The Main Differences Between Investing in ICO and Venture Capital

An initial coin offering (ICO) is a method used by crypto currency startups to raise money from the public. It is similar to an initial public offering (IPO) in corporate law. An ICO involves the sale of digital assets (tokens) associated with a proposed block chain project. Venture capital on the other hand is a type of funding for a new or growing business where startups or private investors (the venture capitalists) provide the growth equity capital or loan capital. It has also referred to as risk capital by certain authors. The main differences between these two methods of fund raising emerge in the areas of liquidity and ownership.

Liquidity

ICO’s have faster liquidity. Tokens are tradable once they have been listed on an exchange hence quick return on investment. However there is a risk that the token may depreciate in value once they are on the exchange. This has necessitated the creation of ‘vault’ smart-contract by founding teams who wish to mitigate against this risk

With venture capital, the investor has to wait until a liquidity event occurs or an IPO is offered. This could take years. Further, venture capitalists are known to have strict and specific requirements as to return on investment creating further uncertainty as to when money can be recovered.

Ownership

Tokens obtained in ICOs do not offer equity in their business to participants.  The value assigned to a token depends on the access it gives you and its scarcity corresponding with its demand. ICO’s are also open to the general public unlike Venture Capital that is restricted to a small group of wealth investors.

Venture capital usually demands a portion of equity in return for their funding. Further venture capital investment involves use of accredited investors in certain jurisdictions and are regulated with regards to the amount of money that can be made or lost

References

https://tokenradar24.com/4-big-differences-between-investing-in-icos-and-venture-capital/880/

https://hackernoon.com/differences-between-ico-funding-and-venture-capital-funding-

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Some Venture Capitalists Believe Cryptocurrencies Will Run the Show in the Future

Venture capitalists are seeing a future that is run by tokens and cryptocurrencies. In order to achieve that, however, there must be regulations so that the two will not be classified as securities.

Andreessen Horowitz, a private American venture capital firm, is spearheading the efforts. Early this year, the firm formed a group of investors and lawyers who met with members of the Securities and Exchange Commission. The group comprised Union Square Ventures and lawyers from firms such as McDermott Will & Emery, Perkins Coie and Cooley.

Regulators are looking for a “safe harbor” for some cryptocurrencies, according to The New York Times. Lawyer Richard Levin claim that many firms in the cryptocurrencies community who may have been poorly informed or ignorant of the law are now coming to terms with the fact that they are regulated.

Unregulated cryptocurrencies have mainly been used as initial coin offerings (ICO). Entrepreneurs involved in the ICO say that since tokens or cryptocurrencies are being used as a payment method, they should not be classified as security. On the contrary, S.E.C. Chairman Jay Clayton believes they should not be categorized as security.

Coinbase CTO and venture capitalist Balaji S. Srinivasan sees a future where entrepreneurs will just create their own virtual currencies. Blockchain will turn everybody into a VC. The internet will become the biggest stock market in the world where basically any person in the world can put money into crypto.

References

https://born2invest.com/articles/venture-capitalists-cryptocurrencies/

https://ambcrypto.com/cryptocurrency-replace-fiat-currency-future-says-famous-venture-capitalist/

Basic Words that Might Help You Understand Venture Capital

Venture capitalists keep talking about things like seed-stage venture, leading a round of funding, LPs and exits. If you are planning to meet venture capitalists in the future, there are some basic words that you need to learn in order to keep up. Here basic words that will be helpful to know.

Bootstrap: This is a situation in which an entrepreneur starts a business with little capital. A person is said to be bootstrapping when he or she tries to found a company from personal savings or from the operating incomes of the new company.

Exit: This is a point at which an investor sells his or her stake in a company to realize his or her gains (or losses). Normally, exist occurs when a company either is bought by another company or goes public.

Fund: This a pool of money that investors use to finance companies in exchange for equity. The money comes from investment banks or wealthy investors.

Limited partners or LPs: institutions and groups who provide venture capitalist firms with money to invest. They include high-worth individuals, university endowments and pension funds.

Lead A round: The venture capital who “leads” a round of funding sets the financial and legal terms for the investment. A lead investor is the one contributing the largest amount of cash and help in finding other investors.

Seed: Seed capital is the initial funds used when starting a company, often coming from the founders’ personal assets, family or friends, for covering first operating expenses and attracting investors.

Series: These are stages of venture funding, usually occurring after a seed round. These series include Series A, Series B and Series C.

References

https://www.marketplace.org/2017/09/07/tech/venture-vocabulary

https://www.techrepublic.com/article/glossary-startup-and-venture-capital-terms-you-should-know/

Startup Funding Deals in Africa Are Entering the Million-Dollar Era

The first decade of tech startup funding in Africa has been led by early-stage and angel investors. Most of that funding was modest: usually ranging from 10,000 to $50,000. Still, it was adequate to help entrepreneur get off the ground with limited market capacity and infrastructure.

Even after tech incubators began to proliferate around big cities, big deals were uncommon, and $1M-plus deals were a myth. However, over the last one to one and a half years, that has been changing.

