ICOs – A Dilemma

Before I got to know of Kryptoia Pte Ltd and Dunstan, I was someone who was very skeptical (to the point of “allergic-to-scams” attitude) about ICOs. From a traditional standpoint, a token holder is not technically a stakeholder in the company as he/she does not own any shares. This was further enforced by the fact that prominent investors such as Warren Buffett and Charlie Munger came out and say that it’s a bubble, and the fact that some angels are saying that token holders and equity holders are playing a zero-sum game.

However, there seems to be an increase in ICO fundraising these days. According to PriceWaterhouseCoopers, there are now 3 typical methods in which blockchain startups raise money. The first is the ICO route, where they issue tokens, with investors typically being the tech-savvy and the bitcoin/ethereum community. The second is the traditional route of fundraising, with investors typically being business angels and venture capitalists. The last one, and the most interesting one, is a hybrid of the two. They have even listed down the positives and downsides to each method of fundraising in the chart.

Now, I personally believe in the hybrid funding model, especially with the successful launch of Morpheus Lab’s ICO (which has been invested by one of BANSEA’s angel funds through equity) and CloudMoolah, which has been invested by Aetius Capital in equity and then successfully launching an ICO. Also, a project undergoing their private rounds with Dunstan is now raising equity money from angels and VCs, in which I am the conduit for (because I might be leading a syndicate for them). Best part? LuneX Ventures, a VC which does invest in tokens, was spun out from Golden Gate Ventures, who recently closed their third traditional fund of US$100m.

VCs typically put potential portfolio companies through a very rigorous due diligence process and I think it is key for us to put any company through a rigorous due diligence process no matter what kind of instrument we are investing in.

I must say that I am now more confident about ICOs, though there are still many out there which are scams. Definitely, due diligence is still key to any investment.