ICOs. #BUIDL it And They Will Come.
Raising capital is very difficult. Very few people have access to these individuals with money. Even with access, it’s highly unlikely to obtain the funds without giving up massive amounts of ownership. Now with the advent of ICOs, Initial Coin Offerings, people regardless of skin color, religion, creed or geographical location have the opportunity to raise capital without the sacrifice of ownership.
Enter the ERC20 token contract — this special type of Ethereum based smart contract maintains a cryptographic ledger that maps wallet addresses to amounts. It provides a very basic interface to the Token Name, totalSupply, balanceOf, or allowance for an address to be spent. Transfer and Approvalevents are logged, and transactions are written to the blockchain whenever a transfer occurs, making any purchase of ICO token sales public, and exhibit the same security features as other forms of money transfer on the blockchain. Code conducts the transfer without an authority. As of January 2018, there were more than 21,000 Token contracts, and the most popular have raised over $70 million each.
Here’s why ICOs are beneficial to startups.
In any startup, the burn rate of cash for just staying alive is working against you. If you don’t have enough momentum, you will fail. This is one of the greatest advantages of the ICO. There is far less paperwork to get started. In theory, you can create a Whitepaper that lays out the details your company, service or product, and deploy an ERC20 compliant token, as well as deploy a smart contract that will conduct your sale. You can argue that you SHOULD have at least an Alpha product available before raise, however this is not necessary, and is up for debate. There are no hard-set rules for this space, and as such the market will determine the viability of an ICO.
Compare this with traditional VC raises, where there is a legacy set of rules and regulations to follow. In comparison, this is a snail’s pace. You set up a Corporation, holdings account, term sheet and pitch tag which is extremely expensive, time consuming, and frankly it is a hindrance to progress. You may not simply have the opportunity or access to the required legal team, or resources based on current financials. When talking about geographical disadvantage, you inevitably hear discussions of developing countries where it is next to impossible for a poor developer with a great idea or product to ever have a chance to get in front of an investor.
But — you don’t even have to dig very far even in the developed world to see real struggle for raising capital. Consider Milwaukee, Wisconsin. Craig Sweeny of ShiftSavings at StartupMKE’s Emerge event exclaimed, “There’s a lot of good momentum from the startup perspective, but from the investment community, there are some real issues and we’ve struggled.”
Rather than wait for VC funds to come around and deal with a company not based in Silicon Valley, companies in Milwaukee would benefit greatly from reaching out to the GLOBAL community, and not just be confined to the drudgery of a poor local business climate. Wait around too long, and your business might not even make it past the three year mark.
You don’t have to already be a mid-to-late-stage company with multi-million dollar revenues to reach out on a global scale and begin expanding your business today.
It’s not just Milwaukee. It’s your hometown. Build it, and they will come.
With an ICO, a company is also focused on Community Building; when people invest in, or purchase your Utility Token, people are incentivized to encourage the growth or promotion of your product. There’s a monetary incentive for token purchasers when your business does well, as those tokens often become tradable on exchanges. Early investors of your product either benefit by a steep discount of a utility token price or speculative increase in market value.
Now, there are some things to look out for, as an investor. There are a lot of scammers looking to make a quick dollar by slapping together a shiny facade landing page, without even a minimum viable product under the surface. Often these companies will rely on multiple “Advisory boards” to make it appear like the company is far greater in size and equipped with the mental brainpower to build out extravagant promises and claims being made about the company. You should want to learn in depth about the founders, and they should be very experienced and skilled in their trade. Speculators with large holdings can actually make or break the value of a token, if enough whales manipulate or control enough of a percentage of a token. What is presented may or may not be true, and one of the side effects of ease of entry for those issuing ICOs can sometimes also be a pitfall for a gullible investor falling victim to a scam.
The pace of advancement in the ICO space is too fast for anyone to keep up with. You could stay awake 23 hours a day and still miss an eternity of information related to ICOs by sleeping one hour per night.
Related: Why Blockchain? We Choose to Go to the Moon.
And such a pace cannot help but create new ills as it dispels old. So it is not surprising that some would have us stay a little longer, to rest, to wait. If this capsule history of our progress teaches us anything, it is that Man and his quest for knowledge is determined and cannot be deterred. ~JFK on the Moon Race
On the bright side, there are some truly legitimate companies in this space have both altruistic and mutually beneficial goals for their executive team, company staff and investors.
The products they develop will have an impact in reducing some of the drudgery and bureaucracy we encounter. If you are looking to invest in ICO token sales, the rule is this: do your due diligence.
There is a bit of a Wild West mentality in this space, but I’d rather leave it up to the market and free will of the individual to decide what to invest in, than a central authority coming up with arbitrary rules of protectionism. After all — one of the core principles of Bitcoin and Ethereum are that they are censorship resistant — and that is at the heart of what we are all here for — empowerment.
Sometimes when you believe the impossible, the incredible comes true.
Go the distance. What will you #BUIDL?
Dan Emmons is the Blockchain Developer for Loci.io, owner of Emmonspired LLC, a Certified Bitcoin Professional, Certified Ethereum Developer, Full Stack Developer and Advisor on Cryptocurrency projects. He is also the creator of a Youtube Channel and iTunes Podcast called #ByteSizeBlockchain.
