Initial coin offerings challenge traditional venture capital

Satoshi Nakamoto, whoever he or she is, probably didn’t consider the effect blockchain would have on the innovation ecosystem when they launched the first usable blockchain in 2009.

Regardless, amid all the cryptocurrency hype, it’s clear a new pathway for start-ups is emerging.

With a growing number of technology projects turning to initial coin offerings (ICOs) for fundraising, it seems the whole “idea-to-market” process has been turned on its head – revolutionising the lean start-up methodology:

Decades ago it used to be the case of “build something, get funded, market it”.

The lean method tried to lower the founder’s risk by decreasing the costs to market and introducing the idea of “build a minimum viable product, prove you have a market, get funded, market it”.

Then along came ICOs and turned everything upside down by letting the founders raise the money before they build the product, and doing so using marketing (“market it, prove you have a market, get funded, build it” ).

More importantly, founders can now do all this while giving away zero equity. Old-school venture capitalists and angel investors simply can’t keep up with the pace. It can take three to six months to close a sub-$2 million funding round in a start-up, using a traditional process, while some ICOs are taking 12 weeks and raising tens of millions of dollars.

More importantly, the founders don’t need to sell their souls – no veto rights, no annoying board members, no preferred shares, in fact, no shares at all in most cases.

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Source: Initial coin offerings challenge traditional venture capital | afr.com