I recently attended a fascinating event put on by StartEngine, a tech platform that helps startups raise funding through ICOs and the blockchain. The event had an array of interesting characters in the ICO and blockchain scene, including a plethora of lawyers talking about latest regulatory changes, as well as some of the early emerging influencers and “cryptowhales” who spoke on the state of the industry and shared some fascinating learnings on this new way of funding tech companies.
ICOs or Initial Coin Offerings (similar to IPOs) are relatively new on the scene and have recently taken off as an innovative way for companies to get funding outside of more traditional vehicles such as angel investors, VCs or an IPO to sell shares to the public. ICOs are a natural evolution from the Jobs Act, which Obama signed into law in 2012 with a goal of “jumpstarting start up business in the US.”
Up until this point, crowdfunding for business was allowed only on a reward or donation basis, where you could get the product at a discount, such as Kickstarter and other crowdfunding platforms. Yet, access to capital for startups was still limited to family and friends and early angel investors. The JOBS Act essentially changed the rule related to funding and opened up the world of startup equity investing to a broader consumer audience, so ordinary folks like you and me might have a shot at investing in the next unicorn.
Enter the ICO
The ICO or Initial Coin Offering is a new type of fund raising tool where the company exchanges digital assets called tokens in exchange for cryptocurrency such as Bitcoin or Ethereum. Raising the funds in this way creates a fresh injection of capital that allows the company to fund its product development or other business initiatives and bypass the traditional methods of fundraising. In exchange, buyers are awarded digital coupons, otherwise known as tokens which are issued on a distributed ledger (blockchain). A distributed ledger is a database that creates a record of the transaction and is distributed across nodes that allow multiple parties to bear witness to it, thus reducing potential for fraud and making the transaction immutable.
The coins can come in different forms such as a Utility or Security token. Both have different rules and implications for the startup with regards to regulatory compliance and oversight by the SEC. Most recently the head of the SEC weighed in and said that most ICOs should in fact be considered Security tokens, which are an exchange for equity or something the buyer sees as promising an ROI and thus subject to greater compliance and SEC scrutiny. However, it’s still very much the Wild Wild West in terms of being an entirely new way to fund innovation, as well as democratizing the investing playing field and opening up the markets globally to early stage startups…access that was previously reserved only for accredited investors. There are still issues for the issuers of securities – which means that many ICOs will still only be for accredited investors. For US companies following the Jobs Act and limiting their sale to $50K, this is true.
So far in 2017, there have been a total of 228 ICOs that have raised a total of $3,611,293,912!!
That’s a lot of financing that has completely bypassed VCs, banks and other forms of traditional investment.
The StartEngine ICO.2 Summit showcased an amazing array of insiders that have been tracking the market since its inception and responsible for some of the biggest ICOs and early blockchain success.
Lou Kerner a former equity analyst turned VC and the #4 most influential crypto expert on Medium keynoted the event with learnings from his personal trip down the crypto rabbit hole. Listening to him as a noob (newbie) made me feel so much better in knowing that this is just the beginning and most crypto experts today are mostly just a few years (if that) into this emerging new world of blockchain. Some of Lou’s insights include:
- No one knows anything: It’s still the early days and we are all still learning!
- It’s a confidence game: Meaning bitcoin is only as good as people trusting in it.
- Security tokens will dominate: VS. utility tokens, security tokens enable growth of a global investor base and asset liquidity.
- Decentralization is now the lens with which to evaluate everything: And identify industries with potential to be disrupted.
- Industries with middleman taking transaction percentages will be the first to be disrupted (think VCs, payments, education, real estate, music rights, security and more)
Lou has some seriously infectious energy and delivers great insights on the state of Blockchain, ICOs and cryptocurrency. You can check out his keynote here.
ICOs to Watch
In between panels and sessions, we had a chance to hear from the startups that are looking to raise money via ICOs. All of these companies are leveraging blockchain technologies to disrupt existing industries, such as real estate investing, ride-share, social responsibility and even new forms of governance. A few ICOs stood out for me.
