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ico.pdf
Structuring ICO Wild West
Blockchain and ICO industries overview
Despite the buzz in the industry, Blockchain market is underfinanced and accounts to 2,3% of FinTech market
There is a decreasing tendency towards launching new blockchain companies 2015 and 2016 showed a very slow growth in the block- chain investments: 33% and 18% respectively While Blockchain industry has an enormous potential, it was invested only 0.5B USD in comparison with 23B USD invested into Fintech industry, meaning that the Blockchain industry is underfinanced Several companies were already acquired by bigger ones due to lack of funding
2016
542
2015
458
2014
344
2013
83
2012
3
119 99
54 31
12
Investments in blockchain Key market observations
# of rounds
amount of capital, $M
Major Acquisitions in 2016+314%
+33%
+18%
1 Circle 2013 Late $110M 6/16 $60M US Remittance 2 Ripple 2012 B $90.5M 9/16 $55M US Remittance 3 Blockstream 2014 A $76M 2/16 $55M Canada Bitcoin 4 Bitfury 2012 Late $110M 1/17 $30M US Security 5 Bitflyer 2014 C $32M 4/16 $27M Japan Exchange 6 Quoine 2014 A $22M 6/16 $20M Singapore Finance 7 Coibase 2012 Late $117M 7/16 $10.5M US Info, bitcoin 8 Gem 2014 A $10.4M 1/16 $7.1M US Developers 9 Simplex 2014 A $8.4M 2/16 $7M Israel Payments 10 Symbiont 2015 A $8.3M 1/16 $7M US Software 11 Tech Bureau 2014 A $6.5M 5/16 $6.5M Japan Developers 12 Zaif 2015 A $6.7M 5/16 $6.2M Japan Finance 13 Lisk 2016 PreA $5.7M 3/16 $5.7M Germany Developers 14 BlockStack 2014 A $5M 10/16 $5M Philippines Banking 15 Elliptic 2013 A $7M 3/16 $5M UK Bitcoin 16 Bitt 2013 A $5.5M 4/16 $4M NZ Payments 17 Chronicled 2014 PreA $3.4M 3/16 $3.4M US Hardware 18 Equibit 2015 PreA $3M 2/16 $3M Canada Finance 19 OB1 2015 A $3M 12/16 $3M US E-commerce 20 OpenBazar 2014 A $4M 12/16 $3M US Consumers
The Blockchain industry is obviously underfinanced: the difference between the 1st and 20th largest investment deals in 2013-2016 is 2750% (or $57M) – sign of green industry
Need for new crypto investment instruments became a trigger for ICO growth
Raise of
blockchain assets
Raise of
models of cryptocurrency applications
Raise of
cryptocurrency investment instruments
2009 2013 2017
The market of Blockchain assets, including crypto curren- cies was very limited to “but/sell” only. Investments in blockchain were also limited by risks and early stage of an industry
New ICO options emerged on a basis of crowdfunding and crowd investing in to a startups. The 1st ICO was held in 2013.
New ICO options emerged on a basis of crowdfunding and crowd investing in to a startups. The 1st ICO was held in 2013.
What is ICO?
