Raising Capital through an ICO (Initial Coin Offering)

A friend of mine kept nagging me to buy Bitcoin when it was around $900. Honestly, the whole concept of cryptocurrency seemed a little wanky. For those of you that don’t know, Bitcoin is the first cryptocurrency enabled by blockchain technology which debuted in 2009.

The founder(s) of Bitcoin remains unknown to this day and is only known by the pseudonym, Satoshi Nakamoto. Anyway, I finally caved in and started buying Bitcoin when it hit $1300 and at the time of this writing it’s valued at more than $7,200 (which really makes me wish I bought more).

In 2010, if you bought $100 worth of Bitcoin, it would be worth more than $1 M today (the highest value of Bitcoin in 2010 was 39 cents).   The staggering rise of Bitcoin has led to the rise of countless cryptocurrencies.  In fact, Coin Market Cap currently lists over 1000 cryptocurrencies.

Similar to an IPO (Initial Public Offering), a cryptocurrency will have an ICO (Initial Coin Offering).  For example, Ethereum debuted at 40 cents and has a value over $300 at the time of this writing.

While I was covering TechCrunch Disrupt 2017, I witnessed the ICO of SparkleCoin, a cryptocurrency backed by diamonds, which had a countdown punctuated with a confetti canon (I always enjoy a good party).

Initially, when I heard the concept of ICO, I shrugged thinking that it’s another cryptocurrency in a crowded market.  Why would I speculate on another cryptocurrency?   However, ICOs have evolved beyond cryptocurrency -it’s been a way for startups to raise capital.  A startup can assign an amount of equity per coin in a similar way that equity is assigned to stock in a publicly traded company. With blockchain technology, a company’s coin can easily be traded on various exchanges (CryptoCoinCharts lists over 100 coin exchanges).

I talked to an angel investor and she said that she preferred to invest in companies that have done an ICO.  One of the reasons is that she can cash out a lot earlier in an exchange whereas with a traditional investment in a startup, she may never have the option to cash out.

For a startup to raise money through an ICO, they should expect to pay for about $500 K in legal fees (this is cheap compared to an IPO which may cost north of $5 M – typically it’s about 7% of the revenue generated).

iComplyICO, a Vancouver BC based startup, aims to drastically reduce the cost of an ICO  by streamlining the legal, compliance, and due diligence procedures that traditional IPOs must go through today. iComplyICO CEO, Matthew Unger, said that his goal is to reduce the cost of a legally compliant ICO to below $100 K.

Here are examples of some successful ICOs for this year:

  • Filecoin ($257 M): A blockchain-based storage network and cryptocurrency
  • Tezos($232 M): new decentralized blockchain that governs itself by establishing a true digital commonwealth.
  • EOS($185 M): a blockchain architecture designed to enable vertical and horizontal scaling of decentralized applications
  • Bancor($153 M): enables built-in price discovery and a liquidity mechanism for tokens on smart contract blockchains.
  • Status($90 M):  an interface to access Ethereum, built for Android & iOS.

As you can see, it’s possible to raise a tremendous amount of capital through an ICO at the fraction of the cost of an IPO.  With that said, the SEC has declared that some ICO’s are actually securities and subject to regulations.

Recently, the SEC charged two companies, REIcoin Group Foundation and DRC World, of defrauding investors with their ICOs.  In these case, the two companies claimed to have cryptocurrencies backed by Real Estate and Diamonds respectively (and it turns out they didn’t). So investors, beware!

For startups, an ICO can be an amazing vehicle to raise money; there’s less red tape and the costs are a fraction of going public. If you are thinking of raising capital through an ICO, you need to consult with legal counsel that’s well versed in this field.

Personally, I foresee that once the regulations and procedures for raising capital through are fully established, IPOs will go the way of the dinosaur and be replaced by the more agile and leaner ICO.

 

By Rich Foreman, CEO / Apptology and Director of Startup Grind Sacramento. Rich co-authored the book Tap into the Mobile Economy and his blog has been listed in the Top 20 Mobile Marketing Blogs of 2014.  Follow Rich on Twitter at@ApptologyCEO or attend a Startup Grind Sacramento Event.

