By Jon Creasy
For quite some time, venture capital has been the tried and true method to success for household names such as Apple, Intel, Uber, and AirBnB. However, despite these recent blockbuster successes, the entrepreneurial community is looking for ways to improve on an extremely risky system that’s existed since the Internet 1.0 and rarely rewards the majority of investors with a solid return on investment. Venture capital and angel investing is centralized. Only a few experienced and well-connected elites, such as AngelList, have any chance at a good ROI. Innovative ideas are routinely stifled due to lack of funding, experience, and expertise.
Legacy VCs are prevented from directly investing in ICOs due to legal restrictions, but can fund ideas and pre-ICO business formations.
Even with the recent invention of crowdfunding platforms like Kickstarter and GoFundMe, which have revolutionized the fundraising space, venture capital still has problems – these new methods rarely have a solid business plan or an experienced entrepreneur backing them up. Andy Rachleff, president and CEO of Wealthfront, an innovative startup in the fintech sector, warns that most investors can expect “pretty dismal results…assume you are going to lose all your money.” On top of that, entry costs alone can be extremely prohibitive – many investments require a minimum of around $25,000.
Despite these challenges to new investors, the market potential of this sector is difficult to ignore. GoFundMe has raised an incredible $5 billion since 2010, with Kickstarter close behind at $3.4 billion. With the total VC world raising a whopping $69 billion in 2016, a market that is risky, difficult to raise funds in, and discouraging towards entrepreneurs boasts impressive revenue numbers in the past year alone.
Several blockchain and utility token companies have ventured into this sector, and Strategic Coin plans to dig in to find out which ones seem poised to shake up the market. Many of these new decentralized venture capital alternatives have a wide variety of services they offer, but there are similarities between them all that are worth comparing, such as an idea hub, a decentralized funding mechanism, professional blockchain startup assistance, and even businesses built solely to create more businesses. Each of these up-and-coming decentralized startup solutions are unique, with each one bringing their own forte to the table. While there are too many to review in one article, we’ve highlighted some of the standouts below.
ConsenSys Ventures is backed by one of the powerhouses of the crypto-community, ConsenSys. They boast an impressive corps of developers, engineers, and businesspeople intimately familiar with success in the blockchain space, and they are dedicated to making their clients successful. Perhaps the most notable aspect of ConsenSys Ventures is the BlockApps component – a tool that helps build, manage, and deploy applications onto the blockchain. Available on Microsoft Azure, BlockApps’ smart contract system is backed by a talented team and reputable legacy companies that ensure any client’s project will flourish on the blockchain.
ICOBox approaches the decentralized venture capital world with a focus on investors. Their ICOS Platform features a voting system where users pick projects they wish to support, as well as forums for every project where discussion, questions, and answers are facilitated, much like Kickstarter or GoFundMe. The big difference, however, comes from using the ICOSBox’s native utility token ICOS. Users can purchase tokens from accepted projects at a predetermined discount, available only to ICOBox tokenholders. This saves time, money, and technical hassle that is usually associated with current token generation event (TGE) structures.
CoFounder, by comparison, is a self-described “venture builder” platform that allows anyone, regardless of expertise, to build and launch a company. Because current venture capital is extremely risky, localized, and generally only serves established entrepreneurs, CoFounder seeks to use blockchain technology and utility tokens to democratize the industry and level the playing field. CoFounder will utilize a platform called the “Crowdsourced Venture Builder” that will be made up of crowdsourcing both of ideas and funds, a mentorship and feedback program for inexperienced entrepreneurs, and an “IdeaHub” – a place where founders, entrepreneurs, investors, and community members can contribute to developing companies. In this way, CoFounder is almost like a parent company for the facilitation and creation of subsidiaries that was otherwise not exist.
Other notable efforts to crowdsource ICOs include: CoinCrowd, Starbase, FundYourselfNow, StakeTree, and KICKICO. Note that these efforts often do not focus on the types of utility tokens that Strategic Coin specializes in.
Many VCs and angel investor groups have taken an interest in blockchain companies but do not have a crypto-only mandate. For example, Startup Tunnel takes a different approach from these other decentralized VC alternatives, by focusing specifically on mentorship and funding to projects that are “game changers” in a wide variety of sectors, including blockchain-enabled cryptocurrency applications, data analytics, machine learning and artificial intelligence, artificial reality and virtual reality, internet of things, robotics, and mobile and cloud computing platforms. This particular company’s goal is to bring expertise to teams that wouldn’t otherwise be successful, and, in this way, closely mirrors traditional VC funds.
As readers of Strategic Coin know, there are many other companies that have created separate funds focused on blockchain and crypto technologies. Of these, companies like Outlier Ventures are looking to to provide seed financing to companies that may eventually create their own utility tokens. Outlier also maintains a large, searchable database of startups, tokens and corporate involvement in the blockchain community.
Looking at these new blockchain and utility token startups, it’s easy to see both large differences and some similarities between them. One theme that stands out though, is the fact that investors now have the unprecedented opportunity to be involved in venture capital in a way that mitigates risk and amplifies their return on investment. Taking a wider view, however, brings into question the benefit of such innovation for founders and the community as a whole.
While some of these companies offer support from “entrepreneurial experts,” these blockchain services are operating in a regulatory grey area. They provide significantly less protection for founders than a traditional VC firm would. Further, with few of these platforms being localized to just one nation, have the steep challenge of dealing with regulation from many different countries.
In addition to these concerns, while some of these platforms may claim to be a decentralized alternative to legacy venture capital, few are actually positioned to turn the operation over fully to their users. They are businesses themselves looking for a profit, and are effectually just traditional VC, but on the blockchain to utilize decentralized crowdfunding methods.
Despite these negatives, there is still reason to pay attention to blockchain incubators and accelerators. Legacy venture capital firms are prevented from directly investing in ICOs due to legal restrictions, but these platforms could provide a way for them to invest in ideas and pre-ICO business formations. This is helpful because blockchain and utility token projects that would have otherwise never started get the opportunity to receive VC backing and advice.
All in all, the blockchain venture capital world is one to watch with interest. There is still much to learn from this space, money to made, and businesses to be built. Whether these projects will remain truly decentralized is up for debate, but that doesn’t mean they won’t be profitable.
As always, Strategic Coin is committed to researching and reviewing great utility token companies. Expect more from us in this sector soon!
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