>The investors who bought your token, like public market investors, may be gone tomorrow, next month, or next year, having moved on to the next big thing, leaving you with little to show for it other than the money you raised.
Oh boy...
>VCs, at leas the best ones, are there for your company in good times and bad. There is a difference, trust me.
This part made me laugh so bad, my entire body hurts. Now, I know pretty well who he is, thus why he may not realize how much bad VCs hurt the industry, especially when a vast number does exactly what he said: leaving as soon as there are any signs of trouble. And I know that from experience.
Now, do I always agree with ICOs? Not really, selling promises that particular way is bound to lead up to some disappointment from one side or the other. But they are perfectly valid to fund yourself if your service, your core business model can be compartmentalized that way. As he said: "The token that you sell in your ICO is the atomic unit of your business model."
On the one hand, I want to be a good person and to do the right thing, so I do my best to be one of the good VCs and not one of the bad ones. (I.e. I don't leave when things get bad.)
On the other hand, when VCs leave at the first sign of trouble, why is that so terrible? I think giving bad advice -- advice that a lot of founders will listen to because they often assume a VC knows what they're talking about -- is much more dangerous. If a VC gives bad advice, that can sink a company that could've been successful otherwise. If a VC walks away or stops being involved, then that seems much closer to neutral than to bad. They no longer try to help, but so what? You have their investment and that is valuable by itself -- especially compared to not having had an investment in the first place.
As an analogy, let's say you go to a doctor for a rare medical condition. They suggest a few treatments, and none work. They're out of ideas. Would you rather a) have them walk away so that you can look for another doctor or try to educate yourself on your condition, or b) have them keep seeing you and either wasting your time or giving you dangerous prescriptions?
There is massive bias for VC's to believe they have enormous value that cannot be obtained other ways. This is disruption in real time, disrupting the very people who believed they themselves are the disrupters, and it's making them very scared. Imagine devoting your life, climbing the ladder, becoming a VC partner, having entrepreneurs begging to speak with you, and seemingly overnight a new model exists that makes you obsolete. Very scary.
However, I think VC can stay around as "gold star" supporters who vouch for authenticity of a company before opening up to widespread investment and get some of the tokens in return.
Even if this ICO craze dies, I think the cat is out of the bag, and being able to raise funds globally and instantly is simply too good to pass up.
I agree that there's a lot of disruption and innovation happening on the capital side. AngelList syndicates were already doing that before ICOs. But the advisory side is not really being disrupted so far, afaik.
What I do like about all of the innovations on the capital side is that over time, I think they'll drive inferior/shitty VCs out of business. Most founders would prefer to work with Sequoia to using an ICO or AngelList, but ICOs/AngelList are better than SomeRandomFundWithCrappyAdvice. So the SRFWCAs will go out of business over time, but I think the Sequoias will do just fine.
The same thing happens to lots of fields. Many types of banking and financial services have become obsolete, or will be. The market makers who manually matched buyers and sellers of stocks are one example, as are the traders in the pits.
First of all, thank you for stopping by to reply to me.
>On the other hand, when VCs leave at the first sign of trouble, why is that so terrible? I think giving bad advice -- advice that a lot of founders will listen to because they often assume a VC knows what they're talking about -- is much more dangerous.
I should probably have amended that statement to "Leaving at the first sign of trouble after screwing up with your business model" instead. If it was just them walking away... well, hey, it's not so bad. A warning sign for sure, but not so bad. The problem is bad VCs are also the ones that tend not to go quietly into that good night. They make concessions, they make you commit to compromises and pretend to be one-person boards of directors.
I can understand wanting to give advice in that one field(s) they actually have experience with, but when you have someone on board who only ever had experience in banking, barking orders and attempting to change your entire workflow as a game development company, there's something that went horribly wrong, and you're in the uncomfortable decision of either rejecting that money and probably having to can your project, the very same project that might just be 6 months away to completion, or suck it up, take a deep breath and hope it won't be so bad. (Again, speaking from experience)
Thanks for the reply. Sorry about your experiences with VCs; they sound very painful. If you ever go the VC route again, I hope it works out better next time.
advice that a lot of founders will listen to because they often assume a VC knows what they're talking about
Why would people assume that? Maybe I'm weird, but I tend to assume that VC's know a lot about, well, VC, and pretty much squat about anything else. It's like the old saying, "Those who can, do. Those who can't, invest". OK, so that's not the original saying, but I'd assume anybody who knows anything about building a real business would rather spend their time building a business, not just investing and sitting on the sidelines acting as an "advisor".
