For cryptocurrency enthusiasts, 2017 was marked by bitcoin’s impressive run to approximately $20,000, and the rise of a hazardous investment vehicle – the Initial Coin Offering (ICO). Marred by controversies, ICOs, as they are popularly known, are met with stiff resistance from regulatory, government, and financial bodies due to their risky nature. However, Changpeng Zhao, the CEO of Binance, holds opposing views.
According to a blog post on May 7, 2018, Zhao deemed ICOs to be a “necessary” function of the cryptocurrency market, and compared them to the difficult VC fundraising process, adding that fundraising via ICOs is “100 times easier.”
“Through my own experience, and watching hundreds of other projects at a close distance, I would say raising money through ICOs is about 100 times easier than through traditional VCs, if not more. With the ease of raising money increased, logic says there may be 100 times more startups, well-funded startups, where ICOs are allowed.”
The outspoken entrepreneur is known for taking potshots at the traditional markets and places a firm belief in the concept of cryptocurrencies. Seemingly, Zhao dislikes VCs, as was evidenced by a tweet :
We may soon require all projects applying to list on Binance to disclose if they have any direct or indirect relationships with Sequoia.
— CZ (@cz_binance) May 7, 2018
The purported dislike stems from Zhao’s previous experience with VCs, who typically bring no value to the table, and are concerned only about a firm’s monetary aspect. He elaborates this point further in the blog post, stating that professional VCs often have “no clue” about the sector they are investing in. Furthermore, VCs “insufficiently” understand a project’s underlying technology.
ICOs Are Prone to Problems As They Are New
Keeping in mind the scams and infamous reputation of ICOs, Zhao believes that the novel fundraising process is in its early stages, and is thus encountering teething problems. However, compared to the traditional VC model, ICOs are more likely to succeed:
“Most ICOs are new startup projects, and have a high rate of failure, just like in traditional startups. This is nothing new. Most ICO investors already know this. ICO investors are early adopters (and learners).”
As stated in the blog, ICOs are attractive for many reasons. For one, using this method entails presenting a technical whitepaper to investors around the world, thus giving them access to a vast pool of people who believe in the project’s technology. On the other hand, traditional VC investments pitches involve only a few investors, who may not see the larger picture.
Zhao adds that VCs are recognising the potential of ICOs, and are increasingly turning towards investing in them. He believes that VCs “have their nose on the money,” and react faster to macro-investment developments than “slow-to-react” organizations.
“The faster movers will reap exponential benefits. Don’t get left behind.”