Investment in ICOs and Blockchain Startups is not as easy as you think
Jan 04, 2018 Posted / 8114 Views
If you are also the one allured by the investment opportunities that ICOs and blockchain based start-ups provide then let us just guide you to the latest investment approaches. There are some enthusiasts and venture capitalists that are currently looking to contribute in startups, however, these are the new funding mechanism and no definite paths to building lucrative companies.
Some ICOs were launched initially as startups that were asking to secure seed funding and they changed their business models changed to comply with ICO needs. They did not change their teams but simply their target audience of investors.
However, the bar remains low for startups rising through ICOs despite their well-written whitepapers. Whilst most of these new startup investors don’t know how the brimming point for most seed funds, nonetheless they don't even look at mobile applications with retention rates below 20% after six months or e-commerce companies with less than $500,000 in revenues.
Investment standards shouldn’t manipulate, and the terms also shouldn’t. If you will invest in a blockchain related startup, which is planning an ICO, after reviewing their convertible note documents, any analysts would suggest you that your investment alone doesn’t convert at the ICO. If a company is raising $5 million, $10 million or more through an ICO, the seed round investors’ convertible note shouldn’t be left in limbo and it should convert to equity. A simple conversation with the founders, who also agreed, and the terms of the convertible note were changed.
Opinions regarding that may vary, but as regulators step in and the ICO craze tempers down utility tokens will be tied to equity. It’s hard enough to create a successful startup and product, but on top of this to create a successful ecosystem around your tokens? This is a monumental task. So the vast majority of utility tokens will eventually be tied to equity in some manner.
There will be rare utility tokens that can successfully justify their existence, but not many. Presently, the ICO-focused legal community itself is debating whether a pure utility token will be deemed securities in the Cardozo Blockchain Project’s response to The SAFT Whitepaper published by Cooley LLP. Therefore, it is possible that many ICOs which are positioning themselves as “utility tokens” to avoid being deemed securities will not succeed in that effort.
Lastly any analyst would suggest that ICOs are and when the dust settles with regulators across the globe, ICOs will be a viable option for entrepreneurs seeking funding. There has been a lot of talk about how ICOs will replace or disrupt venture capital, but I would say that is highly doubtful.
Applancer is an open platform for discussion on all things like Blockchain , Cryptocurrency and Ico news updates. As such, the opinions expressed in this article are the author's own and do not necessarily reflect the view of Applancer .
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