such as Tezos, Bancor. Parity breach froze tokens, hurting some ICO’s previously declared winners. Regulation: possible for things to change and suddenly become illegal (eg: China).
- Ending point of what will happen. Fair to say that regulation is coming, rate of funding will slow, BUT ICOs are here to say just not in current form. Hen: I think ICOs have revealed the massive demand for short-term upside in investing (for both retail and “sophisticated” investors, including VCs). Hard to see how the kind of liquidity the token model offers investors goes away. In many ways, it’s superior to equity. Many projects love the ability to raise huge amounts of capital from the public without VCs breathing down their neck and having any level of ownership of their business even if they otherwise don’t have anything to do with the technology or problem they are trying to solve. 100% agreed on the fact that VCs have had to learn the hard way over time what constitutes best practices, something the ICO world has yet to understand. We’re not yet in a post-ICO world. I expect the vast majority of projects to fail before we have the lessons learned we need to shape our future course. Most token holders are in it for the money and not the project.