Easy money? Top token players weigh in on the ICO vs venture capital debate

Paul Kittiwongsunthorn of TenX (L), Daniel Saito of RedRobot (M), and Tech in Asia’s Michael Tegos (R) on stage at Tech in Asia Tokyo 2017. Photo credit: Michael Holmes Photo / Tech in Asia.

The increasingly frequent headlines about sell-out initial coin offerings (ICOs) – some raising millions of dollars for startups – have inevitably led to questions about the future of venture capital. If new businesses can secure significant growth funding through digital token sales, isn’t the role of VC firms diminished? Will traditional VC investment – as some have suggested – be displaced by token crowdsales, and die out?

Singapore-based TenX closed one of the biggest ICOs yet when it raised US$80 million in seven minutes back in June. Speaking on stage at Tech in Asia Tokyo 2017 yesterday, co-founder and COO Paul Kittiwongsunthorn argued that venture capital is unlikely to be overthrown by the emergence of token sales, since the two should be seen as fulfilling different purposes.

Even if you get venture capital you still have to build your user base, and an ICO gives you that.

TenX has raised funding both through its ICO and via the more traditional VC route, and each had its own advantages. The latter stands out for the strategic benefits it brings to the table, Kittiwongsunthorn said. “If you really want to get something going, get connections, then VCs specialize in that. But what they don’t have is the ability to give something to the public, which gets fans, gets users,” he explained. “Even if you get venture capital you still have to build your user base, and an ICO gives you that user base. But an ICO doesn’t give you strategic investment and strategic partners.”

Community building

Token buyers are also likely to feel more closely connected to the product or service their tokens relate to. “One thing it gives you is a community, with people in it who give you feedback, criticize you – people who are both financially and emotionally into the project,” Kittiwongsunthorn said.

Daniel Saito speaking at Tech in Asia Tokyo 2017. Photo credit: Michael Holmes Photo / Tech in Asia.

Daniel Saito – director at startup consultancy RedRobot and an investor who has helped design and run several ICOs – suggested that token sales can be a boost for VC investors, and should not necessarily be seen as a source of competition for them.

“An ICO can be done in a matter of months or even minutes. And in a sense, whether you raise a million or US$80 million, there’s an influx of capital.” This cash can be useful in helping to tide the startup over until its next fundraise, and to pay outgoings like tax in the meantime.

“Your series B will probably be slightly higher because of the ICO. So it benefits the VCs as well,” Saito added. Moreover, the token sale acts as marketing mechanism, helping VC firms to shape future investment and strategy decisions.

“It is a good validation from the actual masses – the traction, they can actually have access to Slack and Telegram groups, and see the sentiment the public has for the products,” he said, in reference to the typical channels startups use to communicate with token buyers. “It gives them a feedback loop.”

Beyond blockchain

Not for the weary