The Crowdfunding Landscape: From Smartwatches to ICO Scams and IDOs

We’re in a heady cycle of exponential innovation where we’re not only creating new technology, but also completely new ways of using that technology alone and combined, and new financial models to fund that technology.

This article takes a look at the trajectory of startup funding from crowdfunding to crowd investing, and the latest crowd investing platform using a new kind of crypto investing to connect solo investors and startups.

The wave of crowdfunding was monumental

If there’s one thing every startup needs (besides an MVP people actually want) it’s money. Since the explosion of startups over the last three decades, we’ve seen the rise of new forms of fundraising which eschew more traditional forms of investment like grants and Venture Capital.

First, there was crowdfunding. Kickstarter started in 2009 offering everyday people a way to fund products that they liked by effectively placing an advanced order. The biggest funded product to date is the Pebble Time Smartwatch raising a tidy $20 Million in February 2015 in just a few weeks. The company raised another $12.8 million in May 2016 for the second version of its smartwatch. 

However, Pebble closed its doors in December 2016, with Fitbit acquiring some of its assets, including key personnel, for a disclosed amount of somewhere between 23 million and 40million. Fitbit ended its support for Pebble watches in 2018 and the project is kept alive by a vibrant volunteer developer community.  

But most companies fail to reach the lofty heights of Pebble. 62% of Kickstarter projects fail to reach their public funding goal. Of those that do get funding, 10% fail to deliver a final product - the number used to be lower but campaigns are increasingly making (but not launching) their actual product prior to their campaign. 

From crowdfunding physical products, we’ve seen the growth of crowd investing platforms like CrowdCube where investors aren’t funding an end product but rather invest in shares of a company, effectively an equity stake. Monzo bank first raised £1m in a record-breaking 96 seconds in 2016, and in 2018 £20m in just a few days. In 2019, coffee chain Grind raised £3.4m.

How to crowdfund a digital product?

But what if your product is something less physical and more ephemeral? When cryptocurrency went mainstream in the mid-2010s, Initial Coin Offerings (ICO’s) created an investment alternative to initial public offering (IPO) by selling tokens for startups wishing to offer products and services, primarily in the cryptocurrency and blockchain space.

It revolutionized funding fueled by mass media attention, a lack of regulation, and significant technological innovation, raising staggering amounts of money - sometimes millions in minutes. Blockchain software markers EOS raised over $4bn and Telegram $1.7bn. 

The scar of the ICO scam

But a shadow emerged leaving a digital graveyard of failed products and many people lost money in scams by fake companies with claims that scams were as high as 80% of all ICO’s. There were many instances where scam companies would pick people off LinkedIn, and add them to a website, investor, or advertise them as an advisor without their knowledge - worse many of the companies never existed and people lost their money.  

Enter IDO decentralized crowdfunding

Since then, crypto funding has somewhat lost its luster, but the appeal of crowd investing persists and a new crowd investing platform, Ventup.io  is aiming to create a platform that is easy to use and transparent. I spoke to Ventup.io CEO and co-founder Alexander Kunzmann to find out more.

Ventup.io  connects investors with startups via a platform for funding projects such as new technology and currencies. It differs from more traditional equity-based crowd investing.

Alexander explains, “First of all if you buy a token, it's on an exchange within two, three hours. That means you're very liquid. It's a liquid asset that you have so you can exchange it at any given point you want. If you buy into these other funding platforms, you buy equity, but it will take a long time until you're actually allowed to sell it, or trade it.” 

This form of funding is known as an IDO, (Initial DEX Offering) where tokens are launched on a decentralized exchange (DEX) and receive funding from individual investors. It’s easy to implement and fast to launch. Ventup.io ’s platform thus enables startups with already tokenized products to fundraise.

The idea is that as the investment value of these tokens increases, investors can also invest in other products on the platform. They’re not the first platform in the space, with a number of companies emerging including Binance LaunchPad and TrustSwap. IDO platform Polkastarter launched in 2020 and is soon to start a platform aiming to bring decentralized finance (DeFi) features to non-fungible tokens (NFT) such as digital art and music.