 

 

Favorites at TechCrunch Disrupt 2017

The winner of TechCrunch Disrupt 2017 Startup Battlefield is Pi.   They developed a device that allows smartphones and other devices to charge wirelessly .   Amazingly, they were able to demonstrate this on stage in front of a live audience.  In comparison, in the previous week, Apple announced their wireless charging pad, Mophie,  which is clearly an inferior product.  Along with the bragging rights, Pi received a $50,000 cash prize.

Pi and the runner-up, Oneva,  got the limelight but there were literally hundreds of startups that participated at the event that don’t get any attention .  I spent three days wandering the floor at Disrupt; talking to scores of startups and I would like to highlight a few of my favorites.  So, in no particular order…

Hashgraph

Hashgraph has a bold claim. They stated that their patented algorithm is faster and more secure than blockchain (the underlying technology that enable cryptocurrencies ).  Blockchain has been the basis for other startups that have figured out innovative uses for its distributed ledger system.  If Hashgraph’s claims hold true, they can potentially replace blockchain in a rapidly growing space.

Waggit

Being a dog owner, Waggit caught my eye.  Their high tech collar captures the vitals for dogs which can be tracked on an app.  Their point is that dogs can’t tell us when they’re in pain (since they can’t talk-we’ve tried) and that their platform can help diagnose your dog’s health.   This can be a useful diagnostic tool for veterinarians.

SparkleCOIN

One of the new areas of coverage at Disrupt is Cryptocurrencies and Blockchain.  SparkleCOIN is a new cryptocurrency that had their ICO (Initial Coin Offering) at the event.  Every SparkleCOIN will be backed by $5 worth of diamonds.  In addition, they plan to build a whole ecosystem including an exchange and an ecommerce site.

UnitOneDose

UnitOneDose is a robotic pharmacy dispensary.  Their  system accurately dispenses the drug in containers that can be only opened by the patient with their wrist band. Having seen how pharmaceutical drugs are dispensed in hospital and retail settings, I immediately saw the  benefits.  The current process is manually intensive and prone to errors and abuse.   I can easily see their device being the standard in hospitals. 

JumpStart

On the final day of Disrupt, Mexico was hit with a 7.1 magnitude earth quake.  Coincidentally, JumpStart had an earthquake demonstrator that simulates a 7.9 magnitude earthquake.  To see a video click here.  It was a pretty impressive demonstration.   By the way, JumpStart provides supplemental earthquake insurance.

eggXYt

eggXYt is an example of a startup that solves a problem that most people are unaware of (including myself).  In a nutshell, 6 billion male chicks (of a breed that’s meant to lay eggs) are killed annually.  Their technology is able to detect the sex of the egg shortly after they’re laid and prevents them from going through incubation process.  Their technology can also potentially save $1.5 B annually.

Equbot

Equbot uses artificial intelligence to analyze investment opportunities.  Pretty intriguing.  They’ve already been using their platform to make investments and claim that it’s done amazingly well.  However, because they are currently working in negotiating their A round, they couldn’t provide specifics. 

Aris MD

Aris MD has developed a platform that enables surgeons to superimpose patient data (like an MRI) over a live patient using augmented reality (AR).  This is probably one of the most practical and innovative uses of AR that I’ve seen.

Stemless

Stemless has developed a solution that allows for online ordering and payment for cannabis dispensaries.  For those not familiar with the cannabis industry, it’s primarily an all cash business.  Their solution is not just a technical solution but also a legal solution where they had to work and negotiate with banks willing to work in cannabis industry.

Ourotech

Chemotherapy is painful process as an oncologist goes through trial and error with FDA approved chemical cocktails on cancer patients.  Ourotech has developed a testing platform where they can test various cocktails on cancer cells obtained from the patient in a lab environment and then recommend an optimal course of action.  This process totally makes sense to me and I can see it becoming standard practice with oncologists. 

In the 3 days at TechCrunch disrupt, I talked to scores of startups.  I wished I could have highlighted more in this article.  It will be interesting to see which of startups become the next big thing.

By Rich Foreman, CEO / Apptology and Director of Startup Grind Sacramento. Rich co-authored the book Tap into the Mobile Economy and his blog has been listed in the Top 20 Mobile Marketing Blogs of 2014