How cryptocurrency can help start-ups get investment capital | Ashwini Anburajan

TL;DR

This content explores the limitations of venture capital and the need for a new, more flexible system to fund entrepreneurship, highlighting the potential of Initial Coin Offerings (ICOs) as a way to democratize access to capital.

Transcript

When I was raising investment for my startup, a venture capitalist said to me, "Ashwini, I think you're going to raise a few million dollars. And your company -- it's going to sell for 50 to 70 million. You're going to be really excited. Your early investors are going to be really excited. And I'm going to be really upset. So I'm not going to inves... Read More

Key Insights

• 💰 Venture capital was not designed to fund smaller companies, which limits the number of ideas and companies that get funded. There is a need for a more flexible system that democratizes access to capital.
• 💡 ICOs (Initial Coin Offerings) have emerged as a new way for startups to raise money, attracting more investors and potentially garnering greater funding. This expands the investor pool beyond traditional venture capital firms.
• 🤝 Cooperative fundraising among startups, where companies pool their equity and create a tradable cryptocurrency, offers a new approach to raising capital. This leads to more diverse and excited investors, as well as potentially better returns.
• 🌍 Democratizing access to capital creates a virtuous cycle of funding opportunities, allowing more entrepreneurs to succeed. Access to capital is access to opportunity, and it can have a profound impact on the economy.
• 🚀 The traditional route of venture capital funding may not be the most innovative or exciting path for entrepreneurs. By inventing new ways to access capital, entrepreneurs can change what gets built and who builds it, leading to greater long-term impact.
• 🎯 The goal of entrepreneurship should extend beyond creating a few billion-dollar companies. It should inspire innovation and empower people to build companies of all sizes.
• 💼 Understanding what motivates venture capitalists to invest is crucial for entrepreneurs seeking funding. Investing in a company that sells for 50 to 70 million might not align with a VC's goals, leading to missed opportunities for entrepreneurs.
• 💸 The financial systems designed to fund innovation, such as venture capital, haven't evolved in the past few decades. In order to keep up with the golden era of entrepreneurship, a new way to fund ideas and companies needs to be implemented.

Questions & Answers

Q: Why was the venture capitalist hesitant to invest in the speaker's startup despite the potential for a significant return on investment?

The venture capitalist was concerned about the limited financial outcome that venture capital typically offers. Their goal was to invest in companies that have the potential to sell for over a billion dollars, not in companies that may succeed but sell for less. Therefore, the venture capitalist chose not to invest in the speaker's startup.

Q: How has venture capital funding limited the number of ideas and companies that receive financial support?

Venture capital funding is designed to pour large sums of money into a small number of companies that have the potential to sell for over a billion dollars. This approach leaves out many ideas and companies that may have the potential to succeed but do not fit the criteria for massive financial returns. As a result, the number of ideas and companies that receive funding is restricted.

Q: What did the speaker discover about Initial Coin Offerings (ICOs) during her time at a tech accelerator in San Francisco?

The speaker learned that ICOs were a new method for young companies to raise money by issuing a digital currency tied to the value and services they provide. ICOs expanded the investor pool from a few hundred venture capital firms to millions of everyday people who were excited to invest. This market represented more money and more investors, increasing the likelihood of getting funded.

Q: How did the speaker and other startup founders in the accelerator decide to approach their fundraising efforts together?

The speaker and other startup founders decided to cooperate instead of competing with each other for investment. They each put 10% of their equity into a communal pool, which was then split into tradable cryptocurrency that investors could buy and sell. This approach allowed them to collectively raise funds and present investors with a diverse portfolio of nearly 30 companies.

Q: What were some of the advantages of the ICO approach to raising capital?

The ICO approach to raising capital offered several advantages. Firstly, it allowed for a more diverse fund, with 20% of founders being women and 50% being international. It also eliminated middleman fees traditionally associated with venture capital, potentially providing investors with better returns. Additionally, the ability to reinvest the funds could potentially accelerate the funding of new ideas, creating a virtuous cycle of capital.

Summary & Key Takeaways

• Venture capital was not designed to support smaller companies, limiting the number of ideas and companies that receive funding.

• Initial Coin Offerings (ICOs) provide a new way for startups to raise money by issuing digital currencies, expanding the investor pool and increasing the likelihood of funding.

• Cooperation among startups, pooling equity into a communal pool for ICOs, creates a more diverse and exciting investment opportunity, allowing for more entrepreneurs to succeed and innovate.