How (Who’s fault) is it (possible) that ICOs are failing so badly?
Last year, about this time, I started hearing a lot of comments that sounded something like “All these crypto ‘kids’ are running around and raising insane amounts of money on some white paper and they have no idea how to scale companies.” I am certain that you heard similar statements more than a couple of times.
So to follow on from that, last fall started filling up with ICO projects led by entrepreneurs that had immense success in their ‘non-crypto’ industry. These projects were very confident. Speaking to countless of those entrepreneurs about their strategy, the most common response I heard: “Don’t you worry about that, I got it, I’ve scaled companies, I am not one of these crypto kids, all I need is to get to my hard cap.”
Why aren’t they doing better?
And so based on this information we would logically conclude that companies which raised their ICO after summer, arguably should be doing better. After all, most of them have very experienced executives in their specific fields.
But that’s not what reality is. Is it?
So, what a hell is going on then? Does it mean that ICOs are broken as a fundraising model and start-ups need a traditional VC structure? I don’t believe that it is broken. I believe that vast amounts of failures we are seeing in post-ICO companies comes from a gaping disconnect which results in broken offerings. The fundraising vehicle is actually great.
Now I am going to jump to something that might seem off topic, but I promise it all will make sense. So stay with me.
You see, Bitcoin was born into the world of freedom, it did not have regulators overseeing its progress, the whole purpose of it was to prove that it can exist without regulators. And it succeeded. Little by little it grew and matured – in fact it inspired other creators to give life to similar beings, so we started seeing the rise of alt babies (alternative crypto currencies). So, a whole now new family was formed. We call it the blockchain industry nowadays. Because it was not regulated, it grew up in ‘grey’ area.
As this whole family matured it proved that they could exist without regulation, and even thrive. Little by little it became clear that to keep growing and maturing, integration into regulated systems is crucial, and that operating in the grey areas is expensive. There are many unorthodox costs and strategic risk mitigations associated with running blockchain companies.
No going back
This all comes as a big surprise for crypto-newbie (but otherwise seasoned) entrepreneurs. They think these added costs are outrageous and unnecessary. But necessary they are. In my experience most of them believe that they can avoid this issue because ‘crypto kids don’t know what they are doing’. Soon they all learn that in fact this problems are reality.
But, you see, for those who raise ICO, there is no going back, you have to face the music and do the dance. So, because they did not want to hear and plan in the early stages, most of them end up being unprepared and end up dealing with consistently appearing emergencies with random ‘tyre fires’ flying at then.
For example, one huge issue is that you’re a multinational company from day one. Even before releasing the product internationally, you have stakeholders in the form of investors from a number of jurisdictions and you need to make sure that the way you raised money is compliant with each of these jurisdictions.
Silicon Valley veterans are accustomed to having their investor base clustered around the San Francisco bay area and all those people share the same values, but all of a sudden Singaporean, Hong Kong, Swiss, Latvian etc investors will all have different expectations and access to recourse. The cost of maintaining this is enormous.
Another issue is essentially needing a full investor relations infrastructure that a public company would have, but a tiny team. In the US traditionally, most companies don’t go public until they have hundreds of employees, vice presidents of this and that, CFOs with decades of experience, HR departments etc. In the crypto/ICO space, you’re probably “public” with only a single-digit full-time-employee headcount. HOLY MOLY! So now you’re juggling exchange listing fees, upset investors who risked an entire $300 on your venture and NEED to be heard, and a whole host of other issues that are just not relevant to the traditional US venture-funded tech industry.
Also, let’s remember the whole issue with banking and costs associated with constantly dealing with balancing existing bank relationships and expending new ones. Because you can count on your bank account closing sooner then later, so you learn quickly to be proactive on this.
Back to the point…
And now I am back to disconnect. This gap I am speaking of is huge and it is between the traditional expertise and crypto expertise.
I suggest that we close the gaping hole and start really working with each other.
If you have been in crypto space for a while you probably did not get to scale your organisation to levels you wish because of this grey area issue. Do make sure to hire some individuals with traditional experience in whatever field you are developing blockchain solutions for. C level executives will do magic for you.
If you have been running your blockchain company since 2017 or less, look around your team and see how many individuals (not only developers) work for you that have a couple years of experience more than you, then try to hire more. They will be pricey, but they will be worth it as they will take care of those fires for you!
Listen to your advisers
If you are just entering into the space, make sure that your team has solid crypto experience and please listen to your advisers and choose those who have at least a couple years of experience. Again, they might be pricey, but they will help you to avoid so many issues, thus save you lots of money. And of course, as soon as you can afford to, try to hire more crypto experience.
We can eliminate a lot of failures if we connect the two for some reason disconnected groups. Let’s build and be productive, not let egos get in the way of adoption and together make more positive crypto news.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.