The famous ones, yeah. I mean, take Andreessen. He obviously knows something about tech. But there are a lot of other VC's out there, especially when you get away from SV and Sand Hill Road. And as far as I know, there's no particular requirement to be a VC, other than the ability to convince people with money to put money into your fund.
> leaving as soon as there are any signs of trouble.
Spot on. When you have a portfolio approach to your investment thesis, there is almost no incentive to help your portfolio companies when times are bad. That being said, I genuinely do believe there is a subset of VCs (including USV) that will go beyond this and mentor startups past challenges.
> When you have a portfolio approach to your investment thesis, there is almost no incentive to help your portfolio companies when times are bad
Instead of "portfolio" I think you mean "diversified" or even "scattershot". Such "spray and pray" types are too widely invested to devote meaningful time to their portfolio companies. (Notable exception: Y Combinator.) There's nothing wrong with this. They're taking a thematic approach and can be a good source of capital (and market intel). But they won't devote a partner to helping you pivot.
In contrast, the "concentrated" player takes a few, deep bets. This is a more orthodox approach. You'll get more attention, including when you're down. You'll also get more when the investment is being considered. That means deeper due diligence and, in all likelihood, a stronger negotiation around terms.
Knowing when to fold is also material. If a founder is intransigent, a savvy investor should know to cut their losses and hope for the best.
YC does provide support to companies after they graduate, but it is limited. I heard from an alum that after you graduate you're only entitled to 1 hour of face time a year. They really rely on their companies to help each other, but it doesn't work that great in practice based on anecdotes I've heard.
"Portfolio" is precisely what I meant. Given it appears you have a background in PE, perhaps the term is more aligned to PE/VC investors in the UK (where much of my M&A experience originated from). VC models aren't necessarily diversified, because diversity implies variance in type, not necessarily in volume, which the latter driving the lack of incentives for VC investors - they simply don't have the time.
Nevertheless, I think we're saying the same things - just different terminology (which certainly is prevalent in finance).
You are right to certain degree and I also am not a fan of VCs trying to get in on the bandwagon somehow, but he does have a point.
Most "normal people" don't buy as much as VCs do, so they don't have as much stake. VCs are in it purely to make money so they end up investing much more than ordinary joe, which is why they will be there to help you out when things are not going well, exactly because they need their return on investment.
Another thing is, VCs have reputation to manage, so they just can't move on easily without feeling even a little bit of guilt. On the other hand, users don't care about you and they don't (and shouldn't) feel a bit of guilt moving on from you.
Overall, as long as they have large stake in your tokens VCs will help you, not because they are saints, but because they can't lose money and reputation
Maybe there's a role here for startup consultants, who provide the sort of help that VCs claim to provide, to startups who have already raised money via ICOs.
That's why I mentioned "startups who have already raised money via ICOs," many of whom certainly are in a position to pay.
I don't think there's any particular reason to think the founders are idiots, though of course some will be. But it will also be up to the consultants to demonstrate their value.
The key is to find a way to contractualize third party help into a smart contract so some of the tokens are released if the advice truly helps in the long run.
This whole ICO affair will not end well. Here is a guy complaining about not being able to buy the BATs at the crowdsale: https://www.reddit.com/r/ethtrader/comments/6efsc8/bat_ico_w... - this is a serious gold rush attitude. Those people don't seem to understand that most (9 for 10 some say) startups fail.
And the tokens they are buying is just a promise - they don't bind the company to do any thing. The company promises to use the BAT token in their future monetization model - but in fact they can pivot at any point, like many (if not most) startup do, and do something else, or maybe even do yet another ICO with another token.
And that is on top of all the problems with crowdfunding - where even if there is a legal binding, and maybe a fractionary ownership - without all the regulations that were invented to protect the investors - the founders/executives still can do anything with the money they received from the funding event: https://medium.com/@zby/the-problem-with-crowdfunding-81b53f...
Update: Even if now most ICO creators are honest - then soon they'll be crowded out by scammers, because honest funders will find other ways to fund their starups - but for scammers it will never be easier than with ICOs.
