The October 2017 CrowdStart Capital Ramp-Up

In the midst of mega-ICOs, the Bitcoin fork and high volatility on the crypto markets, we have prepared our blockchain technology accelerator program CrowdStart Capital for its launch in October. Starting on the 1st of October, we will offer 250 million CSC tokens at $0.01 in a token sale ending on October, 31, or after a minimum threshold number of tokens have been sold.

The purpose of CSC is

  1. To invest in a relatively unexplored niche-market (i.e. blockchain technology) based on decades of experience in business, blockchain technology and investment.
  2. To open up investment opportunities in what is commonly known as venture funding to a larger crowd.
  3. To take a leading role in the encouragement of innovation and adoption of blockchain technology (more here) through investment, mentoring and application promotion.

Each blockchain-related startup will pass through a tight mentoring process of 6-12 months in order to being prepared for a subsequent purchase by a strategic investor. The startups will be selected by CSC based on its extensive project experience with corporate clients.  Thus, the CSC model is a hybrid combining both, the positive aspects of a venture capital approach with those of a corporate venture approach: startups will experience a ‘guided tour to exit’. CSC’s corporate partners profit from an efficient business development process resulting in a perfect match with their strategic needs.

Since most of the CSC team members have been founders themselves and know about the challenges and potential paths of startups, we are quite confident that our model will work out successfully. If you are a founder of a blockchain-related company and you think that the ‘guided tour to exit’ is an option for you and your team, please join our Slack and present your company in the „Promote My Project“ channel.

We are very much looking forward to working with passionate blockchain founders!


A Guided Tour To Exit – Bridging The Gap Between Startups And Corporations

During the last 20 years, I have co-founded (and sold) several companies, among them the online travel portal travelgate , the social news community YiGG,  the app development agency AppAdvisors and the blockchain solutions provider Datarella. Most of these businesses have been positioned in the digital sphere which means that although they have been active in different markets they faced similar challenges regarding their transformational processes from 0 to 1.

If, as an entrepreneur, you have been working in different industries, you always start as a complete newbie in the next new industry. Your initial lack of expertise, network and experience in that respective market, makes you essentially start from 0. This is tough one the one hand, since you are used to work in a market with well-known processes and entities, but on the other hand, this fresh start provides you with a very steep learning curve that always is one of the sexiest aspects of an entrepreneur’s life.

Why Startups Fail
From a startup’s position, a steep learning curve is essential for bridging the gap between the creative, often naïve startup world and the dry, down-to-earth, hard reality of a corporation, the asset sale, the exit. The ostensibly most prominent reason for startup failures is illiquidity. You can apply this very reason for any kind of company. But, what are the underlying reasons for illiquidity? Simply put, it’s the startup’s inability to match the needs of either their potential customers or their potential corporate exit channels. They don’t offer what their targets need.

When, being in my twenties, I pitched my first startup to investors, I was struck by their seemingly strange, old-fashioned and outdated requirements. Then, I was absolutely convinced of my and my team’s superior creativity and our ability to supersede old legacy systems with our outstandingly innovative and paradigm-changing approach. Nowadays, often working closely together with market leading big corporations, I see a clear gap between the offerings and expectations on the startup side and the needs and expectations on the corporate side. And I can understand both sides pretty well.

Mentoring startups with SUPERDRIVE
Having engaged in mentoring in the startup scene for some years I have developed mixed feelings in regard to the typical approaches of matching startups with corporations, such as incubators, accelerators, etc. I don’t know of one that could boast about success stories. I order to come up with a better approach, together with my partners at Datarella and Prof. Oliver Szasz from Macromedia University, we launched SUPERDRIVE, a light version of our idea of bridging the gap between startups and corporations: on a universitary level, we worked ourselves through the process of actively supporting amd forming a (student) startup project in order to get acquired by a corporation. The SUPERDRIVE project was designed a s proof-of-concept: together with student startup teams we developed projects that would have been acquired by companies if it hadn’.t been carried out by students whose plans were to finish their studies.