I was interested to see how Ventup.io  differentiates itself from existing platforms. Alexander explained,

“Traditionally the investment process is quite complex. There are usually things that you need to do in social media platforms, such as Twitter and Telegram. They have Google Sheets you need to fill out. So literally, in order to be part of an idea, you have to be on five or more different platforms to sign up.  It's quite a complex thing just to do a transaction on a platform, which is not even related to any of them. Our USP is being super simple and transparent and to have everything in one platform. So we want to not only be decentralized we want to be centralized decentralized finance (CD-FI).” 

An example is the Know Your Customer process - a screening also used in banking that enables companies to ensure that their customers are who they claim to be and to avoid any malicious or criminal activity associated with using their services. Unfortunately, crypto investors usually have to undergo the process more than once across different platforms in acquiring tokens and investing. Worst, the use of social media platforms for communications has created a rich environment of scammers who pretend to be the representatives of the platforms (you can see where this is going) directing people to shadow sights and other scam practices. 

With Ventup.io, Alexander explains, “When a user signs up, they do the KYC process once, and then they can apply to connect their wallet to any of the projects on the platform. We want to integrate community functionality. So chats or forums are actually done on the platform, which is much more secure than having Telegram or Twitter because there are so many fake accounts and scammers out there - the forums are only verified once we know they actually belong to the project. 

Unlike other projects where KYC is required across the various components that make up the investment process, with us, you sign up once, and then the projects you want to apply to you do and they already have all that information. And everything is integrated, the community aspect is integrated and created."

In the long run, Ventup.io wants to integrate their own dex, meaning once tokens are launched, the tokens will automatically be available on the exchange. "So you don't even have to withdraw these tokens from our platform, but you can also exchange them on the platform.”

Community-backed digital projects 

Community is a big part of successful crowd investing. Like how a passionate community was able to keep the Pebble smartwatch alive long past its use by date,Ventup.io  is community-based in that “Ultimately we let our community choose which project will succeed.” Alexander asserts that:

“We want to be the Apple of the de-fi space. We want to be high quality, with easy usability. And that also goes for the project that we accept. We want the team to be high quality and transparent. Because some of these projects were launched on existing launch pads, you don't even know who's behind them, as they hide behind fake names. The team is very important. The idea behind the project is very important. Is it just hype or is this a long-term solution? How is the token used?  Is there a value behind it? Or is it just that they only want a token? How many people are already talking about the project? Do they already have a product? How does their code look? Do they have a GitHub account where you can already look at their code? What is their promise, their long-term vision? Does it align with our culture, basically, our long-term vision for the de-FI space?”

With a nod to the legacies of earlier crypto investing, Alexander admits,

“When it comes to due diligence, we as a team, we can only do so much, right? We can look into the team, we can do the KYC, we can look at the idea, we can look at the market, see how many solutions are out there, how they sell themselves, how transparent they are, how dedicated they are, as well. That's what we can do. But then again, it is at the risk of the investor. The investors should believe in the project long-term and not be interested in short gains. So we try to create a community feel for each project.”

Ventup.io  themselves have attracted investment from VCs such as Blocksync Ventures, Vendetta Capital, and Three M Capital, raising $100,000 in pre-seed investing. Alexander shares:

“They believe in us long-term, they believe in the project, and they want to see how everything evolves. Everyone's in it for the money at the end of the day, but some have different strategies - one wants to buy in quickly and make money fast. And the other is to have a bit of a long-term vision and, you know, probably also more experienced than the industry or generally in investing.”

Ventup.io is planning to launch their platform in June and it will be interesting to see how they fare in a time when teen investors are putting serious dollars behind businesses such as GameStop and raising $265k on r/WallStreetBets for endangered gorillas - investors with a heart?

Even Vitalik Buterin donated more than $1bn in funds raised from crypto tokens to COVID relief in India.  Watch this space for what happens next. I think things are starting to get interesting again.

Also published on: https://blog.vent.finance/why-digital-startups-are-turning-to-crowd-investing-26580bd7784a