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Are ICOs the New Venture Capitals?



When most people begin to brainstorm the way to raise funds for their new startup, the first route they think of is often Venture Capitals (VCs).

The problem is that these are slow, complicated, often reduce funding for startups due to the presence of a middleman who will often take a significant cut, and make it very difficult to complete the seeding process.

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The Decline of Venture Capitals

The number of Venture Capital-backed startups is steadily on the decline.

So it probably goes without saying that the number of Venture Capital firms in the US is on the decline too. In 2016, the number dropped from 1,009 to 798. With the number of startups increasing each year, it’s becoming increasingly difficult for founders to create partnerships with a VC.

Even once companies think they’ve found the right VC, the challenge is just beginning. Founders must go through several stages to be in with a chance of funding, and VCs ultimately end up funding less than 3% of the companies they review. This is a staggeringly low success rate.

But there’s something new – and better – replacing this traditional method. And it’s taking over fast. It’s called Initial Coin Offerings (ICOs).

The number of ICOs has exploded. Instead of waiting for outside investment, many startups are now turning within to raise the funding they need.

For startups, ICOs have fast become one of the most popular legitimate ways to raise money. The strategy is also part of a push to disrupt banks and venture funds. At the start of 2017 alone, startups raised a record of $1.27 billion selling stakes in cryptocurrencies.

Who Are ICOs Good For?

ICOs are designed for anyone who has a great idea in mind and wants to raise the capital to fund it.

Although ICOs do have some distinct benefits over the traditional Venture Capital method, they don’t eliminate the entry barrier altogether.

Whilst startups seeking Venture Capital investments must basically relocate themselves to San Francisco, ICOs require an initial investment of at least $100k in legal fees, plus marketing fees. The average ICO will require upwards of six months to get up and running.

Lowering the Barrier to Entry of ICOs

There is another option – one that doesn’t require you to convince a guy in San Francisco to believe in your idea, that doesn’t require shelling thousands of dollars on marketing, and that definitely doesn’t require spending upwards of $100k on legal fees.

The solution is a startup called Starbase.

Starbase is designed to make things simple and give its users visibility. The platform is completely decentralized, and everything is done for very little cost.

In the future, it could be very useful for projects that require a realistic amount of money that are currently completely excluded from the market.

Starbase shares many similarities with popular crowdsourcing platform Kickstarter, and also with another new blockchain startup project, FundYourselfNow. However, it also has some key differences.

The purpose of Starbase is to allow users to pool, match, and find talent for new jobs by allowing supporters and investors to receive tokens in exchange for their time and skills.

To give an example, a user might receive a number of tokens (known as the STAR token) in exchange for sharing a startup’s post on social media, creating a logo, or offering financial advice.

This will allow founders to engage with engineers, marketers, entrepreneurs and other professionals from all over the world in a safe and secure manner – and without professionals losing a huge chunk of their earnings to middlemen in the process.

Users can also leverage Starbase to share flexible long-term incentives with their users in a fast and cheap way. The companies can choose to pay these users using Bitcoin, Ethereum, or their own tokens. Starbase’s token pre-sale raised a massive $8M. The crowdfunding will commence on the 7th November, during which the Starbase team aim to raise $2M.

The Future of ICOs

As the value of cryptocurrencies continues to climb, ICOs are gaining steady traction.

There’s no doubt ICOs are the future of fundraising. They allow companies to cut out the middleman and go straight to the users who need their product most.

The process of raising enough capital to bring your idea to the world is still no easy feat, but this new model is definitely a step in the right direction for smaller companies who believe in their ideas and want to test them in the market.

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