
ICOs and VCs - untangle
https://avc.com/2017/06/icos-and-vcs/
======
kemonocode
>The investors who bought your token, like public market investors, may be
gone tomorrow, next month, or next year, having moved on to the next big
thing, leaving you with little to show for it other than the money you raised.

Oh boy...

>VCs, at leas the best ones, are there for your company in good times and bad.
There is a difference, trust me.

This part made me laugh so bad, my entire body hurts. Now, I know pretty well
who he is, thus why he may not realize how much bad VCs hurt the industry,
especially when a vast number does exactly what he said: leaving as soon as
there are any signs of trouble. And I know that from experience.

Now, do I always agree with ICOs? Not really, selling promises that particular
way is bound to lead up to some disappointment from one side or the other. But
they are perfectly valid to fund yourself if your service, your core business
model can be compartmentalized that way. As he said: "The token that you sell
in your ICO is the atomic unit of your business model."

~~~
lpolovets
I'm a VC, so I'm definitely biased here.

On the one hand, I want to be a good person and to do the right thing, so I do
my best to be one of the good VCs and not one of the bad ones. (I.e. I don't
leave when things get bad.)

On the other hand, when VCs leave at the first sign of trouble, why is that so
terrible? I think giving bad advice -- advice that a lot of founders will
listen to because they often assume a VC knows what they're talking about --
is much more dangerous. If a VC gives bad advice, that can sink a company that
could've been successful otherwise. If a VC walks away or stops being
involved, then that seems much closer to neutral than to bad. They no longer
try to help, but so what? You have their investment and that is valuable by
itself -- especially compared to not having had an investment in the first
place.

As an analogy, let's say you go to a doctor for a rare medical condition. They
suggest a few treatments, and none work. They're out of ideas. Would you
rather a) have them walk away so that you can look for another doctor or try
to educate yourself on your condition, or b) have them keep seeing you and
either wasting your time or giving you dangerous prescriptions?

~~~
seibelj
There is massive bias for VC's to believe they have enormous value that cannot
be obtained other ways. This is disruption in real time, disrupting the very
people who believed they themselves are the disrupters, and it's making them
very scared. Imagine devoting your life, climbing the ladder, becoming a VC
partner, having entrepreneurs begging to speak with you, and seemingly
overnight a new model exists that makes you obsolete. Very scary.

However, I think VC can stay around as "gold star" supporters who vouch for
authenticity of a company before opening up to widespread investment and get
some of the tokens in return.

Even if this ICO craze dies, I think the cat is out of the bag, and being able
to raise funds globally and instantly is simply too good to pass up.

~~~
lpolovets
I agree that there's a lot of disruption and innovation happening on the
capital side. AngelList syndicates were already doing that before ICOs. But
the advisory side is not really being disrupted so far, afaik.

What I do like about all of the innovations on the capital side is that over
time, I think they'll drive inferior/shitty VCs out of business. Most founders
would prefer to work with Sequoia to using an ICO or AngelList, but
ICOs/AngelList are better than SomeRandomFundWithCrappyAdvice. So the SRFWCAs
will go out of business over time, but I think the Sequoias will do just fine.

------
zby
This whole ICO affair will not end well. Here is a guy complaining about not
being able to buy the BATs at the crowdsale:
[https://www.reddit.com/r/ethtrader/comments/6efsc8/bat_ico_w...](https://www.reddit.com/r/ethtrader/comments/6efsc8/bat_ico_whalesale_completely_against_the_ethos_of/)
\- this is a serious gold rush attitude. Those people don't seem to understand
that most (9 for 10 some say) startups fail.

And the tokens they are buying is just a promise - they don't bind the company
to do any thing. The company promises to use the BAT token in their future
monetization model - but in fact they can pivot at any point, like many (if
not most) startup do, and do something else, or maybe even do yet another ICO
with another token. And that is on top of all the problems with crowdfunding -
where even if there is a legal binding, and maybe a fractionary ownership -
without all the regulations that were invented to protect the investors - the
founders/executives still can do anything with the money they received from
the funding event: [https://medium.com/@zby/the-problem-with-
crowdfunding-81b53f...](https://medium.com/@zby/the-problem-with-
crowdfunding-81b53f963387)

Update: Even if now most ICO creators are honest - then soon they'll be
crowded out by scammers, because honest funders will find other ways to fund
their starups - but for scammers it will never be easier than with ICOs.