Tokens are crowdfunding units, sold by projects in order to develop the product / support the expan- sions / accumulate tokens for other goals
Tokens represent rights, which may be of different types:
In many cases tokens give a right to get some service in future (eg. transactions)
It can be an access to the platform
In certain cases tokens represent rights for dividends or underlying assets (eg, commodities or shares)
In the process of ICO tokens can be sold for fiat (USD, EUR) or more liquid tokens with mature eco- system and cryptocurrencies (bitcoins and ethers)
ICO
ITO
Alternative and better naming for ICO:
ICS
TGE
- Initial Coin Offering
- Initial Coin Sale
- Token Generation Event
- Initial Token Offering
From the business logic, ICO is much closer to crowdfunding than to investments
ICO Crowdfunding
ICO - the new tool to address funding challenges of Blockchain industry ICO already surpassed VC funding for blockchain companies in 2017
222
145 121
Q2Q4Q3Q2Q1Q4Q3Q2Q1 Q1
20162015 2017
43
173 161
82 116
232
96
31
25
21
17
11
3
ICO token sales, $M
# of deals
early stages VC, $M ~$300M $1.6B+
Raised through ICOs
2014-2016 1H 2017
Initial Coin Offerings started to gain importance in 2016, with the potential to capture more interest
Until 2017, all the token launches were less than 1% of global crowdfunding activity, suggesting opportunity
45135 23
148 121
794
Market dynamics & expectations
4513 235
148121
794 771 873
975 1077
650
520
Q2Q4Q3 Q4Q3Q2Q1Q4Q4 Q3Q2Q1 Q1
2016 2017 2018
Core observations: Currently – there were around 300 ICOs done up to date, the number grows at a quicker pace
Huge amount of crypto capital is underused, new investment instruments are still on the rise
Expectations are high enough, market shall correct itself in the near future, and become more stable
The number of ICOs is growing faster than the volume of new money on the market
Market saturates quickly, many low quality projects / risky ideas appear
The industry sees an influx of high quality talents and smart capital
Market observations: Large institutional investors get interested in tokenized economy
Growth of new business / ownership models that come along with tokenized experiments
ICOs brings an interest from governments, new regulation activi- ties shall boost the industry forward;
ICO token sales, M $
ICO token sales forecast, M $
ICO market cooling down due to decrease of "hype" level
Market renaissance due to entering of VC funds and institutional investors to ICO market
Money. Big Money! So, what is the reason for this craziness?
Why ICOs are so
popular?
Democratization of access
Everyone can participate
Not limited by geography
Opportunity to invest accumulated cryptocurrency
People still don’t have many ways how to spend cryptocurrency except conversion into fiat. This problem is especially acute for crypto ‘whales’, who don’t have a way to withdraw their tokens into fiat without losing much value
Opportunity to trade tokens immediately
Unlike in case with VC investments, new tokens can usually be traded almost immediately on an exchange
Crypto-community inborn passion for modern technologies and applications
They are trying to support any initiatives that are disrupting existing rules and standards
Today ICO is like a show, which is even bigger than match of the year “Floyd Mayweather Jr. vs. Conor McGregor”
Money Fight 2017
$600М “SHOW”
$1.6B “SHOW”
VS
“The Money Fight”
More and more companies are coming to ICO, creating big opportunities for any kind of investors Notable ICOs ($M)
Tezos 208
EOS.IO 200
Bancor 153
Status 95
Tenx 80
MobileGo 53
Sonm 42
Basic A Token 35
Civic 33
Storj 30
Polybius 29
Aragon 25
Aeternity 22
OpenAnx 19
Cosmos Network 17
Qtum 16
GigaWatt 15
Mysterium 14
Nimiq 14
TokenCard 13
Dao Casino 12
Gnosis 12
IEX.EC 12
ABT coin 12
Blockchain Capital Fund 10
Taas 7.7
Zrcoin 7.1
Matchpool 5.6
Chronobank 5.4
Humaniq 5.2
Starta 5.1
Excudo 5
Dimcoin 4.7
Wetrust 4.6
Encryptel 4.5
Cryptotel 3.8
Dfinity 3.8
Lunyr 3.4
Trueflip 3.1
Melon 2.9
Quantum Resistant Ledger 2.8
Edgeless 2.7
Skincoin 2.5
Done, ongoing and pending ICOs
314
Total proceeds
$1,27M
Average Proceeds
$23M
Median Proceeds
$5.5M
ICOs allow startups fundraise millions of USD within minutes/hours
Project Country ICO volume Duration of ICO
Tezos Switzerland $206.33M 14 days
EOS Cayman Islands $200M 341 days
Bancor Protocol Switzerland $153M 3 hours
The DAO Stateless $152M n/a
Status.Im Switzerland $95M 17.2 hours
MobileGo USA $53M 1 month
Basic Atention Token USA $35M 30 seconds
Polybius Estonia $31.64M 6 weeks
Aragon Estonia $25M 15 minutes
æternity Liechtenstein $24.75M 3 weeks
Solidx Trust ETF Currently denied
by Sec on up listing
N/A N/A Size ICO status
First VC funds are entering ICO market and fundraising through ICO, but it’s overall quantity and funding amount is still very low (3-5% of the whole ICO industry)
