Are ICOs the Future of Startup Fundraising? Cryptocurrencies are Giving Founders a New Platform for Fundraising

Are ICOs the Future of Startup Fundraising? Cryptocurrencies are Giving Founders a New Platform for Fundraising

Cryptocurrencies are giving Founders a whole new platform for fundraising.

As a strategic business consultancy that offers Fractional CFO services to entrepreneurs and startups we get a lot of questions about raising capital.  While the general consensus among experts is to first raise traditional angel and seed rounds some founders are exploring the use of cryptocurrencies and/or ICOs (Initial Coin Offerings) vs. Series A or B rounds.  The rising popularity of cryptocurrency is allowing Founders and startups to get creative in their fundraising efforts.

What is Blockchain?

In a nutshell: “The basic concept of cryptocurrency is pretty simple… Rather than asking the public for investments of old-fashioned money, the inventor issues a new virtual currency tied to a specific product, each unit of which represents a defined share of future profits. Just like shares in an actual stock market, these coins or tokens can then be freely traded or collected, letting those who truly believe in a project build an actual financial stake in its success.”  (“How to Fund Your Startup with Cryptocurrency” — Catrinel Bartolomeu)

How does it work?

Some founders will attempt to raise capital through an initial coin offering which, in simple terms, is when a company wants to fund itself through cryptocurrency. People can “back” the ICO by contributing other cryptocurrencies such as Bitcoin or, more commonly, Ether (the name for Ethereum’s coins/tokens). It is basically a crowdfunding campaign that, instead of using platforms like Kickstarter, uses blockchain platforms.

Pros and Cons

While Blockchain technology and Social Enterprise are creating new options for Startup Fundraising, it’s important to look at the pros and cons of using ICOs vs. traditional fundraising methods.  Serhiy Kozlov (CEO and Founder of Romexsoft) does a great job highlighting some of the pros/cons of using ICOs to raise capital.  Below is a summary (full article can be found here):

BENEFITS

Traditional Funding Comes with Strings/IOC’s with Far Less.

A clear advantage for the founder. Initiating an ICO with a unique currency that can later convert to Bitcoin or Ether, takes a lot of regulation out of the mix.  Banks and traditional VC funding can may have tight contracts and legal responsibilities.

ICO Funding is Cheaper.

When the middleman fees and interest are cut out of the mix, getting funding is cheaper. There is also more freedom for the founder to set terms.

Flexibility for the Investor.

Investment returns on ICOs can be more accelerated than returns with traditional funding. Investors like this.

Flexibility for Startup Founders.

One great thing about ICO is that funding can come from a variety of currencies, both fiat and crypto. This may attract more investors than traditional funding which usually occurs in a single currency.

POTENTIAL DOWNSIDES

Lack of understanding regarding governmental rules and regulations, regarding investing and receiving investment capital.

There are legal risks involved in an entrepreneur seeking funding via an unregistered token, even when it goes through registered blockchain platforms, like Bitcoin and Ether. In the case of the U.S. SEC, for example, just incorporating outside of the U.S. will not grant ‘immunity.” As well, the SEC has recently established rules regarding equity investments in crowdfunding activities.

Over-Valuation. 

Some of the amounts being raised through ICOs are staggering. Early investors in Bitcoin and Ether are eager to invest more and more in new ventures, and founders are “tempted” by the easy money to raise far more than they actually need or would get via traditional financing.

Lack of Control and Protection. 

This, of course, is an investor’s not a startup’s problem. But it is a weakness that, if not “fixed”, may sour investors over time. Unethical or fraudulent “startups” really have little-to-no fiduciary responsibility to their investors. Smart Contracts, such as those through Ethereum are a start, but the promoter has ways to alter those arrangements.

It’s Too New. 

As mentioned earlier in this article, the concepts of Blockchain, cryptocurrency, and ICOs are still foreign to many investors, and certainly to individuals who have money to invest but see this cryptocurrency “stuff” as somehow fake money. It will take time for the entire concept to become mainstream and for weaknesses to be eliminated.