CrowdStart Capital
In early 2017, faced with huge opportunities arisen from the cryptocurrency boom, I decided to bring the PoC to the next level and launched CrowdStart Capital, a blockchain technology accelerator. CrowdStart Capital will invest in blockchain-related startups that are selected on the basis of their matching with and adaptability to the needs of corporations Datarella has been working with. CrowdStart Capital’s investment hypothesis is based on its ability to close the gap between blockchain startups and potential corporate targets with a short timeframe of about 12 months.

A Guided Tour To Exit
This guided tour to exit is what we see as the potentially most successful approach of startup incubation. If you are working in the venture capital industry or in a family office, don’t hesitate to get in contact with me – I’d be more than happy discussing the CrowdStart Capital approach with you.

What is an Initial Coin Offering ICO?

ICOs have become a popular way to fund any kind of projects on the blockchain. An ICO is an event in which a project sells part of its to be offered digital tokens to early investors in exchange for money today. ICOs provide a way for project creators to raise money for their future operations. The digital tokens don’t necessarily function as cryptocurrencies by allowing investors to pay with it, but can have other or additional key functions, such as representing tokens for using smart contracts in a respective blockchain.

The ICO usually takes place before the project is completed, and helps the project team fund the expenses undertaken until launch. For some of the larger projects, part of the ICO money goes into a foundation that provides ongoing support to the project. They also work as an initial distribution model for the digital tokens, especially those with a PoS consensus algorithm.

Typically, anybody can participate in an ICO by investing some money. The ICO participants are invested in the success of the project.  And they provide early liquidity for the digital tokens when they start trading. As co-owners of the project participants can help spread the word and raise awareness in their respective communities.  They are also usually motivated by a profit potential if the project takes off and the tokens become worth more than the ICO price.

What’s the difference between an ICO and an IPO?

At first glance, ICOs resemble the better known IPOs. An Initial public offering (IPO) or stock market launch is a type of public offering in which shares of a company usually are sold to institutional investors that in turn, sell to the general public, on a securities exchange, for the first time. There are some similarities between ICOs and IPOs – both of them are used to sell a stake and raise money, and both invite investors who (hopefully) recognize both the potential and risk of investing their capital in order to make a future profit.

However, there are significant differences: Because of the infancy of the digital token market, ICOs are mostly supported by early enthusiasts and not necessarily by professional investors. In that respect, they are similar to crowdfunding, but with the backers having a financial stake in the project. ICOs are also not regulated or registered with any governmental institution and there are usually no investor protections other than what is built into the project’s and/or the digital token platform itself.

Today, most ICOs are marketed as digital presale tokens akin to giving early access to an online platform or game to early supporters. In order to try to avoid legal requirements that come with any form of a security sale, such as in an IPO, many ICOs use legal disclaimers and tell the participants that they won’t participate in a securities sale.  Different to most crowdfunding campaigns, ICOs don’t account as donations because they give digital token purchasers a stake in the company and a right to vote on future decisions. Neither can they be called the cryptocurrency equivalent of stocks. The U.S. Securities and Exchange Commission SEC and their counterparts in other countries have remained largely silent on whether digital tokens account as securities. A framework tries to weigh in on the issue but stops short of providing a definite answer, part of which is due to the unregulated nature of blockchain itself.

How does an ICO work?

Rather than issuing a formal prospectus or Information Memorandum as in an IPO, most ICOs are represented by a technical white paper, timelines, project goals and other information that will help potential investors understand and evaluate the project. The white papers are very similar, in structure and format, to traditional academic whitepapers. They explain the project itself, how the platform will work, how it can benefit participants, and how the project will be developed technically using the proceeds of the ICO. Since ICOs happen before project completion, or sometimes even before the project starts, being transparent and comprehensive about the details of the project is key to gaining trust and appreciation with potential investors.

