For those of us dialed into the blockchain space, it seems like everyone is launching an Initial Coin Offering, or ICO. Teams from around the world are putting together whitepapers, advisory boards, and marketing campaigns to promote a token sale for their company or product. And they’re raising a LOT of money this way. Over $2 Billion USD was raised in this year alone. The ICO market seems to be cooling off recently, and this is probably a good thing. I’ve heard of some very questionable products and teams that have raised significant capital, and even some of the projects that seemed destined for success, such as Tezos, have not measured up to the hype.
However, regardless of the short term outcomes of this recent ICO bubble, to those of us in venture capital, it’s clear that token sales will change the landscape of venture investment for good. VC firms may not be relevant 10 years from now. By that time startups may be able to raise all the capital they need through a token sale. Perhaps VC’s can reposition themselves to participate in pre-token sale but it seems inevitable that they will lose their exclusive access and leverage in the startup investment market. Who knows how this will play out, but it seems evident to me that if there is one type of legacy VC institution that will remain relevant and perhaps even gain in importance in this new ICO landscape, it will be accelerator programs.
If you think about it, an accelerator already positions a team quite well for an ICO. During a typical accelerator program, a team pushes to develop a basic version of their product and to get performance metrics that demonstrate the effectiveness of what they have built. An accelerator also connects a startup to a network of advisors who help with development and strategy as well as lend the company legitimacy. Finally, an accelerator program gives a company visibility and media exposure as well as the accelerator’s brand approval. And honestly, with just a proof of concept or whitepaper, an impressive board of advisors, and some good branding and media exposure, teams have been raising millions of dollars through their token sales.
I think an accelerator could quite easily adapt its business model towards preparing their companies not for seed funding and follow on rounds, but instead prepare their teams for an ICO. And in this case everyone wins. The team raises on better terms and hopefully gives up less equity. The accelerator gains much desired liquidity through the tokenization of the companies in its portfolio. Token sale investors gain access to investing in promising startups at a much earlier stage with potentially much higher returns.
Before we get ahead of ourselves, it’s worth mentioning that there are still a lot of unknowns on the side of regulation. How will major governments like the US and China decide to react to this emerging trend? Will this door close before it even fully opens? I hope not. Whatever happens, these are exciting times to be part of an accelerator program. This is an incredible opportunity to push the boundaries of traditional venture capital into a new paradigm and increase our effectiveness at growing the next generation of world-changing startups.