> This is totally against the spirit and ethos of what cryptocurrency stands for.
What exactly is the spirit or ethos of cryptocurrency? I thought the big selling point is that there is no spirit, no ethos, no regulation. Folks who are disappointed that a cryptocurrency investing channel has no safeguards against exploitation can't have it both ways.
For many, even most, ICOs, actually raising the money is only part of the potential benefit. The other benefit is to bootstrap a network of users and promotors. In those terms maybe BAT failed. They could have won over 10s of thousands of users.
Fred's not a dumb guy, even though I never agreed with his Android over iOS statements (Android first, etc). I think he's smart and to him, my opinion doesn't matter, I'm sure.
However, vc is a hundreds, if not thousands of years old. Fine tuned and tweaked in the 80's on to the dot com and thru facebook & google and beyond.
ICO is just a few years old - it's typical for the disrupted to not feel threatened until it's too late. This, in my mind, is the real model going forward. Fuck pandering to Sand Hill road or SV at all - launch an ICO from anywhere in the world on your whitepaper and testnet (shaky???) dev...
ICO's may seem ridic, but this is just the beginning. We are now running at internet speed and there's gonna be a point (soon? who knows when) where this stuff is going to all be automated and 24 seconds will seem quaint.
VCs don't like ICOs because they expose how irrational raising money is. They hamper the whole narrative of VCs being "experts" when the truth is it's all a casino financed by the Fed. VCs are used to controlling the narrative of WHY a company deserves money.
Hey, we could sell equity in our company for money....or we could give out gift certificates (tokens) and keep all the equity. Sure, as soon as we've got all the dummies money, the incentives will massively shift for us so that we're better off doing a new ICO than building anything, but they won't notice. Who cares if distributed systems are an overhead and not an efficiency, we can all get rich!
If you sell the equity for money only certified investors are allowed to invest. You now also have a investor whose word carries some weight on your company. The latter might be good or bad depending on the investor and your personal view/attitude and situation.
> If you sell the equity for money only certified investors are allowed to invest. You now also have a investor whose word carries some weight on your company.
Finance types are a creative bunch. The industry has spent a good amount of time trying to poke holes in securities regulation since the 1930s. Regulators and prosecutors have expended a similar deal of effort suturing the loopholes.
The thread interfering with your idea is the symmetry between securities purchased for cash and securities purchased with "services rendered". Securities regulators and the IRS take a broad view of the latter. The former would likely be more vigilant if unaccredited investors [1] were "buying" these tokens, and even more so if such transactions were taking place next to accredited investors getting bona fide stock.
Initial Coin Offering. Like an IPO but not quite, you're not selling securities after all, and they may not pay any dividends, you're simply selling a token you can trade with others that may be exchanged for a service by the company that provided them later on. I expect them to raise a lot of uncomfortable questions in a near future.
Coinbase published results of some legal research on ICO legalities. They say tokens that can be exchanged for services are relatively safe. Some ICO tokens actually pay dividends, and that's a little dicier.
There are various other criteria. If it's a fully automatic system already deployed on the blockchain, that's lower risk than a coin whose value depends on company performance.
> VCs, at leas the best ones, are there for your company in good times and bad. There is a difference, trust me.
This is backwards. Raising via an ICO mean no VC can ever push you out as CEO or take control of your company. Their priority is making the company get to a big exit, with or without you. When Ev was running Twitter, Fred wasn't a fan of his and had not problem plotting behind his back with Jack and eventually pushing him out.
Yes, it's all detailed in Hatching Twitter which is written by a NY Times columnist. Basically, when Ev was CEO, the board told him to his face he was doing a fantastic job. He had turned around the product org and gotten user growth back on track. At the same time, Fred and a few of the other investors met secretly with Jack and came up with a plan to push Ev out and, bring Jack back with Dick Costolo as interim CEO.
Excerpt from the book after Ev was told he was out:
Williams, stunned, picked up the phone and began dialing. Bijan Sabet was apologetic and insisted that they wanted to keep him on in a product-advisory role. According to several people at the company, Fred Wilson, however, said he thought Williams had always been a terrible C.E.O. “I never considered you a founder,” he said. “Jack founded Twitter.”
