How Startups are Playing the Collaborative Sport of Disruption
Despite what the headlines and Google ads might suggest, success in the blockchain sector isn’t as straightforward as it once was. Only two years ago, during the ICO peak of 2017, bright-eyed speculators were eager to throw money at any and all projects fundraising via a token sale. Now the market has cooled significantly, and the crowdfunding landscape presents a far tougher challenge to navigate. The statistics which prove the trend make for a sobering read: in 2017, 875 ICOs managed to raise a cumulative $6.22 billion, while the following year, 1,253 ICOs raked in a barely increased $6.81 billion. Last year, the market shrank quite considerably, with 101 token offerings raising $366 million between them. When you take into account that the great bulk of these offerings were IEOs, there is one stark conclusion to be drawn: the ICO is dead, while STOs and IEOs are walking wounded. Startups seeking to crowdfund their project today shouldn’t lose hope however, for there is still positive news to temper the negative. Genuinely good blockchain startups are still finding ways to grow, develop and ultimately succeed. Back in May, Forbes reported on the Enterprise Blockchain Top 100 report published by Boldstart Ventures and others, noting “a shift away from financial applications, a change in the way those startups are raising capital and a level of maturity”. When the President of the Silicon Valley Blockchain Society, Amit Pradhan, spoke to us on the Talk-o-nomics podcast, he agreed. Watch Talk-o-nomics Episode 3: https://youtu.be/6HtoZgqcaFAListen to the audio podcast on iTunes or Spotify
Solving problems that meet human challenges
“We see a lot of companies now trying to solve vertical problems… and we like that”, says Amit, who insists that companies that want to succeed must now solve problems, “that meet certain human challenges.” According to Amit, the demand for potential investments is huge, only today, investors and VCs are looking to ask blockchain startups the kind of basic questions that a traditional fundraiser would, such as:
- Does the project’s premise need to be centralized?
- Does it need its own currency?
Amit believes that one of the core aspects of a blockchain project is in its token economy or tokenomics, but that the majority of projects don’t have the economic expertise to truly build one that makes sense.
“Are there any mechanics of the token unique to the system? In which case, it could be very powerful if accomplished in a thoughtful, holistic way.”
To do this, he says, a business needs actual economists at the table, people who can describe how token mechanisms affect the overall ecosystem, beyond the buzzwords of inflation and velocity.
Disruption is a collaborative sport
We asked Amit what a successful fundraising project would look like today, given the fact that blockchain startups appear to wish to straddle the traditional and decentralized financial worlds. He told us that it is vitally important to bring every stakeholder together to make things work, including institutional investors, VCs, family offices and startups. Or to put it more colorfully, Amit describes them as: “Tattoed anarchists with large banks,” before adding, “…my core belief is that disruption is a collaborative sport. You need to have all of the actors at the table — including the ones getting disrupted!” For the SVBS founder, crypto and blockchain are still attractive for institutional investors as they represent a new asset class with interesting economic mechanics.
“The concept of ongoing liquidity is new but very exciting even from an LP perspective and institutional perspective. There’s a new culture class and people forget that this decentralized space wasn’t born in 2008. It wasn’t just born out of Satoshi’s whitepaper, and whatever was intended by that.”
To illustrate the point, he points at how some of the industry’s oldest developers have come from countries that either have authoritarian regimes, collapsing currencies or hyperinflation. He sees a common thread of vector points, where a lack of freedom and control inspires young technical talents to find a way to undo those systems of power, and to dismantle structures that have become too deeply decentralized.
We’re early in the tech cycle
Amit admits that the idea of a decentralized revolution still excites him, but that the space has to move beyond the tech enabling it.
“It’s just tech. We’ve had these cycles before, we don’t think about the TCPIP framework on which the internet works today. We talk about an app, a service. We don’t care about the stack protocol. We don’t need to know how it works.”
He singles out governance as the most interesting aspect of the decentralized revolution:
“The introduction of a consensus model is very entrepreneur-friendly, but — and I don’t mean to sound like I dislike democratized financing of projects that affect people and who may have the most impact — that’s not what happened with ICOs. You had speculative investors just coming in and hedging really quickly.”
He invites us to look back at the history of AI, which he says has more technological sophistication than blockchain, to see how mega companies have been built from so many rounds of multi-million dollar funding.
“This concept that you could do $120 million in the first round — what happens is you get incredibly undisciplined. When you get a VC round, you have to start bootstrapping at a different level, and be exceedingly optimized with your capital. Spend it on the right people, the right things.”
Asked if different and evolving regulatory jurisdictions are a matter of concern for blockchain startups, Amit explains that Switzerland has a wider acceptance of token types which he says is the reason many projects operate from there. He concedes:
“As a US investor, I worry about that. I want them to come up with laws that allow us to go one way or the other. Does it mean you don’t play — no, it means you play with the knowledge that stuff is evolving.”