~~~
altoz
I wrote a similar article on the difference between ICOs and VC investment. In
short, the investor gets much less in an ICO:

[https://medium.com/p/why-icos-are-very-different-than-
seed-c...](https://medium.com/p/why-icos-are-very-different-than-seed-
capital-a59e4c78b84a)

~~~
mck-
Great primer on ICOs - thanks for enlightening me :)

------
empath75
Ico's seem to primarily be a way to get around securities regulation, and I
suspect that someone is going to get prosecuted for it eventually.

~~~
pmorici
Doubly so since a large percentage of them seem to be thinly veiled scam.

------
equalarrow
Fred's not a dumb guy, even though I never agreed with his Android over iOS
statements (Android first, etc). I think he's smart and to him, my opinion
doesn't matter, I'm sure.

However, vc is a hundreds, if not thousands of years old. Fine tuned and
tweaked in the 80's on to the dot com and thru facebook & google and beyond.

ICO is just a few years old - it's typical for the disrupted to not feel
threatened until it's too late. This, in my mind, is the real model going
forward. Fuck pandering to Sand Hill road or SV at all - launch an ICO from
anywhere in the world on your whitepaper and testnet (shaky???) dev...

ICO's may seem ridic, but this is just the beginning. We are now running at
internet speed and there's gonna be a point (soon? who knows when) where this
stuff is going to all be automated and 24 seconds will seem quaint.

Welcome to high frequency funding.

------
dreamdu5t
VCs don't like ICOs because they expose how irrational raising money is. They
hamper the whole narrative of VCs being "experts" when the truth is it's all a
casino financed by the Fed. VCs are used to controlling the narrative of WHY a
company deserves money.

------
RichardHeart
Hey, we could sell equity in our company for money....or we could give out
gift certificates (tokens) and keep all the equity. Sure, as soon as we've got
all the dummies money, the incentives will massively shift for us so that
we're better off doing a new ICO than building anything, but they won't
notice. Who cares if distributed systems are an overhead and not an
efficiency, we can all get rich!

~~~
ajmurmann
If you sell the equity for money only certified investors are allowed to
invest. You now also have a investor whose word carries some weight on your
company. The latter might be good or bad depending on the investor and your
personal view/attitude and situation.

~~~
JumpCrisscross
> _If you sell the equity for money only certified investors are allowed to
> invest. You now also have a investor whose word carries some weight on your
> company._

Finance types are a creative bunch. The industry has spent a good amount of
time trying to poke holes in securities regulation since the 1930s. Regulators
and prosecutors have expended a similar deal of effort suturing the loopholes.

The thread interfering with your idea is the symmetry between securities
purchased for cash and securities purchased with "services rendered".
Securities regulators and the IRS take a broad view of the latter. The former
would likely be more vigilant if unaccredited investors [1] were "buying"
these tokens, and even more so if such transactions were taking place next to
accredited investors getting _bona fide_ stock.

[1] [https://www.sec.gov/fast-answers/answers-
accredhtm.html](https://www.sec.gov/fast-answers/answers-accredhtm.html)

------
romanr
I read it and still have no clue what is it about, what"ICO" stands for. Never
explained

~~~
kemonocode
Initial Coin Offering. Like an IPO but not quite, you're not selling
securities after all, and they may not pay any dividends, you're simply
selling a token you can trade with others that may be exchanged for a service
by the company that provided them later on. I expect them to raise a lot of
uncomfortable questions in a near future.

