What we can learn from the ICO bubble
There are plenty of ICOs around. I held two opinions and they are apparently contradictory: (1) There is a bubble in ICOs valuations, and (2) We can learn and earn a lot from blockchain and ICOs. Let me elaborate on this schizophrenia — and on possible positive outcomes. I will also share some thoughts about the recently launched Neufund.
Blockchain Schizophrenia
I missed blockchain and bitcoin in its early days. I was intellectually and entrepreneurially lazy, and I stayed in my comfort zone not even checking what was going on. It was very unprofessional. The second chance was about two and half years ago when I had understood the concepts of distributed databases and immutable database records. It was clear to me that I had to look more closely at blockchain and its eco-systems. However, with the portfolio full of companies and the fundraising for the second fund close by, I just had no time.
Bubble
A year ago, ICOs appeared and shocked everybody: startups, investors, crypto-communities and others. Though familiar with blockchain, when the first ICO began I did not even believe that it was happening. News about the first ICOs just did not fit into my understanding of the world. After a while I researched the topic and, remembering the initial dot-com crash, I concluded that
there is a bubble in ICOs valuations
What I mean by ‘a bubble’ is that, on average, the company valuations are overinflated and the typical investor will lose money. What I am not implying is that all of the investors and companies raising money through OCOs will be unsuccessful.
Truly Disruptive Technology
There is a bubble, but on the other hand, blockchain is mind-blowing technology. Smart contracts are mind-blowing also. Distributed governance is mind-blowing. On top of that, we see the astounding social phenomenon of bitcoin. The application of blockchain might be disruptive in several industries, including the VC industry.
I think that there is a pretty large group of people who share these two apparently contradictory views. It is what I call
blockchain schizophrenia of the investment community.
Neufund And The Solution
Let me come back to my personal history. Looking at ICOs, I was not convinced enough to invest in any of them. My blockchain schizophrenia was developing, and it was becoming more acute. Then Neufund with Zoe and her team came as a cure and salvation and took me out of this misery.
(For full disclosure, my partners and I reserved money for potential investments through ETOs on the Neufund platform, and Neufund whitelisted me as one of the investors supporting Neufund.)
Why Neufund? Neufund is a very intelligent solution, and it is a solution to the acute problem — it is a solution to the blockchain schizophrenia. If I have to pitch Neufund it will go as follows: Neufund is a platform to connect investors with companies, and it has a few distinguishing features:
- Neufund uses blockchain technology to tokenize equity and make smart contracts easy
- Neufund is built and designed to be compliant with existing regulations
- Neufund builds liquidity by allowing and encouraging access to ETOs by cryptocurrency holders and regular investors
- Neumark tokens give ownership of the platform to its users.
You can think of Neufund as Stock Exchange 3.0 or as a platform that’s taking the best from blockchain and ICOs on the one hand and from the existing stock exchanges and regulations on the other.
Of course, there are risks. Let me name a few of them:
Team and operations
The future of Neufund is in the hands of Zoe and her team and, as is always true for pioneers, the amount of work and challenges ahead are enormous and, as the Tezos case shows, early success might also present challenges for the team.
Regulators
Neufund depends on regulators. It is its strength and potential risk. Regulators, especially BaFin, will have to make brave decisions. Hopefully, it will place Europe in the centre of innovation.
Marketplace Challenge
Neufund is a marketplace, and as with all marketplaces, it has to orchestrate supply and demand. Good companies on one side and capital on the other. As it always is for marketplaces, it will not be easy.
Sentiment
Formally Neufund is independent of the changes of bitcoin or ether exchange rates. If the bitcoin or ether prices plummet, it will not influence Neufund directly. There will, however, be an enormous indirect impact.
The Bubble And What We Can Gain From It
Let me elaborate on the takeaways from ‘ICO mania’:
Best Companies
Let us move back in time. In the dot-com boom, Google was one of the companies that received investment. When the dot-com bust started, the company did not look promising. Google had a strange business model (“An auction of text adverts? Come on, it’ll never fly!”). It faced competition from the existing search engines (“Even if they have advantages over the others, AltaVista or Infoseek will simply catch up”). Also, it had no support from companies like Yahoo.com or AOL. However, they succeeded, thanks to — amongst other things — money they received during the dot-com bonanza.
There clearly will be new unicorns among the companies making ICOs now.
And this does not contradict the fact that there is a bubble in ICO valuations
Smart contracts
Smart contracts are the future of a big part of human activity and social order because they automate things. Etherium protocol shows the real-life applications, proves the technology and creates use cases.
The impact of smart contracts, once they start to permeate to other areas, will be huge.
Less Friction
ICOs, blockchain, smart contracts (and Neufund in particular) remove some friction and therefore brings more liquidity to specific markets.
New dealflow
There are many ways to invest and many mechanisms to attract capital. There is no monopoly on the truth. The traditional VC model is just one of the possible ways to fund the growth of companies though. I am a big supporter of this model, and I think that it is very effective in funding innovation.
ICOs and blockchain solutions create an alternative to this. The new funding mechanisms attract new proposals. The counter-argument is that there is a lot of scum and a lot of bad projects. Yes, it’s true, there are. I make the argument that there are some diamonds, not that most of these projects truly deserve funding.
Reshuffling of the industry
The European VC market will get a new boost, and therefore there is an opportunity ahead.
I am looking forward to the future. This is a very exciting time.
