PROS OF INITIAL COIN OFFERING

[arvinabeabe]

LIQUIDITY

•Liquidity enhanced venture capital’, is how Brock Pierce described his recent ICO. This is basically because investors can trade tokens in secondary markets rather than have value locked up in the equity of a company. As most will know liquidity is the bane of VCs and their LPs who can see capital locked away for up to 10 years.

DEMOCRATISATION

•The argument goes: Average Joe is locked out of the very early value available in startups because unless you are lucky enough to be friends-and-family with the right people you are locked out by regulators by not qualifying as an ‘accredited / sophisticated investor’. As a consequence you are forced to pay a premium at the point of IPO, when most of the value has already been extracted by VCs. It benefits VCs to keep retail investors locked out so capital is scarce, inflating their value. This compounds the wealth gap between the haves and the have nots.

MORE SOCIAL ENTERPRISE

Simply put, this will mean many projects currently unattractive to VCs because they lack an aggressive profit motive, can now get funded. I’ve seen a lot of interest coming from the ‘platform coop’ movement in ICOs which, typically as a non-profit industry, can finally see a way to aggregate enough financial firepower to compete technically with the centralised rentier ‘sharing economy’.

CROWD BACKED DAY  1

An ICO-funded startup, like a standard crowdfunded company, has the benefit of an army of supporters only this time with the added network effect of not just seeing the product delivered but holding tokens that appreciate based on usage. This should dramatically increase virality gained from word-of-mouth, in turn reducing the need for costly marketing and user acquisition. It is this later activity that drives the most demand for billions in investment from VCs.

UNLOCKING SLEEP VALUE

A combined $23 billion of value is held in Bitcoin and Ether, which is largely dormant yet accumulating value but which people are reluctant to bring offline where they may have to pay capital gains taxes. ICOs offer an outlet to invest profits from Bitcoin or Ether, converted into a newly launched crypto token, which in turn adds to their scarcity pushing the price up and in turn creating a self-reinforcing loop.