Blockchain Labs founder Ismail Malik has been involved in the tech entrepreneurship and startup space for over 20 years.
Here are parts of his talk at HybridSummit 2017, where he discussed the fundamentals of token economics and how they will change the way startups obtain funding:
Traditionally, if you want to raise capital as a startup, you go to a venture capital (VC) firm and have a conversation with them. Unfortunately, if you get rejected it can be very difficult to get any traction after that.
However, with the emergence of cryptocurrency and ICOs (Initial Coin Offerings), a new token economy has been created which makes funding easier to obtain. Because of this easier method, there has been more rapid creativity in the startup space these days.
The reason for this is that the entrepreneur or founders of a startup company can basically go out as an individual or as a group and go through a much broader community for support. They can also have a direct relationship with that community, which translates into better feedback and more timely adjustments.
We are beginning to see new communities come out on Telegram, for example. Create a channel, put out an idea and instantly get responses, support, ideas and, more importantly, transfer tokens and funding. This completely turns and levels out the way funding is obtained.
ICOs are Rapidly Changing How New Ideas are Funded
This rapid creativity has opened up an entire new market. In two years, we will begin to see another hundred billion dollars of value being put into the community. We have never really seen that kind of creativity and rapid creativity in the VC model.
This new form of funding is creating an inclusive future for all things. What lies in there is the ability to tokenize everything. The ability to have an exchange and to realize value for it.
Nowadays, you can purchase or work for tokens and these smart contracts and DAOs offering infrastructures. You will begin to see the Internet of tokens, which will be considered as an inclusive Internet that was built to include all things and involve everyone.
Rapid enabling is something that you must look for in an ICO or in a new token model. Is it going to be agile? That’s a significant benefit when introducing an ICO.
We had the crowdfunding period for five years before ICOs. That’s what differentiates ICOs from crowdfunding: transparency and speed. In a way, it is transforming crowdfunding itself.
There are still a lot of inefficiencies and a lack of transparency in the crowdfunding sector that need to be improved on. Yet we still rely on the traditional ways of raising money.
When you create a token you also create a new kind of asset class, something which was non-existent in crowdfunding. Now the future economy and improvements will be realized from transparency in the movement of funds, and we’re just beginning to scratch the surface.
All the tools and underlying infrastructure are still to come. This suggests that anybody, anywhere who has an idea that is good enough to be tokenized will start to turn to ICOs and begin to build a reputation through the market. We are most likely to see a surge in ICOs bigger than what we have seen presently.
The Many Stages of a Successful ICO
Back then, the stages that you went through for an ICO were very simple. You put an idea out, put a team together, and it’s funded almost immediately. But now we are starting to see deeper layers and stages to consider for ICOs.
There is this important pre-ICO round which kind of becomes the testing ground for your business concept. You put out an idea and ask: is there an appetite for this?
The pre-ICO stage is also a means to examine market sentiment. Is there any value in this ICO? Is it going to get any traction?
Next stage is ICO exchange listings. As the industry has developed, the ICO market has become much more professional. You can already see at the pre-ICO stage what exchanges are likely to list an ICO.
As a result, what kind of liquidity will come into the ICO? Will it be on HybridBlock? Will it be mainly Asian exchanges, or will it be global? Will it be Poloniex or Bittrex? You will begin to see if the ICO is going to get any traction based on what exchanges are going to be involved.
Then there's the scoring of the ICO. HybridBlock itself has a scoring system that rates an ICO based on its fundamentals and components. You can also turn to the traditional rating agencies for reference. We are going to start to see similar micro grading agencies emerge for token asset classes which will rate the value of a token you are thinking of investing in.
The general concept and business plan will also play a big role. People start analyzing things like minimum viable product and, more importantly, minimum viable utility. Is your concept new? What is your financial strategy? What kind of PR and marketing plan do you have? Are you using one of the big PR and marketing firms or do you have your own in-house team?
The last stage is the post-ICO phase. Does this ICO have an execution strategy which is feasible? Have they begun to enable partnerships? Where is the company based? How do they plan to scale?
Investors will be curious: a company may be raising millions in funding, but where do they plan to spend this on and how? A company must have a good post-ICO strategy if it wants to succeed in today’s token economy.