~~~
DennisP
Coinbase published results of some legal research on ICO legalities. They say
tokens that can be exchanged for services are relatively safe. Some ICO tokens
actually pay dividends, and that's a little dicier.

There are various other criteria. If it's a fully automatic system already
deployed on the blockchain, that's lower risk than a coin whose value depends
on company performance.

[https://blog.coinbase.com/2016-12-07-blockchain-token-
securi...](https://blog.coinbase.com/2016-12-07-blockchain-token-securities-
law-a66ef03c383f)

------
thesausageking
> VCs, at leas the best ones, are there for your company in good times and
> bad. There is a difference, trust me.

This is backwards. Raising via an ICO mean no VC can ever push you out as CEO
or take control of your company. Their priority is making the company get to a
big exit, with or without you. When Ev was running Twitter, Fred wasn't a fan
of his and had not problem plotting behind his back with Jack and eventually
pushing him out.

~~~
kevando
Can you site any of this?

~~~
arikr
Not OP, but read the book 'Hatching Twitter,' most of it is in there.

~~~
thesausageking
Yes, it's all detailed in Hatching Twitter which is written by a NY Times
columnist. Basically, when Ev was CEO, the board told him to his face he was
doing a fantastic job. He had turned around the product org and gotten user
growth back on track. At the same time, Fred and a few of the other investors
met secretly with Jack and came up with a plan to push Ev out and, bring Jack
back with Dick Costolo as interim CEO.

Excerpt from the book after Ev was told he was out:

Williams, stunned, picked up the phone and began dialing. Bijan Sabet was
apologetic and insisted that they wanted to keep him on in a product-advisory
role. According to several people at the company, Fred Wilson, however, said
he thought Williams had always been a terrible C.E.O. “I never considered you
a founder,” he said. “Jack founded Twitter.”

Other portfolio investments of his have followed a similar pattern of having
the original CEO pushed out once they get to a certain level of success.

------
bluesign
I really dont understand the value behind ICOs.

\- there is no guarantee of limited supply of tokens ( no promise that BAT
will be limited )

\- there is no guarantee that company will not come up with secondary token
(ex: advanced attention token)

\- Also there is no indication of what 1 BAT will get you. All calculations
etc subject to change

~~~
zby
I have not checked it - but there probably is a guarantee of limited supply -
the contract that generated them is already in the Ethereum blockchain and it
cannot be changed.

~~~
chinathrow
> "he contract that generated them is already in the Ethereum blockchain and
> it cannot be changed."

Unless another hard fork kicks in and multiple truths exist?

------
untangle
Thread-starter here.

I have raised VC, PE, and debt. Early-stage and late stage. Here's my take on
"ICO vs VC."

ICO's:

For the investor, they are akin to commodity futures trading. The underlying
value of the token is nil, as is the degree of control over the underlying
property. But returns from price speculation can be very rich.

For the issuer, they have the money virtually without strings attached. There
is no other form of assistance and no loyalty implied in either direction.

For example, I'd be shocked if there were positive "operational" returns from
a token like the Brave coin. For that to happen, Google, Facebook, and the
rest of the ad industry would have to grant sanction to the vendor of a
Chromium-based browser startup yo turn the entire industry on its side. I
doubt it. Seriously.

VCs:

For the investor, they get some modicum of ownership and control of the
underlying property – sometimes not much but usually a lot. There is an
implied responsibility to help with follow-on funding, but nothing solid. The
investment is risky but not speculative.

For the issuer (of preferred shares AKA the company), they get the money with
all kinds of strings attached. If the VC is top-tier (e.g., Fred, Kleiner,
NEA, etc.), significant branding, easy intros, and many other benefits can
accrue. If the VC is less prestigious, the operational impact is more neutral.
(No VC can make your company grow or be successful – that's on you.)

My opinion:

1\. If I could pull off an "ICO" (bad name) at my next company, I'd do it
immediately. Great upside and little downside.

2\. I say "immediately" because I don't think that this vehicle will last long
in its current unregulated state. There will be failures. There are enemies.
There will be evil deeds (fraud), and those deeds will involve unaccredited
investors.

3\. The ICO will be a short-term speed bump to VCs.

4\. That all said, who wants to join me and start an "ICO production" company
to create the coins and infrastructure for them to do their own ICOs? Speed is
life, and I know some VCs... :)