Brings SEC and regulatory bodies’ certainty to industry
Narrow focuses emerge: bitcoin trading, protocol investments
New investment instruments are killing the fraud due to higher control
New instruments owners are unexperienced
Bitcoin and crypto assets are easy to purchase, no need for dedicated funds
Inability to acquire other digital assets
High risks, unnecessary fees, low quality DD analysis
Pros Cons
Taas Fund Hedge fund focused
on trading cryptocurrencies
$7.5M Done Size ICO status
Blockchain Capital Tokenized Blockchain venture capital fund
$10M Done Size ICO status
Pantera Capital Hedge fund focused
on trading cryptocurrencies
$35M Done Size ICO status
Starta Capital Acceleration program
$5M Going Size ICO status
BB Fund Venture capital fund focused on investments in Blockchain
N/A Coming Size ICO status
Finshi Capital Tokenized venture capital fund
N/A Going Size ICO status
Grayscale Trust ETF Currently trading OTCQX, seeking up-listing to BYSE
N/A N/A Size ICO status
Tokenized Funds comparison
Target or Raised (AUM)
Registered/Based
Structure & license
Fees
Profit share / dividends
Own tech platform, audit and wallet
Previous investment experience and relevant background
Geo Focus
Strategy focus and industry
Investors
TaaS
$8M
Singapore / No info
LLC, No any legal information available
Diverse ICOs, no focus
-
Non-accredited individuals, no KYC Unlimited # n
Entry fee– 15% Success – 25%
Tradable No
Quarterly
Yes
No
Finshi Capital
n/a
Singapore/Russia
LLC Not licensed
No strategy
-
Non-accredited individuals, no KYC Unlimited #
Entry fee – 12.5% Success fee – 20%
Tradable on exchange No
After exits
No
No
Blockchan Capital
$50M
Singapore/US
FMC Licensed for accredited investors
Blockchain startups
Global
Accredited with KYC
Limited #
Annual fee – 2.5% Success fee – 25%
No private deal with CEO
1 year lock-up, private sale
No
63 investments / 5 exits
Mainstreet Capital
$50M
Singapore/US
FMC, LP-GP Not licensed
Manufacturing, Healthcare, Real estate
Midwest US
Non-accredited individuals, KYC Unlimited #
Entry fee– 10% Success – 25%
No, private deal with CEO
After exits
No
No
Monkey Capital
$50M
Singapore/Singapore
LLC Not licensed
Aerospace, Blockchain, Fintech, Real Estate
USA, SE Asia, Europe
Non-accredited ndividuals, KYC Unlimited #
-
Tradable on exchange No
-
No
No
Starta Capital
$5M
Singapore/US
LLC Not licensed
Seed stage tech startups, no focus
Eastern Europe
Non-accredited individuals, KYC Unlimited #
Annual fee – 2.5% Success fee – 20%
Tradable No
No
No
Accelerator activities / no exits
BB Fund
$200M Singapore/Singapore
FMC, LP-GP Licensed in Singapore
Tokenized Fintech and Blockchain companies
Asia, Europe, US
Accredited with KYC Limited #
Entry fee – 4% Annual fee – 2% Success fee – 20%
Tradable Yes, semiannual redeem
Semiannual
Yes
23 investments / 7 exits
Token liquidity, Exit possibility
We can say today that ICO became a stand-alone industry
Protocols
Protocols investing in other protocols
Exchanges
Financial & Legal Advisors
HNWI traders
Crypto hedge funds
VCs with equity and tokens
VCs with EquityMarket Makers
Market data General Market research ICO Market research
non-token transaction
token transaction
Why it can be interesting for VC funds?
Traditional VC Crypto investments
Investment horizon 7-10 years 1-5 years
Ownership model Privileged shares Crypto tokens, crypto currency
Entry stage Angel, Seed, A/B rounds Pre-mine, Genesis, pre-ICO, ICO
Exit options IPO, M&A IPO, M&A, placement on exchange
Business model Product or service sell Closed loop – economy, based on crypto
Legal structure Limited partnership No Jurisdiction for DAO registration
Entry Sources Private investors, family, Crowdfunding, innovative funds
institutional investors and private investors, future users
Currencies Fiat ($, RUR, £) Fiat and cryptocurrency
Criteria New or emerging business models New business models creation
Going to ICO – not easy, but still can be done quickly
Pre-announcement PR-Campaign Start of sales in the ICOOffer
1-2 months
Announcement of the project in the communities of crypto- currency investors
Bitcointalk, Reddit, others;
Purpose is to explain the essence to investors and receive the first feedback
Proposal for conclusion of the transaction;
Addressed to a particular person, a limited or unlimited #;
Offer covers all the nuances of the project, specifies tokens;
After signing the offer, the start date of the sale of tokens is announced
Presentations and various conferences;
Road show – meetings with prospective major investors and analysts;
Target audience - participants of crowdfunding program, so-called ”business angels”;
Collect a min amount of money, specified by the offer, and then release the tokens;
Sell the tokens on the crypto- currency exchanges. It’s neces- sary to release it in advance;
2-5 weeks 1-3 months 1-12 months
ICO is good for every participant of the market?
