While some say that ICO will destroy the monopoly of venture funds to finance startups, some foundations are experimenting with tokensail themselves. Pavel Korolev, CEO of Pulsar VC, says in a column for FutureBanking how and why.
Raising funds through ICO can be done in different ways, and there are many new opportunities for traditional venture capitalists. Over the past six months, the market has seen several cases where a piece of the venture capital fund portfolio has been sold for cryptocurrency.
ICO venture capitalists can no longer ignore ICO: June 2017 was the first month when ICO brought more funds to startups in search of investments than venture capital funds, and since then this trend has only intensified. According to the ICO tracker Coinschedule, since the beginning of the year startups of all stripes have attracted $3.2 billion of investment through ICO. As for blockchain projects (for which this tool is primarily intended), Silicon Valley Bank's research states that in the second and third quarters of 2017, 90% of such projects were carried out by ICO.
In theory, the entry of venture funds into ICO opens up new opportunities for all participants in the process: the fund itself, investors and projects. This is a great opportunity for the fund to raise funds and make clients those who could not get into the orbit of venture financing before, for large investors - to find the use of cryptocurrency assets, for projects - is quite predictable, to get funding, and if the project does everything right, to get support for the game in the long run.
In practice, however, it is not easier for skeptics to believe in ICO for venture funds than in ICO projects. Many questions remain unanswered. Can one and the same fund attract money from traditional fiat investors and through ICO? What does the exit mechanism look like in this case? What does an investor get if one of the fund's portfolio projects, in which he invested, is bought? And so on.
The market has seen the first failures of ICO projects - this has not yet happened with ICO venture funds. The obvious reason is the insignificant number of "stock" tokensails (compared to the number of recorded ICO-projects). So far, the market is only looking at this financial instrument and its potential, but seems to be optimistic. Investors rely on tokensail procedures carried out by venture funds, which have not yet justified ICO projects.
In ICO, the project itself, investors are concerned, first of all, about significant regulatory risks. Nobody wants his name to be connected with the dubious procedure. Besides, the conditions offered by ICO's "solo" projects to investors are not favorable. Thus, for example, the obligations of the project to token holders are much less "obligatory" than to shareholders, and so far the ownership of the token does not make the investor a shareholder. As long as tokens are not equated with securities, protection of investors' interests will be "limping", they believe.
For ordinary investors, ICO has one curious side effect: the unprecedented democratization of venture capital investment. Selling venture fund tokens through ICO means that almost anyone can become minority holders of "shares" and, in the future, beneficiaries of the success of startups from its portfolio. Anyone with a cryptocurrency can invest in tokens through ICO.
To be continued in the next part.