Crypto assets have risen in popularity exponentially over the past few years, and we’ve only begun to understand its importance in the startup world. And while the future of crypto assets is still being determined, there’s much to be hopeful for, especially regarding its role in startup fundraising.
In this guest post, Kevin Siskar (Managing Director of the New York Founder Institute, host of the Ambition Today podcast, and a Venture Partner at Outbound Ventures) outlines what founders need to know about blockchain, and how they can benefit from it.
Everyone is writing about crypto assets these days, but I think that we still only have a superficial understanding of everything that’s happening in that space, as well as its effect on other industries.
Bitcoin really became mainstream in 2013, but I didn’t buy any at the time. When something so new is generating so much buzz at once, it can be easy to dismiss it as hype, as a mere fad, especially if it’s something you don’t fully understand.
Because of the hyperconnectivity of the digital age we’re currently living in, we are constantly bombarded with thoughts, opinions, and predictions about hot topics, which makes it increasingly harder to cut through noise and determine what’s worth exploring deeper and what should be ignored.
However, over the past couple of years, crypto assets has demonstrated its importance, and shows no signs of going away. And I think that because of this, many people, including myself, have begun to comprehend the true value of crypto assets and blockchain, especially its place in the world of entrepreneurship and startup funding.
If you’re a first time founder or an experienced entrepreneur who’s wondering why everyone keeps talking about blockchain and how it can benefit your company, then read on. (By the way, for more information on this topic, check out my article, “Understanding Bitcoin And Cryptocurrency In 2018: What You Need To Know”.)
The Rise of Blockchain
Before I dive into how blockchain and its advantages in the startup world, let’s take a brief look at the ascent of blockchain.
I think it’s a fair assumption to say that 2017 was the breakout year for blockchain, as token sales grew around 100x over the course of four quarters, with the total raised by ICOs reaching $3.23 in Q4. In addition, digital assets outperformed traditional assets nearly 13x, growth that is in part due to reputable institutions, like Andreesen Horowitz and George Soros, allocating more investments to this emerging asset class.
At the end of 2017, venture capitalist and Union Square Ventures co-founder Fred Wilson measured the massive popularity of blockchain against the Carlota Perez technology cycle - which consists of “irruption”, “frenzy”, “synergy”, and “maturity” in that order - and concluded that 2017 was the year that blockchain entered the frenzy phase.
Because of the considerable growth of ICO funding in the past year, we now have the foundation on which to decentralize the internet in 2018 and beyond. The next several years will be essential in defining the future of equity markets, and it looks to be a bright future indeed.
Last November, AngelList founder Naval Ravikant participated in a discussion at the 2017 Goldman Sachs Private Internet Company Conference, stating that, “More and more of capital formation’s going online, more and more of it is being distributed geographically, more and more people are getting to play. And liquidity is coming back into the equation sooner, which I think is great news for all investors.”
Equity token has opened the door to a whole new world of possibilities. With equity token, entrepreneurs can now raise funding from a larger pool of investors, and can also more accurately manage and transfer the equity in their company. Investors now have access to more dealflow and will be able to find liquidity soon on secondary markets for security tokens. And employees can work for a startup with the reassurance that a vesting schedule actually means something.
In short, Equity Token operates with these individuals at the intersection of traditional venture capital and new crypto capitalist models, while meeting compliance regulations.
How Equity Token Benefits Founders
Founders are certainly the primary beneficiaries of equity markets, as they are the heart and soul of businesses. Because of this, proponents of Equity Token have made it their mission to increase the level of support entrepreneurs receive around the world by increasing their access to the best backers.
At the moment, entrepreneurs have three main financial instruments through which to fundraise:
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Equity
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Convertible Note
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SAFE - Simple Agreement for Future Equity
And while each of these is a viable option, I believe that founders have a fourth mainstream financial instrument to fundraise with: Equity Token.
The Equity Token platform allows entrepreneurs to tokenize the existing shares of their corporation onto the blockchain, and therefore create its own unique security token. Once the startup’s token is placed on the blockchain founder will have access to numerous advantages over traditional papered shares, such as:
Lower fees with automation: Smart contracts will remove the middlemen that are usually required for financial transactions along with the fees typically owed to them.
Increased global market exposure: Tokenized equity can be marketed to anyone with an internet connection, which can increase global access to investors, within regulatory limits, of course. This means that founders on one continent will be able to more easily raise funding from investors on other continents, which ultimately means that Silicon Valley will no longer be the only place on the planet to raise significant funding.
More liquidity on secondary markets: The average time to liquidity for unicorn companies has risen to 8.8 years. The trend of companies staying longer is driving demand for liquidity on secondary markets.
Faster transactions: Transactions on the blockchain happen in real time, which allows for instant transfers of tokenized equity between founders, investors, employees, and, more importantly, without unnecessary intermediaries.
Better equity management: Blockchain technologies create immutable ledgers to record all transactions, which comes with considerable transparency into where the equity of a company lies results in a clearer table which is easier for founders, investors, and employees to manage their portion.