After the ICO’s launch, digital tokens are made available for sale and will have value in the future for those who will work with the platform and/or for those who will use it as traceable assets. While in the very first phase of ICOs, the preferred currency was Bitcoin, most projects launch their own cryptocurrencies today. A list of cryptocurrencies can be found here.

ICOs typically last from a few days to a few weeks, depending on how quickly the initial supply will be sold. Therefore, investors should be aware that the ICOs roadmap reflects the plan of the project’s founders but doesn’t necessarily fit into reality, when there is excess demand and the offering must be closed earlier because the cap on the total amount raised is met before the proposed end of the offering.

Once the ICO is completed and the project launched afterwards, the digital tokens typically get listed on cryptocurrency exchanges to trade against other cryptocurrencies or fiat money. The price usually reflects the overall cryptocurrency market sentiment, project-specific news, the addition of new features and the ability of the project team to reach their goals described in the business plan.

Advantages and downsides of an ICO

An ICO is a great way to bootstrap a blockchain based project and gain the initial capital necessary to motivate a talented team to join the project and get started. It is possible to raise as much money as in a typical seed round. of a venture capital VC or business angel funding. The difference, however, is that the founders don’t need to give up equity for the money invested.

An ICO removes many of the hurdles present in the VC process and allows startups to take the shortest way to the market by directly presenting the idea to potential customers and gauging general interest on the project.

A problem with ICOs is that many of them have turned out becoming scams, ideas that never materialized or failed to deliver on their promises. Building on the hype surrounding digital tokens in general, some teams launched projects that lacked solid ideas and not enough initial research was done to prove the viability of the project.

Investors, on the other hand, usually cling on to the general success of Bitcoin and successful ICOs like Ethereum, one of the most successful ICOs ever, and see every ICO and blockchain project as the potential for making easy money. Due to the fact that becoming an investor in an ICO is very easy – you just have to verify yourself as a natural person with an address in a country the project teams allows to participate, some investors might lack a sound practical or theoretical investment experience and therefore might not be prepared for the things to come.

Following several cases of failed projects and outright scams, there has been a raise in wariness and skepticism toward ICOs, and the landscape is gradually self-regulating itself by adopting a set of rules and best practices to evaluate every project. There are now platforms performing due diligences on ICOs and help investors better asses the risk structure of the project. That’s forcing project teams into being more clear and transparent about their projects.

Another problem with ICOs is that, unlike venture capital investments, they  aren’t regulated or registered with any government or organization and therefore offer no investor protection. They owe this characteristic of ‘trustlessness’ to the nature of the Blockchain technology that supports them.

Crypto currencies and real (fiat) money

The technical term for real or physical money is fiat money. Fiat in this case derives from Latin and means “let it become” or “it will become”: money without intrinsic value that is used as money because of government decree.

Fiat money is physical money (paper money and coins), while so-called representative money is something that represents intent to pay the money such as a check. Fiat money is backed by the government, and representative money can be backed by different things, e.g. by the money in a bank account, like a personal check. Without any backing, both fiat and representative money would be worthless. In fact, every US Dollar in circulation is backed only by “the full faith and credit of the United States”, and has no inherent or intrinsic value whatsoever. Then, there is commodity money that is created from a good, often a precious metal such as gold or silver. Unlike fiat or representative money, commodity money has uses other than as a medium of exchange.

Main differences between fiat currency and crypto currency
Bitcoin, the most popular crypto currency in the world as of March 2017, has a fixed supply of 21 million coins, beyond which no more coins can ever be issued. That gives all bitcoins in circulation some form of value at any time, with the potential to increase in value over time. Until 2140 all 21 million Bitcoins will be mined.

