A Happy Medium for VCs and ICOs

In 2017, crypto companies have raised over $3.2 billion using ICOs (Initial Coin Offerings). In summer, the funds raised have eclipsed that of traditional Venture capital, dramatically changing the early stage funding landscape.

The two biggest ICOs being Filecoin and Tezos, have raised over $257 million and $232 million uncapped, meaning they raised however much they can with no clear capital deployment plan or capital controls on spending. Evidently, greed also seems like a driver in the Tezos uncapped ICO case; it is apparent Breitmans (founders) just wanted to get rich before even shipping a line of code.

For a traditional investor, this is concerning. Uncapped raises for obscene amounts in the hands of early-stage companies is absurd as there is no guarantee the funds will be deployed responsibly. Evidently, no early-stage startup that raised large initial stage capital succeeded, as far as I can recall.

One of the main reasons venture-backed companies succeed is because the model is milestone based. The approach has worked amazingly well so far as there is clear motivation for the team to reach their milestones or risk shutting down.

From an entrepreneur’s standpoint, there is money on the table, unwise to leave it. From an investor’s perspective, there is no guarantee the funds will be deployed responsibly.

So I propose a happy medium if you’re planning an ICO:

1. Establish clear milestones and define deployment structures for a diverse set of scenarios.
2. Raise as much as possible and keep it in an escrow account, released upon approval from an independent board, when reaching the milestones.
3. The independent board should include representatives from all stakeholders — investors, company, users, and the industry — that governs the network. For flexibility, the board also should have authorization to adjust the milestones, depending on the market climate.

Would love your thoughts!

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