ICOs empower founders to retain equity and access global capital.
"Revolutionizing Fundraising for Founders
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Topics Covered
Origins of ICOs
Democratizing Investment
Equity Retention for Founders
Full Analysis📝
In 2014, the most recognizable Initial Coin Offering (ICO) in the cryptocurrency world occurred when Ethereum launched its token. Ethereum’s ICO resulted in 18.3 million USD in non-dilutive capital for the team. Rounds like these were traditionally reserved for venture investors.
These are the same venture investors that retail investors have had a sharper eye on this year due to valuations perceived to be too high.
Keep in mind that VC investors are not bad for the crypto industry. Good VCs are very helpful to founders and can open up doors and be an asset in many cases.
However, VC incentives have been misaligned with retail incentives which caused an uproar about some token launch valuations this year.
There have been plenty of discussions on X that have ridiculed token valuations at launch. This is because retail broadly felt the return on their investment is not economically feasible.
Broadly, ICOs provided broader access to high-growth investment opportunities to a global pool of investors. Not only does this increase the odds of a start-up raising large sums of money, but it also can create a very invested community.
Let’s focus on going global briefly.
An ICO serves as a solid marketing plan to attract users from all around the world. With the online tools that we have, it is easier to connect than ever before. Thus, if token prices are somewhat correlated to the performance of the company, token holders can evangelize the project.
If web3 startups are serious about creating long-term businesses, creating value for their token holders is essential. Not only do token holders create liquidity for the projects, but they also have the opportunity to convert into customers that drive sales.
For founders, ICOs present an opportunity for them to retain equity in their companies.
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Think about it…
All things being equal, if you are a founder and had to give 20% of your company for capital, would you do it if you could sell tokens and not give equity?
The founder likely wouldn’t.
The above example assumes that no additional value is being received from a venture investor.
Outside of the equity terms that come with taking on venture capital, ICOs present an opportunity for overlooked founders.
These founders may not be investible by traditional VC standards. Thus, if these projects gain large community followings, they can prove their project’s value on the open market.
This article portrays ICOs as an avenue of founder opportunity. However, US regulators failed to see it that way as the current administration has deemed all cryptocurrencies to be fraudulent.
While there have been instances of fraud (Newsflash: Fraud Exists in Traditional Finance Too), those bad actors do not represent the current state nor the entirety of the crypto industry.
Thus, top crypto companies have had to restrict token sale offerings to investors outside of the United States. As seen below, it can be estimated that over 15 billion USD was lost from US investors.
As we see, the crypto space has a ton of opportunity and ICOs will enable US investors to fully participate in the upside of the crypto markets. This can drive billions of dollars in capital into emerging assets that have high upside potential and low barriers to entry. For some of these new market entrants, life-changing returns are a possibility.
This democratization of investment opportunities has the potential to unlock unprecedented financial access for global investors seeking high-growth potential.
Mary’s tweet rather shows that the demand for ICOs is resurfacing and even equates ICOs to the original premise of the cryptocurrency industry to provide permissionless financial opportunity. With the success of tokens like Ai16z, Hyperliquid, and even memes, ICOs represent a broader path forward that likely will change the broader investment landscape.
For starters, venture investors will have more competition to secure tokens. This will benefit founders as it could drive larger purchase amounts which will provide more liquidity to teams. However, if these venture firms purchase too many tokens, they may have too much power when it comes to governance decisions as votes are typically determined by token ownership.
For institutional investors, they would also be able to take risks off the table and provide real returns to their limited partners (LP) which is the model of how they get paid. These returns will keep LPs at ease and can also enable them to create and execute portfolio strategies which can lead to even higher returns for LPs.
Ultimately, the liquid nature of ICOs enables a more dynamic and accessible investment ecosystem, allowing for faster capital deployment, increased market participation, and potentially higher returns for both retail and institutional investors.