What do ICOs and venture capitalists have in common? Well, for one, they may be one of the reasons why traditional IPOs (initial public offerings) have been on the decline the past several years. According to some, the access to private equity through venture capitalism has led companies to source all of their funding through private channels, rather than going to traditional open markets. Additionally, internet companies have raised more through ICOs than they have with venture capital firms in their early stages of funding, something previously unseen in financial markets.
When compared with venture capitalism’s storied past, ICOs are a mere blip on the radar. But everything has to start somewhere – so what can ICOs and their investors learn from venture capitalists?
What Startup Companies Should Strive to Be
If a company wants to stay competitive for venture capital funding, their target market needs to be lucrative. A startup must also have products that can gain traction and mass acceptance. This doesn’t mean the product needs to be something incredibly complex or sophisticated – rather, it must be useful and solve a problem, otherwise no one will want it. With ICOs, companies should strive to solve real world problems. Even though the technology is young, it’s long term viability still depends on mass acceptance and integration. Companies in their ICO phase need to make sure they have a product that sells itself and has everyday applications.
Of equal importance to blockchain startups is the need to focus on creating the right team. Good ideas are cheap; but a majority of good ideas go nowhere because there isn’t a team who can put the ideas into an actionable, executable plan.
In addition to assembling a skillful group, managers must also look for hard working, honest individuals who know how to communicate. Programming skills are valuable, but blockchain companies must also prioritize finding employees who communicate well internally and externally. The team must know how to identify challenges, adapt to them, and communicate their solutions with investors.
Key Attributes of Successful Venture Capital Investors
Blockchain startups have a lot to learn from traditional startups, especially those that have successfully raised capital through venture capital firms. But ICO investors would also do well to learn the best practices of successful venture capital investors.
First, a successful ICO investor must know how to pick the right people. One VC investor, Yossi Vardi, summarized this well when he noted in an interview “When I started, I thought ideas were overrated and now I think ideas are irrelevant. It’s about execution and the personality of the people, rather than about the idea.” If anything else, successful ICO investors know how to pick the right people to work with. There will be ups and downs throughout the ICO process, so funders should invest in people they know can adapt to ever changing situations.
Second, successful ICO investors, like their venture capital counterparts, will know an innovative company when they see one. Tina Cheng, a partner at Cherbuci Ventures, notes “If a company is doing well, it will be in the press. And the next thing you know, there will be a lot of copycats. One skillset that successful startups have is how do they always stay ahead of their competition?” ICO investors need to look for companies that have a certain level of tenacity. When they get knocked down, they get back up. And most importantly, they must always be one step ahead of the competition.