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Opinion: Blockchain Disrupts Venture Capital By Enabling Decentralized Crowdfunding

· 22 Sep 2018 in Opinion

When we read the news, we are constantly seeing that some countries again had a record year of new startups launched. There has never before been so many companies launched in history.

Due to the technology we have arrived in the era, where the playing field of entrepreneurship is leveled. Everyone who has the skills, talent, and is willing to work hard can build something amazing, that can potentially improve billions of lives. New startups are popping up everywhere and there are new startup hubs developing across the world, that are getting close to an ecosystem of Silicon Valley.

As Reid Hoffman said in his podcast “Masters of Scale”:

“Silicon Valley is a deeply interconnected ecosystem, and that’s what you need. You need entrepreneurs with ideas, yes. But you also need people who are skilled in every discipline needed at every company, at every stage. Not just engineers and product managers—but also lawyers, accountants, marketers, recruiters, operational geniuses. You need places for them to gather, and media outlets to share their ideas. You need world-class universities with their constant supply of young talent, and venture capitalists to invest in them. And, importantly, you also need successful entrepreneurs who pay it forward. These are the things that make Silicon Valley unstoppable—for now.”

Due to a rise of new startup hubs across the globe, where people can gather together, share their ideas, find partners for their venture, or get capital for their startups, therefore entrepreneurship is getting more popular. This also creates an upward cycle of financial growth on the global scale.

One of the reasons why Startup hubs are growing, besides the growing community of similar minded people, is to have a better connection and easier communication between investors who are looking for a great idea or company to invest in and entrepreneurs. Each company goes through the funding stages from starting from seed funding and working their way up to Series A, B, C.

Due to a fast growth of blockchain industry, we have seen a new way of how the startup can collect funding or validate the potential of their idea. 

Blockchain Changes Startup Funding

Blockchain technology is ripping down the conventional walls of how people could access capital, by enabling more people to get involved in projects that are making difference. Previously if someone wanted to invest in a startup before it went public, they had to know the founder, be wealthy enough to become an Angel investor, or to afford to invest in a venture fund. Not to mention you had to be in the right place at the right time, to get the information or you had to be a citizen in the right country. By breaking down these barriers, this allows people across the globe to invest in ideas that are in earlier stages, before having to wait on company launching on the public stock market. On the global scale, decentralized crowdfunding has opened up a new entry point for the micro investors, who previously would never have had an opportunity to back a project they believed in.

Blockchain On The Investment Side

By utilizing tokens in the fundraising phase, it allows said tokens that represent the project, startup, product to be decentralized. That means Investors no longer have to be dependent on a certain financial service provider to make sure that they are selling the company shares or store your assets. It also gives an option for Investors to move and hold their assets more freely however they please.

Where’s the market currently at the end of 2018?

Getting funding is sometimes like an oxygen for the company, and not reaching the right people who actually care and would like to invest in the project is one of the main reasons why some brilliant ideas that could have changed millions or if not billions of lives are sitting somewhere in the drawer and collecting dust. When Entrepreneurs are seeking to find right investors for their projects, they will probably flirt with following ideas, get funding from “friends, family, fools”, Angel Investors, Incubator, Venture Capital Firm, a crowdfunding campaign on Indiegogo/Kickstarter.

Decentralized crowdfunding methods (Initial coin offering, Initial Token Offering, Tokenization, Security Token Issuing, Utility Token Issuing) has been around for a few years. And the first startups who have been funded by “ICO – Initial Coin Offering” campaigns have been a great proof of concept, that the startup can find a funding that way, and it can also be done successfully. On the other hand, investors are also seeing the companies that got started by ICO are now becoming large and recognized organizations.

Like with every new industry it is volatile, unpredictable, needs regulations, and everything that you read should be taken with a grain of salt. Although decentralized crowdfunding (collecting funds by using a blockchain technology) for the startups is becoming more mainstream. This means, more institutional investors, family offices, venture capital firms are also joining the scene.

The quality of projects who are looking to crowdfund their ideas is increasing. When in 2016 and 2017 some companies raised a staggering amount only by having a compelling vision, without having a working prototype or even an MVP. Fortunately, the market has matured enough, that to launch a fully scaled crowdfunding campaign which goal is to gain over $5+ Million in funding, in this stage founders would definitely need to have an MVP or a prototype.

On the other hand in 2018 ICO funded projects are getting more “realistic” as it’s okay to collect seed funding throughout tokenization of the startup. But by doing so, like pitching the idea to VCs’, Angel Investors founders have to be ready to pay a higher price on the capital and some rough criticism.

The Future Of Decentralized Crowdfunding

Collecting funds by launching Initial Token Offering, or similarly structured crowdfunding campaigns are becoming more common and “normal”, like online dating. Meanwhile, the companies are moving away from issuing Utility Tokens and they are moving toward issuing Security Tokens. This means the tokens that startups are issuing are starting to be backed by a real value or tangible assets like company shares, that can also pay out dividends. The market is also becoming more stable, as investors are starting to look for long-term projects, instead of looking for a quick 10X ROI.

 

Written by Kenn Lend CEO of ICOVenture.eu

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