Other portfolio investments of his have followed a similar pattern of having the original CEO pushed out once they get to a certain level of success.
I have not checked it - but there probably is a guarantee of limited supply - the contract that generated them is already in the Ethereum blockchain and it cannot be changed.
I have raised VC, PE, and debt. Early-stage and late stage. Here's my take on "ICO vs VC."
ICO's:
For the investor, they are akin to commodity futures trading. The underlying value of the token is nil, as is the degree of control over the underlying property. But returns from price speculation can be very rich.
For the issuer, they have the money virtually without strings attached. There is no other form of assistance and no loyalty implied in either direction.
For example, I'd be shocked if there were positive "operational" returns from a token like the Brave coin. For that to happen, Google, Facebook, and the rest of the ad industry would have to grant sanction to the vendor of a Chromium-based browser startup yo turn the entire industry on its side. I doubt it. Seriously.
VCs:
For the investor, they get some modicum of ownership and control of the underlying property – sometimes not much but usually a lot. There is an implied responsibility to help with follow-on funding, but nothing solid. The investment is risky but not speculative.
For the issuer (of preferred shares AKA the company), they get the money with all kinds of strings attached. If the VC is top-tier (e.g., Fred, Kleiner, NEA, etc.), significant branding, easy intros, and many other benefits can accrue. If the VC is less prestigious, the operational impact is more neutral. (No VC can make your company grow or be successful – that's on you.)
My opinion:
1. If I could pull off an "ICO" (bad name) at my next company, I'd do it immediately. Great upside and little downside.
2. I say "immediately" because I don't think that this vehicle will last long in its current unregulated state. There will be failures. There are enemies. There will be evil deeds (fraud), and those deeds will involve unaccredited investors.
3. The ICO will be a short-term speed bump to VCs.
4. That all said, who wants to join me and start an "ICO production" company to create the coins and infrastructure for them to do their own ICOs? Speed is life, and I know some VCs... :)
Sure, but Ethereum is a tool. An ICO is the result of a process.
My thesis is that many companies, large and small, could benefit from an ICO...and that the majority of these know little about ICOs, Ethereum, or the relevant government regulations.
The newco would present the following offer to the prospective customer: --We will ready you for a legal ICO within xx weeks. To do this, we will help you define the unit-of-value for your token and then put all systems, paperwork, and processes in place for the ICO. In return, we will receive coins worth nn% of the ICO as a success fee.--
This is a novel variation of an investment-banker play. Over time, large parts of the process could be systematized in software. Much of the ICO scene is scary and wild. [0] Pathfinders might be valued in this wilderness.
Good question. I was using the language according to this definition:
"A speculative investment is one with a high degree of risk where the focus of the purchaser is on price fluctuations. The investor buys the tradable good (financial instrument) in an attempt to profit from market value changes."
The BAT ICO is not a success story. It shows how f*cked up the current coin markets are. 4 people saved >50% of coins. They are not interested in the company (how can they communicate huh?) they want to sell quickly when the coin hits Poloniex. VCs are not over. The VC advantage derives from the real world experience and connections they can provide. Also no VC ever would have invested in BAT itself. Everyone knows, if there is an adtech revolution, it will come from Google and Facebook not an adblock browser producer.
I've learned the hard way that "Everyone knows" can be a very dangerous (and expensive, in terms of missed opportunity) way to start a sentence. Just some food for thought.
> there is an adtech revolution, it will come from Google and Facebook not an adblock browser producer
While I like Brave, you are almost certainly right. As soon as alternatives gain traction, Google can act nice for some time, then switch back to being its fraudulent self.
Maybe Amazon has the will and stamina, although they are toxic towards self publishers (customer pays full price, but author only gets paid for percentage read).
A national currency is an irredeemable medium of exchange, made valuable because it's -- by law -- exempt from capital gains tax (it measures capital gain), and because it's been given legal tender status.
Why would anyone trade an irredeemable currency issued by a private corporation? "Currency" is surely a misnomer, because no one would want to buy or sell goods and services in exchange for it, which makes it more like irredeemable equity, which makes no sense either.
Advertisers will buy ads with it. Publishers will collect most of that spend. Users will get some too. The value will fluctuate but all currency does that.
I use Brave, and there's about a half million other people who are using it too. What I guess you really mean is not that "nobody" will switch, but that "everyone" won't. So it's just a matter of market size, which I agree - we'll see.
