This is the second article of my 5 part story about blockchain and banks, this article will focus on Fundraising.
In the previous article we read about how blockchain technology provides a cryptographically secure way to send digital assets, without third parties and low cost fees.
However a second important process is about raising money and how blockchain impact it.
2. Fundraising systems
Fundraising through VC or private investor, as banks, is a complex and long process. Entrepreneurs put together decks, sit through countless meetings with partners, and endure long negotiations over equity and valuation in the hopes of exchanging some chunk of their company for a check.
On the blockchain, you don’t need a platform to raise money. You don’t need venture capitalists and you don’t have negotiations. Anyone is free to raise money from anyone at any time but the greatest fact is that anyone can invest in projects they find interesting.
On the blockchain, fundraising takes the form of an ICO, which means initial money supply.
It is the blockchain version of an IPO but with the difference that the projects sell tokens or coins in exchange for a cryptocurrency like Bitcoin and Ethereum. The value of the token seen is related to the success of its implementation by the company that started the ICO.
Investing in tokens is a way for investors to bet directly on the use and value of that project.
There are a couple of immediate benefits for ICOs for blockchain companies.
1. First, ICOs occur globally and online, allowing companies to access an exponentially broader pool of investors.
2. ICOs offer companies immediate access to liquidity.
The popularity of the ICOs exploded in 2017, in step with the notoriety assumed by Bitcoin, reaching a figure close to $ 2 billion at the end of 2017.
Venture capital is taking note. In fact, venture capital companies such as Sequoia and Andreessen Horowitz are actively investing in ICO, as well as gaining exposure by investing in hedge funds of cryptocurrency.
So while the ICO boom is well underway, there is a larger decline in the IPO market, from 7,422 in 1996 to just over 3,500 in 2018.
Although most ICOs have so far been earmarked for pre-billed blockchain projects, we are witnessing an increasing number of technology companies built around a decentralization paradigm.
Telegram had announced that it wanted to raise $2 billion through ICO, and then decided to cancel it when was able to raise $1.7 million.
If we think, as many supporters of the blockchain claim, the next Facebook, Google and Amazon will be based on decentralized protocols and launched through ICO, this means that they will cut directly in the margins of investment banks and VC companies.
Filecoin, a company that has raised over $250 million through ICO, has developed a banking compliance process that blockchain companies can use through a simplified API, helping projects comply with each step, from due diligence to accreditation of investors.
This is just an example but is one of the many, as you can read in this review by Hackenoon.
We’re still in the early stages of the blockchain, many more talks about a bubble. There’s no doubt that many of these projects will fail but it’s important to remember that is the project that fails, not the system used to raise money. What’s really interesting is that this companies are testing out uses for the blockchain that replace functions of traditional banks and many more tools will be come.
See you, in part 3.
I'm HX designer with a passion for financial and crypto field. I'm focused on innovative stuff and to share what I learn. Feel free to reach me on andreapaci.me