~~~
johnnydoebk
>> an "ICO production" company to create the coins and infrastructure for them
to do their own ICOs?

Isn't that what Ethereum is for?

~~~
untangle
>> Isn't that what Ethereum is for?

Sure, but Ethereum is a tool. An ICO is the result of a process.

My thesis is that many companies, large and small, could benefit from an
ICO...and that the majority of these know little about ICOs, Ethereum, or the
relevant government regulations.

The newco would present the following offer to the prospective customer: --We
will ready you for a legal ICO within xx weeks. To do this, we will help you
define the unit-of-value for your token and then put all systems, paperwork,
and processes in place for the ICO. In return, we will receive coins worth nn%
of the ICO as a success fee.--

This is a novel variation of an investment-banker play. Over time, large parts
of the process could be systematized in software. Much of the ICO scene is
scary and wild. [0] Pathfinders might be valued in this wilderness.

These are my raw and unvetted thoughts.

[0] [https://www.ico-list.com/](https://www.ico-list.com/)

~~~
johnnydoebk
What will the tokens represent? Will it be an equivalent of company shares or
something else?

------
dna_polymerase
The BAT ICO is not a success story. It shows how f*cked up the current coin
markets are. 4 people saved >50% of coins. They are not interested in the
company (how can they communicate huh?) they want to sell quickly when the
coin hits Poloniex. VCs are not over. The VC advantage derives from the real
world experience and connections they can provide. Also no VC ever would have
invested in BAT itself. Everyone knows, if there is an adtech revolution, it
will come from Google and Facebook not an adblock browser producer.

~~~
kolinko
Because so many revolutions that were initiated by huge incumbents instead of
upstarts...

~~~
dna_polymerase
Your "upstart" does not stand a chance against Googles and Facebooks wallets.

------
runeks
I just don't understand this.

A national currency is an irredeemable medium of exchange, made valuable
because it's -- by law -- exempt from capital gains tax (it measures capital
gain), and because it's been given legal tender status.

Why would anyone trade an irredeemable currency issued by a private
corporation? "Currency" is surely a misnomer, because no one would want to buy
or sell goods and services in exchange for it, which makes it more like
irredeemable equity, which makes no sense either.

~~~
ShabbosGoy
Why do you buy tokens at the arcade?

~~~
runeks
Because I can use them to buy something in the arcade, at a price I can check
for reasonability beforehand.

What can I buy using the Basic Attention Token? And at what price?

~~~
ericflo
Advertisers will buy ads with it. Publishers will collect most of that spend.
Users will get some too. The value will fluctuate but all currency does that.

~~~
moe
Except for a small problem: None of that will happen.

Nobody will switch from Chrome, Safari or Firefox to the "Brave Browser" in
order to have ads injected into their browsing session.

The concept is so fundamentally ridiculous that I can't even muster pity for
the people who sunk their money into this scam.

~~~
ericflo
I use Brave, and there's about a half million other people who are using it
too. What I guess you really mean is not that "nobody" will switch, but that
"everyone" won't. So it's just a matter of market size, which I agree - we'll
see.

