Wikipedia founder Jimmy Wales may think that initial coin offerings (ICOs) are an “absolute scam,” but, this summer, with ICOs contributions reach almost the $2.5 billion mark, it’s quite clear that ICOs are changing the funding game for startups.
With these numbers, it’s fair to say the blockchain industry is showing no signs of slowing down. But with such growth, it’s perhaps more important than ever that startups in the blockchain space are managing themselves in the correct way and with the utmost integrity – for their own good and to the benefit of their customers and investors, as well as the blockchain movement as a whole.
Indeed, the market may be steaming hot, but this does not mean that every startup will succeed. Several leading names in the blockchain and crypto ecosystem, as well as some of the most exciting new ICO projects, came together to share advice, innovation and inspiration at a recent meetup hosted in Barcelona by CryptoFriends.
The likes of Brock Pierce, Jason King, Eyal Herzog and Eric Benz – all experts in the blockchain space – gave the audience plenty of food for thought, and if you are seriously looking to launch a startup with an ICO, you should consider heeding their guidance.
1. Weak external regulation requires strong self-regulation
Some are predicting that we are seeing signs that led to the dotcom bubble of the late 90s and early 2000s. Whether or not we are going to experience a big crash will depend on the ability for self-governance, self-regulation or, better yet, best practices. According to Pierce, co-founder of Blockchain Capital, “the entrepreneurs doing the next ICOs should remember the Japanese term ‘Kaizen,’ which means continually upgrading always. If we keep elevating the bar and keep using better practices; whether it be vesting schedules, milestones where tokens go back or all these sorts of things, giving people securities and rights in some instances, I think the market will stay strong.”
“It’s very easy sometimes, when you see all this money and the opportunity to make compromises and to do the wrong thing because you want to make easy money. This is going to be a big family and a system built in transparency. Operate with absolute integrity and you’ll always be part of that larger family,” he said.
2. Be prepared to fail
With so much excitement in the market and a host of incredible success stories, it might be tempting to think that it’s impossible to fail right now. But that simply isn’t the case and there are many reasons why your startup might not make it. As King, a co-founder of the Academy School of Blockchain at Kingsland University warns, “nine out of ten startups will fail, but that’s just startup culture. A business is not going to be magical just because it has blockchain involved in it. But some of these small startups today will be huge breakout companies. They will be the Google’s, Facebooks, Twitter and Snapchats of tomorrow, making a huge impact on the world.” Some of the best technology never sees the light of day because of poor marketing. Equally, there are some projects that talk a good talk but haven’t developed the technology enough to deliver on their promises. In the end, it comes down to assembling the right team. Be honest about where your lack of knowledge or resources lie and seek out the right people. And you don’t necessarily need big budgets either. If someone believes in your project enough, they may even work for future equity.
3. Consider offering security tokens
In the current market, most ICOs are offering utility tokens, but groups such as Blockchain Capital are starting to see the benefits of tokenized securities. As Pierce, explains, “everything to date has been utility tokens so, with Blockchain Capital’s third fund, I did the first ever ICO of a security. And in doing so, I was able to offer something that almost no one can, which is right to my users, opportunities to have access to ownerships or actual royalties, dividends, things of that nature. I think a lot of these deals would be better served doing this. Not to say that utility tokens are bad, but a lot of these deals, I think, should be done as a security token. The market is changing rapidly. Whatever deal you’re doing, you should be considering a security token.”