Mike Butcher
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Are ICOs affecting Venture Capitalists?

This article is written by Nardine B. M’barek, a Contributor Author at Startup Istanbul.

During Startup Istanbul 2017, we had the pleasure of welcoming Mike Butcher amongst us. Mike is a well-known journalist and writer, who has been conducting researches within the field of Cryptocurrency and Blockchain. In his speech, he explained to us how are VCs possibly going to be affected by ICOs.

People nowadays are witnessing the rise of a new revolutionary field related to fundraising and money, which is the use of ICOs, and cryptocurrency. Mike Butcher, a symbolic journalist and writer, who has been doing researches and studies related to cryptocurrency and blockchain during the last few years, has honoured us by accepting our invitation to deliver a speech about this matter during Startup Istanbul 2017.

One of the major issues, or as we can call it, questions, that Mike tried to tackle, and eventually answer during his speech, was whether ICOs are replacing traditional VCs, or if it is just gravely impacting the old form of investment.

We are going to first talk a little bit about ICOs, what are they good for right now? The good side of ICOs is that if you have a subscription-based business, with low marginal cost, then it will go to tokens for fundraising. In other words, if you have low marginal costs, then you can do an ICO.

Another good side of this matter, is that you are going to have an immediate investor liquidity, meaning that you are going to forget about waiting for years in order to launch your own startup because you just did not have enough funds and financial support, since when your ICO pops, and the public market gets involved, you will be able to sell your stakes within an hour.This is exactly why ICOs are starting to have a significant effect on how to finance startups.

The bad side of ICOs however, is, for instance, the existence of multiple scam artists. Since we are dealing in an unregulated world, then nothing guarantees the fact that you are not going to be scammed. There is also organized crime that is involved.

The rather ugly side of the ICOs, like Mike describes it, is the fact that some ICOs are related somehow to IPOs. Most get private funding at first, then go public with their ICOs. The problem is that nobody can decide what to do, so it is basically a huge mess.

Again with our starting question, will ICOs replace VCs? Mike describes two paths; the first option is yes, they will replace VCs. In that case, it will depend on some factors. Indeed, when choosing an investor, people aim for those with the cash, the reputation, the network, and the experience.

So, if you are only looking for cash, then yes, ICOs are the solution. On the other hand, in the case of a ‘no’, Mike lets us know that we cannot call ICOs real VCs, they are rather new kick-starters, another way of funding that could help new startups.

If you are aiming at getting a little amount of funding to help you start, then ICOs are also the solution, but will probably not replace VCs. In most cases, it depends on the situation, whether to opt for ICOs for the whole journey, or only use it as a kick-starter.

─ May 23, 2019