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So I've been doing alot of thinking lately about traditional VC and PE vs ICO's for work. Its pretty rare for VC and PE firms to just be blatantly ripped off l

So I've been doing alot of thinking lately about traditional VC and PE vs ICO's for work. Its pretty rare for VC and PE firms to just be blatantly ripped off like a good portion of ICO investors are. As far as I can this is due to 3 things. 1) Geography, Most VC/PE firms only invest in a particular country and know the laws as they relate to the contracts they sign with companies. This ensures that they can atleast try and go after the founders, legally speaking, if any "shenanigans" occur. 2) KYC, most will only invest after performing due diligence, which always includes meeting the team and confirming through lawyers that the team is who they say they are and they own the IP they say they do. 3) Contracts, I've participated in a few ICO's and never signed anything. I realized I was essentially giving money to a complete stranger with nothing more than an IOU from someone who I'll never meet and in many ICO cases, never have any way to find them. Fortunetly for ICO's as a legit means to raise money these are all solvable. They just require "adults in the room.". If you look at the successful ICO's from a professional investors angle(VC,PE) they all followed the above 3 steps.

JumpCrisscross 8y ago
> for ICO's as a legit means to raise money these are all solvable At which point you end up with an overcomplicated share certificate.
wslh 8y ago
> So I've been doing alot of thinking lately about traditional VC and PE vs ICO's for work. You are missing part of the story: before ICOs there is a presale phase where some projects finish before the ICO. This is where real competition with VCs happens since the top projects receive more money from non traditional investors using cryptoassets than the one promised by traditional VCs (except in very rare cases). In this context: (1) Geography does not matter and (2) KYC/AML is enforced. The advantage for real entrepreneurs is receiving a bigger investment in short time. Disclosure: I work in this kind of syndicates.
- chollida1 8y ago
  Unless I'm misunderstanding you, you seem to agree with me, with the exception of you thinking geography doesn't matter. I'd disagree with your idea that geography doesn't matter. I would have more confidence in an ICO in the US than I would in say China where it can be hard to sue someone and collect your damages if you win. but if you really feel geography doesn't matter then please share your argument for this, I'm ready to learn!!
  - wslh 8y ago
    > Unless I'm misunderstanding you, you seem to agree with me I am disagreeing and saying that it is VC/PE vs. Presales and ICO the whole story. > but if you really feel geography doesn't matter then please share your argument for this, I'm ready to learn!! It is not an argument, it is a fact. For example, you will see a really important investment to an Argentina based company (outside top geographies) in a few months.
    - JumpCrisscross 8y ago
      > It is not an argument, it is a fact All capital flows have a home-country bias. Even securities which are easily bought and sold internationally [1]. Proximity to investors matters even within countries. A start-up raising VC or person promoting an ICO in Silicon Valley will raise more money faster than someone in Montana. They, in turn, will outperform someone in Zanzibar. Doesn't mean it can't be done from Montana or Zanzibar. Just that it's more difficult. [1] https://en.wikipedia.org/wiki/Equity_home_bias_puzzle https://en.wikipedia.org/wiki/Equity_home_bias_puzzle
      - wslh 8y ago
        Beyond the obvious geography bias (in general, business networks are strongly connected within specific geographies) the crypto investments are notorious by crossing boundaries in a way not seen by the usual VCs. I mentioned one example before and I have more that will be disclosed to the public in the coming months. Again, I am not negating the bias towards proximity but seeing there is a new distinguishable phenomenon happening. This phenomenon favors global entrepreneurs in a new way.
- 1996 8y ago