Efficient fundraising: fast, low-cost, convenient, less documentation etc
Relevant Investors from the community (and first users/advocates)
Branding and marketing due to community building
“Skin in the game” with early adopters
Share both the risks and the benefits of their efforts with the investors
Angel/VC/CVC/corporate funding is much more intrusive on the founder’s vision
Democratization and low entry barriers (almost everyone from everywhere can participate, at least whil it’s not regulated)
High liquidity
Divest from main cryptocurrencies into coins
Some transparency (eg, with an escrow)
Early access to a token which has the potential for capital growth
”Gaming” - the returns from investing in ICOs can be in the 1000% and also complete losses
Diversification of assets (no link to macro economics, fiats, stock markets etc)
Involvement - Investors can be part of a community and first users
Just a new innovative and trendy way to deploy capital
Internet revolution: new companies and their tokens/coins will help building a new decentralized web, independent from any central entity.
Finance revolution: Blockchain is assumed to be at the cutting edge of fintech, the technology and business model being proposed will benefit the whole community.
Education and Time to mature: more competition in the crypto space makes the competitors better and stronger, the Blockchain projects are getting mature and prepared for the real competition (tradition- al enterprises, banks and other incumbents)
For Founders and Entrepreneurs For conventional “investors” /crowdfunders
Cryptocurrency community
What value VC Funds bring to investors ICO market?
Pre-ICO significant discounts
VC funds are usually invited to participate at so-called “private presale” or “pre-ICO”
Opportunity to get significant benefits and discounts: 10-40% off
Access to closed offerings
More mature and established startups prefer to offer their tokens to closed loop of professional investors, where the general crowd will not get an access
Lower risks in fraud, scam
The team of VC fund is able to execute proper due diligence
Specialists in block- chain, lawyers and analysts are on board
Better investment analysis
Only professional knowledge of the market, demand, trends can help to make a right investment decision
Usual players on a market have an under- standing of Product market fit
Ability to create value of investment>
Portfolio managers of VC Fund had experience on value management and provide strong support for investees (networking, interna- tional connections, business development, mentoring etc)
Lack of postinvestment support
Misunderstanding of valuation metrics
But
ICO market has huge problems today: overvaluations, scams, fraud, speculations
Existing problems of ICO market create a demand for professional investors, coming from VC industry
Misunderstanding market and business
Low quality diligence checks (tech, legal, fin)
Regulatory risks and lack of legal investigation
Lack of professional investors
Source of ICO industry problems
Risks
Regulatory and Legal ICO risks ICO Taxes Risk
Risks related to Regulations.
ICO documents do they have a legal basis?
Connection between the token holders and holding company
Intellectual property
Investment/Contribution financial risks
No real financial planning and economics behind
No previous traction of metrics (usually only MVP or descriptions)
Post-ICO slowdown (no real value creation, no media coverage)
Business ICO risks Market demand and macroeconomics
Traditional players offerings
New competitors
Technological shifts
Regulatory challenges (licenses for business)
Voting? Control? Participation?
ICO founders risks Usually no real world business experience
Motivation after big ICO?
Control over funds?
Salaries?
Financial statements?
Token risks Lost or stolen tokens
Hacked wallets
Challenge of smart contract
Traditional VC Crypto investments
Investment horizon 7-10 years 1-5 years
Ownership model Privileged shares Crypto tokens, crypto currency
Entry stage Angel, Seed, A/B rounds Pre-mine, Genesis, pre-ICO, ICO
Exit options IPO, M&A IPO, M&A, placement on exchange
Business model Product or service sell Closed loop – economy, based on crypto
Legal structure Limited partnership No Jurisdiction for DAO registration
Entry Sources Private investors, family, Crowdfunding, innovative funds
institutional investors and private investors, future users
Currencies Fiat ($, RUR, £) Fiat and cryptocurrency
Criteria New or emerging business models New business models creation
ICO founders risks Usually no real world business experience
Motivation after big ICO?