Back in 2010, Florida programmer Laszlo Hanyecz asked someone into accepting the 10,000 Bitcoins he’d ‘mined’ on his computer in exchange for two pizzas from Papa John’s.  He got his two pies for $30 of literally found money. In March, 2017, Laszlo Hanyecz could exchange his 10,000 Bitcoins for $10 million at one of the crypto currency exchanges none of which existed 7 years ago.

Speaking of generating new Bitcoins, there are no institutions ‘printing’ additional funds. The only way to bring additional coins in circulation is through a complex process called ‘mining’. As a reward for bringing new coins in circulation, Bitcoin ‘miners’ receive the privilege of being able to spend these coins first.

Until the last Bitcoin is mined, anyone in the world can participate in the mining process.  There is no approval process to go through, as Bitcoin is so-called public blockchain welcoming people from all over the world to participate. All funds are controlled by the people active in this ecosystem, creating a decentralized system, or blockchain. Bitcoin has no single point-of-failure, making this blockchain network far more secure and completely tamper-proof. Unlike fiat currency, where one institution – a central bank – is responsible for controlling money supply, Bitcoin is consumer driven.  Then, Bitcoin has multiple points of distribution, as the mining process takes place all over the world. In March, 2017, there are more than 6,000 miners, or: nodes, actively creating new Bitcoins. Lastly, Bitcoins are typically held in wallets – as fiat money is. But a Bitcoin wallet is a digital wallet, represented by an app on a mobile phone or another kind of computer.

Bitcoin is not the only crypto currency. As of March, 2017, there are 755 different crypto currencies with a total merket capitalisation of roughly $25 billion. However, there are only 9 currencies with a market cap above $100 million, with Bitcoin ($16 billion) and Ether ($4.5 billion) being the only ones with a market cap in the billions.

List of Top 10 Crypto Currencies Market Cap (March 2017)


Blockchain and Digital Tokens

Blockchain and digital tokens deliberately waste storage, which is cheap, to create something new that is valuable: virtual continuity. Continuity is a universal property of the physical world. If I pass an object behind my back, we can be reasonably sure that what reappears in my left hand is what disappeared from my right.

Continuity permits identity of both things and people; it permits property because a continuously identified thing can be owned by a continuously identifiable person. It therefore permits transactions—transfers of property. It permits trust. Continuity is not sufficient for property and contracts (you also need law), but it is necessary.

And the blockchain guarantees inheritance: the digital token used to perform transactions in the later transaction Y is the only “child” of transaction X. The coin cannot be spent twice – the double-spend problem has been solved.  This virtual continuity enables

  • digital identity
  • ownership
  • transactions, and
  • trust, and
  • contracts and markets,

among parties with no prior relationship and without intermediaries.

Virtual continuity leads to one final symmetry. Recent technology waves—notably the Internet of Things, the proliferation of smart mobile devices, and augmented reality—directly endow physical objects with information and intelligence: they make the real virtual. The technologies of token and blockchain, conversely, endow data with continuity: they make the virtual real. When the real and the virtual converge, it is as if our world and our map of the world become the same thing.

This article by  Philip Evans outlines how the economics of transaction costs and trust could be reshaped by tokens and blockchains and by the stacked architecture on which they are built.
Featured image by BCG

Bitcoin: A Primer for Policymakers

This plain language guide by Jerry Brito and Andrea Castillo describes how the digital currency works and addresses many of the common misconceptions about it. In this primer, the authors describe how the digital currency works and address many of the common misconceptions about it. They also analyze current laws and regulations that may already cover digital currencies and warn against preemptively placing regulatory restrictions on Bitcoin that could stifle the new technology before it has a chance to evolve.

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How lawmakers can protect digital currency consumers without harming innovation

In their March 2017 report State Digital Currency Principles and Framework, Peter van Valkenburgh and Jerry Brito offer model language for a sui generis statute or implementing regulation to States that have begun to look at how digital currencies, such as Bitcoin, and the businesses that utilize them to provide consumer products, interact with money transmission and consumer protection policy.

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