Who says ICOs will crowd out VC sugar daddies?

It's not all about money, but also expertise, say venture capitalists Keystone

Venture capitalism is dead. Long live initial coin offerings (ICOs)! In June, the crowdfunding phenomenon, for the first time, raised more cash for crypto and blockchain start-ups than VC seed capital. So that proves it.


Hang on a minute, perhaps not so. A couple of crypto conferences in Zurich last week had the VCs fighting back. The smarter funds are determined not to be crowded out by ICOs that have raised more than $1.6 billion so far this year.

There is a general recognition that the standard VC model has to adapt, but a refusal to accept that it is irrevocably broken. Throw money at a start-up, sit back and wait for the returns to start flowing without offering anything else? That’s what ICOs do…

Here’s what a few prominent VCs had to say an ICO Summit in Zurich.

For a start, VCs are better placed than the person on the street to filter the few decent start-ups from the general detritus, said Miko Matsumura from Pantera Capital. Pantera has $100 million set aside to invest in the new wave of tech start-ups, making the fund “exceedingly bullish” on ICOs, Matsumura said.

But, he added: “At the moment ICOs seem to be an attempt to prematurely decentralize Silicon Valley venture capital without solving the problem of trust at a distance. With that problem we have a market that is probably about 90% bullshit and actually less than 10% quality. The deal flow has gone through the roof and it’s insane how many ICOs there are.”

Wild West

Matsumura is also among the VCs attempting to bring structure and order to the ICO Wild West – starting with a self-regulation project designed to establish trust before things start breaking down and bringing state regulators crashing down China style on the sector’s head.

Jamie Burke, founder and CEO of Outlier Ventures, pointed out that there is more to venture capitalism than capital.

“People don’t come to us for money. They can raise more money than we have in our fund in 30 minutes. What they want is someone to help them navigate this space,” he said. “We are building the foundations for the next digital economy. What communities need is guidance on how to structure these things.”

And here’s what Richard Muirhead of Open Ocean had to say: “The art of great VC investing needs to be as finely tuned as possible for this next era, and not get distracted by the quick riches of early liquidity.” In other words, avoid the mistake being committed by Joe and Josephine Public right now.

IPO, ICO...now GPO

On Thursday, at yet another Zurich conference on ICOs, I spoke to Jeff Stewart of Urgent VC. Jeff has a bee in his bonnet. He is not specifically concerned about the state of venture capitalism, but he is miffed at the state of the capital markets in general – particularly in the United States. He contends that the US stock markets are no longer the place for tech companies to list and gain access to growth capital. That’s because they are broken, he insists.

So Urgent VC has an urgent mission – to invest in promising Silicon Valley tech start-ups and guide them towards global listings. Let’s get away from Nasdaq and find larger, more reliable and more flexible pools of capital in other parts of the world, particularly Asia, he says.

According to Jeff’s vision global IPOs will become the norm, coupled with global ICOs that break down the geographical walls fencing off capital pools. His vision comes in three stages: young tech companies will undertake global public offerings (GPOs), listing wherever there is willing capital. 

Many companies will also create tokens, so we will have IPOs and ICOs running side by side on a global scale. Eventually, the two means of raising capital will merge and become indistinguishable, creating a new means of capital raising that will work on a higher plane than jurisdictional stock exchanges.

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