For more information on fundraising, our Founder/CEO, Tyler Jensen has created several eBooks on the topic.  We invite you to browse our website to request free downloads.

5 Reasons Why You Can’t Afford Not to Hire a CFO for your Business

5 Reasons Why You Can’t Afford Not to Hire a CFO for your Business

In most cases it takes a very large payroll and budget to staff a full-time CFO however; today, more and more small and mid-sized business owners are capitalizing on the extensive education and training that a part-time CFO brings to the table. For this reason, we are seeing an uptick in the number of business owners that are turning to part-time CFOs and Strategic Business Consultants to get high-level financial guidance and consultancy without cutting a big paycheck.

In this month’s post, we are highlighting some of the many benefits you will receive through partnering with a part-time CFO and/or Strategic Business Consultant:

Potential to increase cash flow

A CFO has the expertise and ability to uncover problems and provide practical solutions in a way that is constructive and educational. They will also handle your day to day finance and accounting issues giving you back perhaps your most valuable asset — time.

Clarity and the ability to make better business decisions

A CFO knows how to thoroughly evaluate financial data so you can make smart business decisions. They provide a holistic approach to assessing your business including monetization strategies and business models, target markets and competitive differentiation, management team and personnel plan, sales and marketing communication strategies, and more.

Help when you need to raise capital

A CFO can help you calculate how much capital you may need in order to grow your business AND then strategize with you on how to get it. Additionally, they have an intimate knowledge of the capitalization timeline, who invests at the various stages, and what investors need to see at each stage.

A strategic partnership

A Fractional CFO is more than just a consultant…he or she is your strategic partner. Part-time and contracted CFOs wear many hats and are often times multi-talented; therefore, bringing with them a broad range of experience.

Flexibility

A Fractional CFO is an outsourced consultant so the business owner has the flexibility to increase or decrease the CFO’s hours based on the needs of the company.

Still not convinced? Here are a few questions you may want to ask yourself:

  • Can you afford to hire a part-time CFO?
  • Have I been successful in raising capital?
  • Am I growing at the rate I want to be?

If you are unsure on how to answer any of these questions we invite you to contact us for a free consultation. With over 10 years of industry experience, The Startup Garage and our Founder/CEO Tyler Jensen, are proud to be recognized as a boutique consultancy that has helped hundreds of Founders raise capital through proven startup strategy consulting services including preparation of Business Plans/Investor Documents and Fractional CFO/Accounting Services.

Contact us or call (858) 876-4597 for a free consultation.

More information: Business Plan Writer vs. Business Plan Strategic Consultant

 

Exploring the Startup Scene in Asia – Bali Startup Weekend 2017

Exploring the Startup Scene in Asia – Bali Startup Weekend 2017

Startup Weekend Bali 2017 – Ubud, Bali

Last month our Founder/CEO, Tyler Jensen, had the opportunity to be part of an all-star judges panel at Hubud’s Startup Weekend Bali. The event, organized by Hubud and backed by Techstars, was part of a 2017 global movement of Startup Weekends – with the tag line “take your ideas from concept to creation in just 54 hours” all of the events are geared to follow the same model consisting of open mic pitches, team building and building minimal viable products.  It doesn’t matter what you do or where you come from, Startup Weekend is designed as an event that brings all sorts of people together.

  • Day 1: Open mic pitches where attendees bring their ideas and try to inspire others to join their “team.”
  • Day 2-3: Assembled teams focus on customer development, validating ideas, start up methodologies and building a minimal viable product.  Teams present their ideas and prototypes to a panel of experts / feedback received & winner chosen. Winners are featured globally.

I sat down and talked to Tyler about his experience in Asia and Bali last week:

Tyler, what can you tell us about the Hubud Bali Startup Weekend event and the teams that presented?

There were people from all over the world at the event. It was truly an international startup scene, not just local.  People were there pitching their ideas on Friday night with the intent on recruiting people to be a part of their team. Team sizes ranged from 2-8 team members and the teams spent 2 days working together to develop their ideas enough to present to the judges panel on Sunday.