According to research by Partech, African venture capital funding topped $560M, up 53 percent year on year, in 2017. Compared with 77 rounds in 2016, 124 startups participated in 128 funding rounds last year.

A regular flow of Series A fund deals are coming to maturity, as the major startup ecosystems move to the next stage of development. Last month, TradeDepot, a Lagos-based software-as-a-service platform, banked $3M in Series A funding. In Kenya, Africa’s Talking, an information technology company, raised $8.6M in Series A funding led by Social Capital, IFC World Bank and Orange Digital Ventures.

More deals of this size are expected in Africa. Although there have been options for seed funding (at most $500,000) and from private equity funds (at least $10 million), there have been a small number of options for funding between $1M and $5M, an important stage for young businesses looking to scale.

References

https://www.theatlas.com/charts/S1dpnqcDz

https://qz.com/1211233/how-much-did-african-startups-raise-in-2017-partech-disrupt-africa/

Three Online VC Resources for Investors and Startups

If you are looking for information on venture capital, you often required to surf though the clutter on the internet. Although you may find what you are looking for, it is easy for you to experience information overload. Today, I will suggest online VC resources for investors and startups.

1. Wikipedia

Wikipedia is arguably the most comprehensive and reliable site to find description of VC firms online, without paying for a subscription. Although the site might not give you a ton of advice, almost all the big venture capital firms are listed on this page.

2. The Funded

The Funded is very comprehensive and include a blog, top VC list, discussion forum, banned VC list, a section where an individuals can rate their “Entrepreneurial DNA” to see how they stack up, information resource links, VC news, and much more. The Funded claims to have more than 20,000 CEOs among their members, making it one of the top online resources for people who are looking to fund or get funded.

3. Crunchbase

If you don’t have an account set up on Crunchbase, you are missing a lot. In a nutshell, this site is a powerful crowdsourced data pool that is used by investors, advisers and startup owners to see who is getting funded and for how much. Data can easily be downloaded in spreadsheet format.

Other online VC resources for investors and startups that you might be interested in include Venture Beat, Microventures and NVCA.

References

https://www.fundingnote.com/blog/top-online-vc-resources-startups-investors-358

https://www.linkedin.com/pulse/10-must-visit-online-vc-resources-ivan-widjaya/

Understanding Series A Round Venture Capital Financing

A series A round is the name given to a company’s first major round of venture capital funding. The name typically refers to the class of preferred stock given to investors in exchange for their investment. Usually, it is the first series of stock after the common stock and common stock options are issued to company founders, friends, family, employees and angel investors.

Traditionally, series A rounds are a critical stage in the funding of new companies. The capital raised during a series A is commonly intended to capitalize the company for a half year to 2 years as it performs initial marketing and branding, develops its products, hires its initial employees, and undertakes early stage business operations.

Private companies meet venture capital firms and private equity investors in several ways, including investor conferences, warm referrals from the investors’ trusted sources and demo days where companies pitch directly to investor groups. However, today equity crowdfunding is becoming more established and companies are increasingly raising part or whole of their Series A round online using sites such as SeedInvest and Onevest in the U.S and Seedrs in the UK.

Series A rounds are widely reported in business press, industry reports, blogs and other media that cover the technology industry. Some also also occur in non-technology industries. They receive investment from investment banks, angel investors, public agencies, corporate investors, and others.

References

http://www.startupfreak.com/what-does-series-a-series-b-series-c-funding-mean-in-startups/

https://www.rocketspace.com/tech-startups/how-startup-funding-rounds-differ-seed-vs.-series-a

Venture Capital investment in financial technology reaches record $27.4B high

Financial technology (FinTech) startups continue to draw the interest of VCs around the world. Venture capitalists continue to see great potential in fintechs which are offering user-friendly financial products and services through innovative technology: online lending platforms and digital payments services being the foremost among them.
In 2017, confidence in financial technology s accelerated venture capital financing to a record level of $27.4B – a growth of 18% from 2016. The growth in financial technology investment has been driven by a surge in deal value in the UK, US and India.
Last year, the value of capital investment deals in the US jumped to $11.3 billion, an increase of 31% from 2016. India saw a quintupling of investment to $2.4B last year. Globally, the volume of FinTech deals rose greatly, from around 1,800 in 2016 to nearly 2,700 in 2017.
In the UK, financial technology industry shrugged off the Brexit vote last year, attracting more than double the amount of venture capital investment in 2017 than in 2016. Fintech companies such as OakNorth and TransferWise raised $1.8 billion of venture capital investment in 2017, up more than 150% from $704 million in 2016.
According Julian Skan, senior managing director in Accenture’s Financial Services practice, much of the growth, mostly in the UK and U.S. has been driven by big new investment flows from the Middle East, China, Russia and other emerging economies.
References
https://www.consultancy.uk/news/16707/venture-capital-investment-in-fintech-reaches-record-274-billion-high
https://www.ft.com/content/75a4425a-0b63-11e8-8eb7-42f857ea9f09