  Indeed, ICOs offer a great alternative for entrepreneurs: the opportunity to be snubbing VC. If I can raise money through an ICO without diluting, why would I waste my time with VCs and their beauty contests? This is the new third way: bootstrap using your own money, they scale up with ICOs. I am not surprised the VC-funded startup world is so hostile to cryptocurrencies and ICOs: it is competition. It means a future where entrepreneurs can opt-out of VC and IPOs. That would be bad to the bottomline: no more preferred stocks with liquidation preferences! ICOs are in their infancies, so there are a lot of scam, but the market will eventually evolve solutions like smart contracts (or just reputation!). If I was in VC, I would start worrying or lobbying for special treatment - like expending the "investor status" to cover IPOs.
s73v3r_ 8y ago
Right, but at that point, what's the difference between an ICO and a security? If I was an investor, why would I want to go into an ICO vs traditional means?
- vkou 8y ago
  A non-security ICO coin is not a share, it's a pre-order for a product that may or may not ever exist. It's like a Kickstarter project[1], except most of the backers don't actually want the backed product, they want to resell their pre-order to someone who does. At least, that's how it's supposed to work, in theory. In practice, it's a hotbed for scams. Most of the re-sales happen from one speculator to another, until some fool is left holding a bag of worthless pre-orders. [1] Which is also incredibly constrained, because it needs to do something useful with a cryptocurrency, and all the overhead and complexity associated with that. [2] [2] Building a file-hosting service is not good enough - you have to make it a file-hosting service with a crypto-coin bolted on to it for some weird reason.
  - JumpCrisscross 8y ago
    > it's a pre-order for a product that may or may not ever exist I'm not even sure it's this. Pre-orders come with rules. ICOs do not. (Or more accurately, they make them difficult and unrewarding to enforce.)
    - vkou 8y ago
      Do they? I was under the impression that I could sell as many pre-orders for my anti-gravity skateboards, and my marks would have very little recourse, as long as I had the right disclaimers, and I don't sell to Europeans. [1] [2] [3] [4] [1] Product might not perform as advertised. [2] Product might not be delivered in the promised timeline. [3] Product might not be completed at all, due to unfortunate circumstances, such as exhaustion of funds, acts of God, or the laws of physics. [4] All pre-orders are final, no refunds.
      - JumpCrisscross 8y ago
pembrook 8y ago
> They just require "adults in the room." You mean like regulators and trusted intermediaries? Due diligence conducted by independent third parties? Like the real financial system has always had? So basically, we went through this whole ICO bubble to realize that things are the way they are for a reason.
- JumpCrisscross 8y ago
  > we went through this whole ICO bubble to realize that things are the way they are for a reason That may be overly reductive. My views on several rules changed as a result of observing the ICO phenomenon. For example, I used to be skeptical about accredited investor requirments. Turns out, they're super necessary! On the other hand, I think Regulation D could be massively simplified--from a required paperwork perspective--to lower the cost of selling unregistered securities.
  - xur17 8y ago
    > For example, I used to be skeptical about accredited investor requirements. I agree that we should probably have regulations in place to protect people from scams, but accredited investors are just people with > $1M or > $200k in income over the past 2 years. Basically a way to filter for 'wealthy' people that can afford to lose the money.
    - JumpCrisscross 8y ago
      > a way to filter for 'wealthy' people that can afford to lose the money The part I didn't appreciate is it's also a filter for people who can hire a lawyer/adviser to conduct basic diligence. Raising $1 million in $10,000 cheques guarantees virtually zero oversight. That, much more than anything legitimate, has been what ICOs have enabled.
  - darth_aardvark 8y ago
    Finally, we've discovered the true value of blockchain: Making people learn about fiduciary policy.
  - 8y ago
harryh 8y ago
This reason is more important than either of the reasons you list: VC/PE firms are, by and large, staffed with professionals. ICO investors are, by and large, amateurs (I settled on this word, after starting with several less nice ones). Amateurs are much more likely to get scammed than professionals.