Control over funds?
Salaries?
Financial statements?
If we compare it with traditional fintech-backed startups:
$392M 14 rounds
in 10 years
$440M 8 Rounds in 7 years
$217M 5 rounds
in 3 years
$355M 13 rounds
in 12 years
VS
1-2 year
No traction
No recognition
on the market
Almost 0 money
raised previously
Some ICO problems are already visible (after only few months of its boom), so what will be in the future?
-$7M -$250K -$32M-$50M
ICO is just a new tool for making investments, not an all-in-one solution that can transform each person into sophisticated investor As well as in any other industry (like medicine), for success in investments you need:
Education (math/finance/economics/research)
Experience and expertise (VC/PE/IB, fintech, blockchain etc)
Balanced supportive team (finance + analytics + tech + legal)
Right skillset (communication, psychology)
Network and connections
BB Fund executive overview BB Fund, launched by top-minds from Blockchain and Fintech industry and VC fund Life.SREDA, is a tokenized close-end fund, aimed to bring professional investment expertise to the growing ICO/ITO market.
The Mission of BBFund is to make ICO market efficient, reliable and trustful for all participants (investment crowd, startups, regulators etc)
BB Fund: from “Banking on Blockchain” to “Based on Blockchain”
BB Fund initially started in 2016 as a Banking on Blockchain fund, specifically dedicated to FinTech ventures on the blockchain technology. Read on Bitcoin.com or VentureBeat
In 2017 BB Fund team decided to expand its investment focus to all blockchain- related initiatives (including ICO/ITO) and the BB Fund was renamed to Based on Blockchain Fund and submitted its plans for fundraising through ITO
Investment strategy Investment stages
BB Fund value proposition and USP Experienced, prominent and trustful team of Blockchain and FIntech experts
Backed by professional VC fund Life.SREDA (Singapore) with 5 years experience in the Fintech space
Open and transparent investment process: information is available to all token-holders
Blockchain Sectors
ICO/ITO market opportunities and challenges
ICO/ITO (initial Coin/Token Offering) is the new way of funding blockchain startups, which is getting more and more popular across FinTech and Block- chain crowd and already hit a record of $1B invested in 2017 only.
However the market is very young and immature, which leads to a high inflow of unreliable companies, scams and fraud as well as other risks for investors: financial, legal, technical. The market needs the entrance of professional investment players who will bring trust and transparency to the ICO market.
Team of professional VC investors
Strong traction: 23 investments, 7 exits
Supply chain
E-wallets, Digital banks RegTech, KYC
Payments
Big Data, scoring
BankTech
Infrastructure, BAAS, BAAP
Pre-sale and
Pre-ICO stages
ICO rounds and
actual sales
Secondary sales and
new rounds
GovTech
Lending, p2p, Crowdfunding
e-Commerce, marketplaces
Life.SREDA – professional VC fund on ICO market
Team of professional
VC investors
Own Accelerators & R&D lab
Strong traction:
23 investments, 7 exits annual venture research
leading fintech news portal
bringing Traditional Banking, Fintech and Blockchain together www.fintechranking.com
www.fintech-research.com
Innopolis, Russia
Singapore
London, UK
BB Fund is ready to take off with you on ICO
Size of entry, minimum to efficient scale
Order of entry
Industry life cycle
Degree of strategic innovation
Complementary assets
Relatedness to the market BB Fund’s partners are Fintech and blockchain frontiers
Industry influencers, 23 Fintech investments
Partners of a fund – ex-Barclays, ex-Lloyds, ex-Fidor
Consulting, accelerators, R&D lab, own venture
Deep industry knowledge, the leading Fintech fund
Built an ecosystem of Fintech – sreda.vc
Early stage of the industry life cycle
Solid odds to succeed in the shakeout
Not the first movers – early birds show the points
BBF is a more experienced player – less risky
BBF is entering with a significant own resources, which is more efficient and viable
Predictor BB Fund’s PositionDegree
Significant
Significant
Significant
Early stage
Early stage
Significant
Industry knowledge and influential power Industry knowledge and influential power
www.ito.sg [email protected]
