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
Notas do Editor
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.