VCs are actually very interested to play a part in this new form of financing. I live in the Bay Area and have been talking to friends in VCs - from my understanding, it's legally risky for them to directly invest in ICOs and they are putting money in other funds that can invest in ICOs like Polychain - this is truly an exciting time!
Also, how else you think BAT sells so fast if it wasn't for institutional money
Ownership of PTOY carries no rights, express or implied, other than the right to use PTOY as a means to obtain Services, and to enable usage of and interaction with the Platform, if successfully completed and deployed. In particular, you understand and accept that PTOY do not represent or confer any ownership right, stake, share, security, or equivalent rights, or any right to receive future revenue shares, intellectual property rights, or any other form of participation in or relating to the Platform, and/or Foundation and its corporate affiliates, other than rights relating to the receipt of Services and use of the Platform, subject to limitations and conditions in these Terms and applicable Platform Terms and Policies (as defined below).
PTOY are not intended to be a digital currency, security, commodity, or any other kind of financial instrument.
So.. by buying the tokens, you are getting, nothing, basically.
You have a sufficient understanding of the functionality, usage, storage, transmission mechanisms, and other material characteristics of cryptographic tokens like Bitcoin and Ether, token storage mechanisms (such as token wallets), blockchain technology, and blockchain-based software systems to understand these Terms and to appreciate the risks and implications of purchasing PTOY;
You've also got to fully understand blockchains.
You have carefully reviewed the code of the Smart Contract System located on the Ethereum blockchain at the addresses set forth in Exhibit B and fully understand and accept the functions implemented therein;
You've also got to be an expert programmer fluent in all ethereum's security weaknesses, plus you better have a disassembler handy to reverse engineer their compiled code (they don't provide any source code - plus, 'Exhibit B' doesn't event give the contract address anyway)
You are not purchasing PTOY for any other purposes, including, but not limited to, any investment, speculative, or other financial purposes;
Sure, sure. That's why people are buying these things, right?
It goes on... you also agree to indemnify the company against everything, all warranties are disclaimed, no liabilities can be held against them, you waive your rights to legal actions against the company, or any class actions (you must agree to arbitration). Oh, and they naturally reserve the right to modify these terms at any time without notice.
No-one in their right mind would agree to these kind of terms, and yet they are common across many ICOs. It is madness. And I haven't even mentioned their proposed application (healthcare on the blockchain) which is dumb in so many other ways.
I work for Patientory. Please explain why the application -- which is not proposed, but has actually been in development for 16 months -- is dumb. After all, it only has the potential to make data breaches in healthcare organizations a figment of the distant past, reduce health IT costs, and provide a universal medical record that's unhackable.
I've heard some people complain about GNO's dutch auction style offering, but only generically. Dutch auction seems like a good option for highly-anticipated coins like BAT. Does anybody have insight into why the dutch auction style isn't more widely used?
Gnosis is now owned to an extend of >90% by the Gnosis team themselves. This is why Dutch Auction is not used more broadly. It doesn't help with any of this.
That seems more like a flaw with the individual offering than with the concept of the dutch auction. Did team only release a small percentage of the coins in the auction or did they just bet more than everyone else?
when you say "It doesn't help with any of this." I'm not sure what you mean. Theoretically dutch auction is much more democratic than these other twitch based sales. You have a set amount of time to jump on board. You're incentivized to bid as much as you feel the coin might be worth, with the confidence that you won't be paying more than anybody else. There might be more complications with dutch auction ICOs than dutch auction IPOs, but it's still seems better than feeling like I do when I'm trying to buy Adele tickets on Ticketmaster.
Oh boy...
>VCs, at leas the best ones, are there for your company in good times and bad. There is a difference, trust me.
This part made me laugh so bad, my entire body hurts. Now, I know pretty well who he is, thus why he may not realize how much bad VCs hurt the industry, especially when a vast number does exactly what he said: leaving as soon as there are any signs of trouble. And I know that from experience.
Now, do I always agree with ICOs? Not really, selling promises that particular way is bound to lead up to some disappointment from one side or the other. But they are perfectly valid to fund yourself if your service, your core business model can be compartmentalized that way. As he said: "The token that you sell in your ICO is the atomic unit of your business model."