~~~
JumpCrisscross
Out of curiosity, why did you start using the Brave browser?

~~~
ericflo
Mostly because I wanted to get the (faster browsing) benefits of ad blocking,
without feeling like I'm stealing from the sites I visit.

------
kicanozcan
VCs are actually very interested to play a part in this new form of financing.
I live in the Bay Area and have been talking to friends in VCs - from my
understanding, it's legally risky for them to directly invest in ICOs and they
are putting money in other funds that can invest in ICOs like Polychain - this
is truly an exciting time!

Also, how else you think BAT sells so fast if it wasn't for institutional
money

------
joosters
To give an example of the current insanity of ICOs, take a look at the terms &
conditions for a recent token sale - from
[https://patientory.com/](https://patientory.com/) :

[https://patientory.com/token-sale-terms.pdf](https://patientory.com/token-
sale-terms.pdf)

 _Ownership of PTOY carries no rights, express or implied, other than the
right to use PTOY as a means to obtain Services, and to enable usage of and
interaction with the Platform, if successfully completed and deployed. In
particular, you understand and accept that PTOY do not represent or confer any
ownership right, stake, share, security, or equivalent rights, or any right to
receive future revenue shares, intellectual property rights, or any other form
of participation in or relating to the Platform, and /or Foundation and its
corporate affiliates, other than rights relating to the receipt of Services
and use of the Platform, subject to limitations and conditions in these Terms
and applicable Platform Terms and Policies (as defined below). PTOY are not
intended to be a digital currency, security, commodity, or any other kind of
financial instrument._

So.. by buying the tokens, you are getting, nothing, basically.

 _You have a sufficient understanding of the functionality, usage, storage,
transmission mechanisms, and other material characteristics of cryptographic
tokens like Bitcoin and Ether, token storage mechanisms (such as token
wallets), blockchain technology, and blockchain-based software systems to
understand these Terms and to appreciate the risks and implications of
purchasing PTOY;_

You've also got to fully understand blockchains.

 _You have carefully reviewed the code of the Smart Contract System located on
the Ethereum blockchain at the addresses set forth in Exhibit B and fully
understand and accept the functions implemented therein;_

You've also got to be an expert programmer fluent in all ethereum's security
weaknesses, plus you better have a disassembler handy to reverse engineer
their compiled code (they don't provide any source code - plus, 'Exhibit B'
doesn't event give the contract address anyway)

 _You are not purchasing PTOY for any other purposes, including, but not
limited to, any investment, speculative, or other financial purposes;_

Sure, sure. That's why people are buying these things, right?

It goes on... you also agree to indemnify the company against everything, all
warranties are disclaimed, no liabilities can be held against them, you waive
your rights to legal actions against the company, or any class actions (you
must agree to arbitration). Oh, and they naturally reserve the right to modify
these terms at any time without notice.

No-one in their right mind would agree to these kind of terms, and yet they
are common across many ICOs. It is madness. And I haven't even mentioned their
proposed application (healthcare on the blockchain) which is dumb in so many
other ways.

~~~
merubin75
Hi joosters,

I work for Patientory. Please explain why the application -- which is not
proposed, but has actually been in development for 16 months -- is dumb. After
all, it only has the potential to make data breaches in healthcare
organizations a figment of the distant past, reduce health IT costs, and
provide a universal medical record that's unhackable.

At your service, Michael

------
regulation_d
I've heard some people complain about GNO's dutch auction style offering, but
only generically. Dutch auction seems like a good option for highly-
anticipated coins like BAT. Does anybody have insight into why the dutch
auction style isn't more widely used?

~~~
dna_polymerase
Gnosis is now owned to an extend of >90% by the Gnosis team themselves. This
is why Dutch Auction is not used more broadly. It doesn't help with any of
this.

~~~
regulation_d
That seems more like a flaw with the individual offering than with the concept
of the dutch auction. Did team only release a small percentage of the coins in
the auction or did they just bet more than everyone else?

------
rasmafazi
VCs drag you into mainstream orthodoxies in order to be able to do an IPO on
Wall Street. With ICOs around, who would put up with VCs again?

------
yresnob
How does prevent fraud..maybe just some types? I dunno about this..