Did you pick up on any differences between the US Startup Scene vs. that in Asia and Bali?

One thing that stood out to me came from an all Balinese team. This team in particular, was looking at replicating a successful idea in the US wedding industry. While this isn’t a new idea or concept, I think there is still a tremendous amount of opportunity in developing countries for entrepreneurs to replicate successful ideas in western culture.

Many people are trying to replicate the successes in Silicon Valley. Is this similar to what the Balinese team or any other teams were doing?

Yes; but on a much smaller scale. I did spend some time in Shanghai as well and China is still trying to replicate the successes that we have seen for years in Silicon Valley. Companies that focus on meeting user needs dominate Silicon Valley – innovation comes from identifying a need and then figuring out how to meet that need and get a product to market quickly. Business strategy, communication and innovation strategy are very closely aligned. These larger markets are focusing more on breakthrough technologies whereas in developing countries there is more risk aversion and reinventing the wheel isn’t always a smart or viable option.

How would you characterize the entrepreneurs and people that you met in Bali?

I mentioned this before but I would characterize the overall landscape as being a truly international startup scene.  People seemed to be in Bali for a variety of reasons — some for business and others for personal reasons or adventure.  The cost of living is very inexpensive so it gives an entrepreneur a lot of flexibility to work and live. Because the country is still developing I wouldn’t expect to see tech or other high growth companies popping up but the cultural richness and diversity is inspiring.

For more information on Hubud and Techstars continue reading below.

*Global Startup Weekend events comprise over 1,600 events in over 700 cities and 120 countries and is considered a “global network of passionate leaders and entrepreneurs on a mission to inspire, educate, and empower individuals and teams to found successful startups.” (https://hubud.org/specialevents/startup-weekend-bali/)

Who is` is Hubud?

Hubud (“Hub in Ubud, Bali) is a unique international headquarter where people from all over the world can unite and be inspired by ideas and each other in beautiful, lush rice terraces of Ubud, Bali. Hubud offers Co-working, Co-Living and many special events and programs throughout the year. Founders and members value community, connectivity and creativity .  Click HERE to learn more…

 What is Techstars?

 “Techstars is a global ecosystem that empowers entrepreneurs to bring new technologies to market wherever they choose to live. With dozens of mentorship-driven accelerator programs and thousands of community programs worldwide, Techstars exists to support the world’s most promising entrepreneurs throughout their lifelong journey, from inspiration to IPO.” Click HERE to read more…

The Startup Garage at Hera Venture Summit 2017

The Startup Garage at Hera Venture Summit 2017

The Startup Garage had the opportunity to be a partner of the Hera Venture Summit for the 2nd year in a row. This annual event, hosted by Hera Hub, Hera Labs, and Hera Fund, brings together experts from both sides of the investment table to share best practices, provide learning opportunities and foster networking. The theme of this year’s event was “Building Bridges” – with the intent to focus on building bridges between female founders and funders in the greater CaliBaja region.

This year’s opening keynote was given by Vicki Saunders (http://www.vickisaunders.com), Founder of SheEO. SheEO is a leader in global innovation in the female entrepreneur marketplace whose model serves to finance, support and celebrate female entrepreneurs. SheEO operates in cohorts where women pool funds together, which are then loaned out at low interest to 5 women-led Ventures selected by Activators. Activators range from corporate executives, successful entrepreneurs, women leaders, students, mothers, daughters, etc. ranging in age from 14-92 making for quite a unique community (https://sheeo.world).

Other Keynote speakers included:

  • Andrea Guendelman, CEO BeVisible LatinX — Creating a Collaborative Community for LatinX
  • Elissa Freiha, Co-Founder, WOMENA (female angel group in UAE) — A Womentum in Mena
  • Lisa Odenweller, Founder Beaming — Be your BEAMING Self

The summit also included an expo hall with many wonderful businesses and refreshments, several panel discussions and an interactive Fast Pitch, Fast Due Diligence & Fast Funding session.

