How to Navigate through the disruption of finance
Excerpts from a talk by Nicole Anderson; “Crypto: What makes for a good ICO funding approach?”
held 12 April at SBCInsurTech, Rocketspace London
How to Navigate through the disruption of finance
Nicole Anderson explains it’s essential to understand if your token is a security for a good ICO funding. Also your business model needs to work within the blockchain ecosystem.
ICO Approach
1] Blockchain startup seeks cash through an ICO
2] ICOs value is in the network itself
3] The startup exchanges tokens for investment
4] Tokens are traded for secondary exchange.
Use the Hovey test to confirm your token is a security.
what is ITO best practice and best outlook
– blockchain revolution
– cryptocurrencies
– Ethereum & smart contracts
Initial Coin Offering
Initial Coin Offering (‘ICO’), also token launch or token generation, is a term describing a limited period in which a company sells a predefined number of digital tokens (crypto coins) to the public, typically in exchange for major crypto-currencies (as of today,
mostly Bitcoin and Ether).
Definition of Token
– Security Token
– Digital Currency
– Asset backed token
– Utility token
FUNDING COMPARISON
Traditional VC Funding:
– Receive initial funding after business plan, prototype an team validation. Additional funding for promising KPIs & market and improved product.
– investors cautiously validate ideas before committing funds. Founders cautious with
spending money and often focused on next funding round (which hinders innovation).
Hybrid Funding:
-Receive initial funding after business plan, prototype an team validation. Receive ICO funding after proofing concept and potential idea.
– Founders get ‘smart money’ as well as crowd support (first customer). VCs validate seriousness of business, crowd validates idea & market potential. Founders are free to innovate.
Pure ICO funding:
– Receive funding based on whitepaper, founder team and idea. Additional TGE (Token Generating Events) only if necessary.
– Founders get crowd support. Founders are free to innovate. Governance risks if no framework. Transparency risks on use of proceeds and product development.
A TOKEN MODEL VS EQUITY INVESTING
Investing in Stocks:
Investors spend cash for an ownership of the operating company that generates economic activity. Products and services rely on external money supply to function in an economy. Company utilities, like money transfer technology between bank departments, is not monetised.
Investing in Tokens:
Investors spend cash for an ownership percentage of the functional utilities or proprietary money supply. Operating organisations have a range of control over token supply, depending on issuance rules. While best practice is to have partly constructed the network prior to ICO, it is not a requirement.
Factors shaping best-in-class ICOs
– instituitional mindset
– shift to Asia
– fund raising
– regulation