JumpCrisscross 8y ago

> for ICO's as a legit means to raise money these are all solvable At which point you end up with an overcomplicated share certificate.

wslh 8y ago

> So I've been doing alot of thinking lately about traditional VC and PE vs ICO's for work. You are missing part of the story: before ICOs there is a presale phase where some projects finish before the ICO. This is where real competition with VCs happens since the top projects receive more money from non traditional investors using cryptoassets than the one promised by traditional VCs (except in very rare cases). In this context: (1) Geography does not matter and (2) KYC/AML is enforced. The advantage for real entrepreneurs is receiving a bigger investment in short time. Disclosure: I work in this kind of syndicates.

chollida1 8y ago
Unless I'm misunderstanding you, you seem to agree with me, with the exception of you thinking geography doesn't matter. I'd disagree with your idea that geography doesn't matter. I would have more confidence in an ICO in the US than I would in say China where it can be hard to sue someone and collect your damages if you win. but if you really feel geography doesn't matter then please share your argument for this, I'm ready to learn!!
- wslh 8y ago
  > Unless I'm misunderstanding you, you seem to agree with me I am disagreeing and saying that it is VC/PE vs. Presales and ICO the whole story. > but if you really feel geography doesn't matter then please share your argument for this, I'm ready to learn!! It is not an argument, it is a fact. For example, you will see a really important investment to an Argentina based company (outside top geographies) in a few months.
  - JumpCrisscross 8y ago
    > It is not an argument, it is a fact All capital flows have a home-country bias. Even securities which are easily bought and sold internationally [1]. Proximity to investors matters even within countries. A start-up raising VC or person promoting an ICO in Silicon Valley will raise more money faster than someone in Montana. They, in turn, will outperform someone in Zanzibar. Doesn't mean it can't be done from Montana or Zanzibar. Just that it's more difficult. [1] https://en.wikipedia.org/wiki/Equity_home_bias_puzzle https://en.wikipedia.org/wiki/Equity_home_bias_puzzle
    - wslh 8y ago
      Beyond the obvious geography bias (in general, business networks are strongly connected within specific geographies) the crypto investments are notorious by crossing boundaries in a way not seen by the usual VCs. I mentioned one example before and I have more that will be disclosed to the public in the coming months. Again, I am not negating the bias towards proximity but seeing there is a new distinguishable phenomenon happening. This phenomenon favors global entrepreneurs in a new way.
1996 8y ago
Indeed, ICOs offer a great alternative for entrepreneurs: the opportunity to be snubbing VC. If I can raise money through an ICO without diluting, why would I waste my time with VCs and their beauty contests? This is the new third way: bootstrap using your own money, they scale up with ICOs. I am not surprised the VC-funded startup world is so hostile to cryptocurrencies and ICOs: it is competition. It means a future where entrepreneurs can opt-out of VC and IPOs. That would be bad to the bottomline: no more preferred stocks with liquidation preferences! ICOs are in their infancies, so there are a lot of scam, but the market will eventually evolve solutions like smart contracts (or just reputation!). If I was in VC, I would start worrying or lobbying for special treatment - like expending the "investor status" to cover IPOs.

s73v3r_ 8y ago

Right, but at that point, what's the difference between an ICO and a security? If I was an investor, why would I want to go into an ICO vs traditional means?

vkou 8y ago
A non-security ICO coin is not a share, it's a pre-order for a product that may or may not ever exist. It's like a Kickstarter project[1], except most of the backers don't actually want the backed product, they want to resell their pre-order to someone who does. At least, that's how it's supposed to work, in theory. In practice, it's a hotbed for scams. Most of the re-sales happen from one speculator to another, until some fool is left holding a bag of worthless pre-orders. [1] Which is also incredibly constrained, because it needs to do something useful with a cryptocurrency, and all the overhead and complexity associated with that. [2] [2] Building a file-hosting service is not good enough - you have to make it a file-hosting service with a crypto-coin bolted on to it for some weird reason.
- JumpCrisscross 8y ago
  > it's a pre-order for a product that may or may not ever exist I'm not even sure it's this. Pre-orders come with rules. ICOs do not. (Or more accurately, they make them difficult and unrewarding to enforce.)
  - vkou 8y ago
    Do they? I was under the impression that I could sell as many pre-orders for my anti-gravity skateboards, and my marks would have very little recourse, as long as I had the right disclaimers, and I don't sell to Europeans. [1] [2] [3] [4] [1] Product might not perform as advertised. [2] Product might not be delivered in the promised timeline. [3] Product might not be completed at all, due to unfortunate circumstances, such as exhaustion of funds, acts of God, or the laws of physics. [4] All pre-orders are final, no refunds.
    - JumpCrisscross 8y ago

pembrook 8y ago

> They just require "adults in the room." You mean like regulators and trusted intermediaries? Due diligence conducted by independent third parties? Like the real financial system has always had? So basically, we went through this whole ICO bubble to realize that things are the way they are for a reason.

JumpCrisscross 8y ago
> we went through this whole ICO bubble to realize that things are the way they are for a reason That may be overly reductive. My views on several rules changed as a result of observing the ICO phenomenon. For example, I used to be skeptical about accredited investor requirments. Turns out, they're super necessary! On the other hand, I think Regulation D could be massively simplified--from a required paperwork perspective--to lower the cost of selling unregistered securities.
- xur17 8y ago
  > For example, I used to be skeptical about accredited investor requirements. I agree that we should probably have regulations in place to protect people from scams, but accredited investors are just people with > $1M or > $200k in income over the past 2 years. Basically a way to filter for 'wealthy' people that can afford to lose the money.
  - JumpCrisscross 8y ago
    > a way to filter for 'wealthy' people that can afford to lose the money The part I didn't appreciate is it's also a filter for people who can hire a lawyer/adviser to conduct basic diligence. Raising $1 million in $10,000 cheques guarantees virtually zero oversight. That, much more than anything legitimate, has been what ICOs have enabled.
- darth_aardvark 8y ago
  Finally, we've discovered the true value of blockchain: Making people learn about fiduciary policy.
- 8y ago

harryh 8y ago

This reason is more important than either of the reasons you list: VC/PE firms are, by and large, staffed with professionals. ICO investors are, by and large, amateurs (I settled on this word, after starting with several less nice ones). Amateurs are much more likely to get scammed than professionals.