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Traditionally, if you have a great business idea but lack the finances to
get the project started, you would pursue funding through a venture capital
outlet.There
are hundreds of venture capital firms that spend tens of billions of
dollars helping businesses get off the ground. However, not all startups attain
venture capital funding, andsome
estimateson venture capital rejections are as high as 99%. In this way,
attaining venture capital funding can feel like an episode of Shark Tank in
which brilliant startup ideas are at the mercy of a wealthy cadre that
determines their future.
The
process of attaining venture capital is dubious, and it’s muddled by rumor,
speculation, and ambition.The Harvard Business
Review explains that “One myth is that venture capitalists invest in good
people and good ideas. The reality is that they invest in good industries.”
In general, this means that most companies seeking venture capital are
unqualified based solely on their industry. HBR goes on to note that only
“10% of all U.S. economic activity occurs in segments projected to grow more
than 15% a year over the next five years.” As a result, startups are forced
to spend valuable money and talent just to ensure that the process of
attaining more capital goes as smoothly as possible, even without a
fundraising guarantee.
For a
long time, venture capital has been the financial mechanism for achieving the
American, and now the universal, dream of launching a business and achieving
independent success. Fortunately, emerging blockchain technology is making it
possible for companies to raise capital through ICOs or various blockchain
powered platforms such as Starbase, without succumbing to the costly,
high-risk pursuit of venture capital.
The
blockchain is the decentralized ledger system that powers popular
cryptocurrencies like Bitcoin and Ethereum. It has accounted for these
cryptocurrencies with unbridled security, capability, and reliability. More
importantly, for startups looking to acquire capital, this technology allows
companies to launch independent crypto-tokens that provide specific benefits
to purchasers and provide valuable capital for the company.
These
tokens, known as Initial Coin Offerings (ICOs), have grown increasingly
popular this year. According toCNBC,
“In 2017, there have been 92 ICOs which collectively have raised $1.25
billion.” Already, ICOs have surpassed venture capital in funds raised, and,
as more people grow accustomed to the practice, it looks poised to continue to
proliferate.
ICOs have
many benefits for companies and consumers. First, ICOs represent the
democratization of capital raising. While venture capital relies on a small
cadre of rich bankers to supply funds, ICOs allow average investors and
interested parties to support companies and projects that they believe in.
Moreover, the personal buy-in from ICO funders ensures a group of loyal
supporters who have an interested stake in the company’s success. AsThe
Wall Street Journal notes, “It’s a way for these companies to raise lots
of money without giving up decision-making power to venture capitalists or
surrendering any equity to them.” For consumers, they receive valuable perks
for projects that they personally believe in. To accompany their ICOs,
companies offer everything from exclusive access to discounts and everything
in between.
Of
course, launching an ICO isn’t without its challenges. Creating a
crypto-token requires programming and coding skills that most people don’t
have and that most startups can’t afford. The prohibitive costs are made even
more challenging by the fast-paced environment of the ICO ecosystem. As
legislators and regulators grapple with the significance of ICO funding, new
laws or even outright bans are being put in place that are dampening
company’s abilities to raise funds in this way. For example, this fallChina
implemented an outright ban on ICOs until regulatory oversight and legal
procedures could be devised and implemented. There is a real benefit to
companies being able to quickly develop and release an ICO so that they can
enjoy the full potential of the ICO marketplace.
One way
that ICOs are being made simpler and easier to implement is through launch
platforms likeStarbase. Their platform
allows companies to quickly conceive of and launch a digital token without
having to manage the technical aspects of the process. “It’s like an equity
funding platform in terms of the due diligence done on the startups” states
Tomoaki Sato, CEO and founder of Starbase in aninterview.
Much like Squarespace makes it easy for everyone to launch a website,
Starbase allows companies to effectively launch ICOs without having to employ
the technical or logistical know-how. Easy-to-use platforms like this allow
companies to avoid many of the pitfalls associated with ICOs while maximizing
the potential of this rapidly increasingly capital raising mechanism.
Every
capital raising enterprise has its place. Venture capital will continue to
serve a limited portion of the population by providing funding and expertise.
However, asHBR
acknowledged, “the venture capitalist buys a stake in the entrepreneur’s idea,
nurtures it for a short period of time, and then exits with the help of an
investment banker.” Meanwhile, companies can utilize platforms like Starbase
to quick launch digital tokens that can fund new projects, create community
investment, and provide new, previously unreachable opportunities. ICOs may
be the future of capital raising, and they are already poised to make a real
difference for many startups.
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