As part of the event programming, TSG provided the following Top 8 Success Tips for Entrepreneurs:

Startups take time. Create a plan that avoids too much false or unnecessary urgency.

Having a false sense of urgency can keep us from putting our energy into the right things at the right time. It’s true – success doesn’t just happen – it requires careful, detailed planning and action. Be sure to enlist the help of business plans, checklists and project management platforms, to prioritize and stick with daily, weekly, monthly, and annual goals.

Don’t focus too much on the product/service. Balance your focus.

All too often entrepreneurs become so excited over their product or service that they get lost in their own enthusiasm. The core of the business might be the problem the product solves; but it’s imperative to give equal weight to other key comments of the business like, the team, the marketing strategy, and the business model and customer feedback.

There is plenty of investor money out there for companies who reach the milestones investors care about. Know what investors care about and focus on that.

Remember as an entrepreneur your perspective and mindset, often times differs from that of an investor. There are a few key things that you will need to show and/or achieve in order to get them to sign over the check.

– Business Plan

– Personal Investment

– Capital and Milestone Timeline

– Market Validation

– Prior Success

Founders are the biggest problem for most startups. Get out of your own way.

We call this “the founder’s dilemma”, and it’s a big one. Founders don’t let go easily. Surrendering control, delegating tasks, and learning to be a leader rather than a micro-manager can take time. Recognize the dilemma and start delegating tasks early on (even if it feels uncomfortable).

A healthy founder leads to a healthy startup.

Founders are the core of the business. Inspiration, motivation and success start with you and then ripple out to the organization at large. Your business is your responsibility – treat it with care by caring for your health and wellbeing. To be efficient and firing at a high caliber it’s essential to embrace a healthy physical routine and check in with your mental state. Moderation is key — working non-stop leads to startup burnout.

Know your exit strategy.

Knowing your end game makes every decision easier. Having clarity on your exit plan — whether it’s not exiting, Merger & Acquisition, or IPO — affects how you run your business day to day.

Planning is critical.

The lifecycle of you startup depends upon planning, documenting, and communicating even the most mundane tasks.

Take on the student role and always be learning.

The smartest founders are the ones that don’t know all of the answers. Being a lifetime learner evokes greater innovation and creativity. Knowledge is power and will help increase awareness of the world around you.

 

Is This a Crazy Idea?

Is This a Crazy Idea?

“Is this a crazy idea?” This question gets raised quite often during our consultations at The Startup Garage. Tyler Jensen, CEO and Founder of TSG, believes that “it doesn’t really matter whether your idea is crazy or not – what matters is the journey you’re willing to take and whether you’re able to learn and evolve throughout the startup process.” Great ideas aren’t always obvious, so here at The Startup Garage, we believe that even the craziest ideas can be a launch pad toward success when paired with a founder that is willing to listen and evolve.

Even bad ideas can evolve into huge successes

In his article “Embracing Bad Ideas to Get To Good Ideas”, entrepreneur John Geraci points out that even bad ideas can evolve into huge successes — “Apple started off selling DIY computer kits, PayPal began as a way to beam money between Palm Pilots, YouTube began as a video dating site.  Each of these, in their day, must have seemed like bad ideas.  Yet these companies have become the biggest players in now-enormous fields.” Our case in point — leading entrepreneurs are able to listen, adjust and let their bad ideas evolve into more favorable ones.

Sometimes the biggest fish are “just nuts”

Geraci goes on to cite Venture capitalist Marc Andreessen (Andreessen Horowitz) who believes that “the biggest opportunities, and the real money, lie in areas where no consensus exists on whether an idea is good or bad,” and that, “if you are doing it right, you are continuously investing in things that are non-consensus…you are investing in things that look like they are just nuts.” While your goal as an entrepreneur is to raise capital, having an investor decline funding your business can allow you to take a step back and make adjustments.

So, next time you are wondering whether your idea is crazy we say go ahead and embrace it. Click here to read Geraci’s full article, which includes suggestions on how to get even your worst ideas to work for you.