Decentralized Blockchain Crowdfunding vs Venture Capital Model is Changing the Investment Game
Decentralizing Funding: How Blockchain Disrupts Venture Capital By Enabling Crowdfunding
While we all take the time to read, listen to, or watch the news, we're constantly seeing that there are certainly companies that are doing better than others when it comes to the establishment of new startups. In particular, there have never been so many companies started up across the world in history.
This is thanks in large part to the level of technology that we have eady access to in this era, meaning that we're dealing . with a far more level playing field when it comes establishing a business, and inspiring a better level of entrepreneurship. Everyone and anyone who have the skills, talent and means to see their dreams through to the end will be able to develop something amazing, pulling up billions of people with them.
With new startups being founded and built on in a more far flung fashion, gone are the days where innovation was began, worked on and ended up on the West Coast of the USA, namely Silicon Valley, instead, we're seeing far more of those ecosystems interspersed all across the world. We're even seeing these startups far more in both the developed world, particularly London, and in the emerging market, such as India.
As Reid Hoffman said in his podcast “Masters of Scale”:
“Silicon Valley is a deeply interconnected ecosystem, and that’s what you need. You need entrepreneurs with ideas, yes. But you also need people who are skilled in every discipline needed at every company, at every stage”.
Not just engineers and product managers—but also lawyers, accountants, marketers, recruiters, operational geniuses. You need places for them to gather, and media outlets to share their ideas.
You need world-class universities with their constant supply of young talent, and venture capitalists to invest in them. And, importantly, you also need successful entrepreneurs who pay it forward. These are the things that make Silicon Valley unstoppable—for now.”
It's thanks to this rise of new startup hubs all across the world that people find themselves more able to congregate with likeminded individuals, share their ideas, find partners for their venture, or obtain capital from their startups. This is making this form of entrepreneurship far more popular. And the wider global and domestic community will be beneficiaries to this system, as it creates an upward cycle of financial growth on a global scale, while positively changing their local communities as well.
There are a number of reasons for why Startup Hubs are growing in scale, one of them being that they offer a far better connection and easier communication between investors who are looking for the next great idea or company to invest in. Each company goes through various funding stages from starting from seed funding, working their wall up to Series A, B, and C funding.
Due to a fast growth of blockchain industry, we have seen a new way of how the startup can collect funding or validate the potential of their idea.
Blockchain – Decentralizing Startup Funding
Blockchain technology is disruptive, which is an understatement, but one of the ways in which it's serving to rip down is when it comes to the world of capital. Blockchain is able to do this by enabling more people to get involved in projects that promising to make a difference.
In the past, when someone wanted to invest in some kind of startup before it went public, they had to otherwise know the founder, have enough in the way of money to operate as an Angel investor, or to otherwise afford to invest in some kind of venture fund.
This negates any mention of the fact that you'd have to really be in the right place in the right time, specifically to get the information, or had to be a citizen in the right country, specifically the country where the startup was from. Blockchain, in breaking down these barriers, this allows people to invest directly into companies and ideas, no matter where they're from, and no matter where the company is based, letting them get involved on the shop floor of innovative investments before they go public.
On a global scale, decentralized crowdfunding has opened up a new entry point for the micro investors, who previously didn't have any access to these innovative new ideas.
Blockchain From An Investment Perspective
By putting tokens to work in the fundraising phase of a company, it allows for these tokens, which represent a project, startup, or other product to be decentralized. What this means is that investors no longer have to be reliant upon specific financial service providers in order to make sure that they are selling the company shares or store your assets.
This same tokenized system provides investors with the option to move and hold their assets on a far freer basis than was previously permissible.
So Where's the Market Currently At The End Of 2018?
Obtaining funding for a company is very much like oxygen to any organism, and not being able to reach the right people who have a spoken interest and care for your company idea and project is one of the main reasons why there have been a number of ideas that could have changed the lives of billions of people, and instead of doing so, they only accumulate dust in someone's drawer.
When entrepreneurs are out on the hunt for the right investors for their projects, they'll most likely flirt with some of the following ideas: Getting funding from ‘friends, family, fools', Angel Investors, an Incubator, Venture Capital Firms, or some form of crowd funding campaign on Indiegogo/Kickstater.
Through a funding method like decentralized crowdfunding, such as an Initial Coin Offering, Initial Token Offering, Tokenization, Security Token Issuing, or Utility Token Issuing), it has provided companies with a whole new method of obtaining funding which is changing the face of fundraising, while only being around for a couple of years.
Some of the first . startups that have been funded through ICO Campaigns have been a spectacular proof of concept, demonstrating that the startup can find funding an alternative way, and have it also be undertaken and done successfully. In contrast, investors are also seeing the companies that got started by ICO are now becoming large, recognized and highly influential organizations.
Like with every new industry, it is volatile, has a certain level of unpredictability, and needs some level of regulation at some point, but everything that you read regarding this type of funding does need to be taken with some amount of salt. While decentralized crowdfunding (collecting funds through the use of blockchain technology) for startups, specifically, is becoming increasingly more common. What this means is that more institutional investors, family offices, venture capital firms are also joining in on it.
The quality of various projects that are also looking to crowdfund their ideas is also increasing. During both 2016 and 2017, some companies were able to raise a truly staggering amount of money only by having a truly compelling vision for their business, all without truly having a working prototype or even some form of Minimum Viable Product.
Luckily, the market has entered a certain level of maturity, so much so that in order to launch a fully scaled crowdfunding campaign which goal is to accrue over $5 million in funding, founders would certainly need accompanying their campaign, something in the way of a roadmap and a Minimum Viable Product or prototype.
Conversely, in 2018, ICO funded projects demonstrate that the area of blockchain decentralized crowdfunding was becoming increasingly more ‘realistic', as it's okay to collect seed funding throughout tokenization of the startup. But in doing so, much like pitching their idea to Venture Capital companies, Angel Investors, etc, founders have to be ready to pay a higher price on the capital and some rough criticism of their MVP, etc.
Decentralized Crowdfunding – What The Future Has In Store
Obtaining funds through launching an Initial Token offering, or similarly structured crowdfunding campaigns are becoming increasingly common and ‘normal' in the world of investment. Meanwhile, companies are moving away from issuing utility tokens and are instead moving over to issuing Security Tokens.
Effectively, what this means is that the tokens that startups are now issuing are starting to be backed by a real value or tangible assets such as company shares, which will also pay out dividends. The market is also becoming more stable, as investors are starting to look for long-term projects, instead of looking for a quick 10X ROI.