The 22x Fund is made up of the entire class of startups from the most recent 500 Startups batch, 22 companies that were vetted out of thousands to participate in the accelerator which is headquartered in Silicon Valley. The beauty of this as an investment, is that you have built in portfolio diversification as the companies range in sectors from Fintech to Retail to VR and more. These companies had to get through the 500 Startups selection process, with an only 1.7% acceptance rate out of thousands of startups that apply to get in. The token offering is open to presale now, with each of the participating startups giving up 5% of their equity in exchange for the 22x token sale.
Blue Frontiers is the for-profit arm of the Seasteading Institute, a non-profit that is exploring the concept of building floating societies on man-made islands that will act as self-governing organizations of startups, research labs, and homes.
Blue Frontiers has signed an MOU with French Polynesia (Tahiti) to build a floating island in the protected waters of a Tahitian lagoon, which will be the first of these startup society ecosystems. The Tahitians are on the front lines of climate change, as it is predicted that a third of the Tahitian Islands will be underwater by 2100. As a people, Tahitians are aware of their need to find options to keep their cultural traditions and people alive beyond climate change impact. Tahitians also consider themselves the original “Seasteaders” as they have been sailing and living at sea their entire history.
With seasteading as a viable option in the coming decades, we can look beyond the frustration of modern political systems. Peacefully exploring alternative methods of governance for the betterment of humanity is worthy of pursuit.
~ Randy Hencken, Cofounder Blue-Frontiers
The initial self sustaining islands will serve as a home to blue technology startups focused on areas such as research into ocean regeneration, alternative energy solutions, fisheries, innovative governance models and more. Their mission is to inspire and lead a global network of experts in every field necessary to build floating societies– including law, business, engineering, architecture, science, and art. Blue Frontiers ICO is currently accepting pre-sale interest and is slated to be open sometime in 2018 with a target “break sea” date of 2020.
Lastly, a company that is looking to disrupt ride-sharing by cutting out the middleman (uber, lyft) through its decentralized technology that will put riders and drivers in direct communication and operate on a currency of utility tokens called Ridecoins. By bringing ride sharing onto the blockchain, Ridecoin will allow riders and drivers to negotiate directly with one another. This will have the effect of lowering costs while putting control back where it belongs: in the hands of users!
Just looking at StartEngine’s ICO page you can see an amazing amount of new companies and technologies that will be using the ICO framework to fund their companies. And not surprisingly StartEngine is running an ICO of its own to fund its tech platform for helping match entrepreneurs to interested investors.
Why does this matter to us Latinas?
- Buyer beware.. While ICOs offer an opportunity to get in on the groundfloor of new startups with the potential for high returns, this is still the Wild Wild West and you should carefully vet any investment thoroughly. There’s also a lot of claims about the legalities of ICOs, many lawyers are still weighing in on the topic.
- Time to get educated, blockchain technologies are set to disrupt almost every industry in the world. If you work in a traditional field, think about how distributed computing might be disruptive and there’s a high likelihood, someone is working on that tech now.
- It’s a greenfield market to enter in its early days, you could be a blockchain expert in a very short time frame if you jump in now.
- Blockchain is huge for emerging global markets and will enable industries to flourish abroad and possibly leap frog the most innovative companies in the US. Check out this video by Brock Pierce, one of the early bitcoin pioneers who was behind the first ICOs.
As you can see, blockchain, crypto and ICOs are very meaty topics to cover and it was a challenge to not take you down my many twists and turns through the rabbit hole, but a topic that was a lot of fun to explore. Stay tuned for more articles on how new emerging technologies may be impacting you in the very near future.
Many thanks to my proof team to help me stay accurate and true to the topic: Wiley Matthews, Fran Nguyen, Neil Cohen and Mike Prasad. 🙏