Crowdstart Capital acceleration program and innovation

Innovators and people talking about innovation.

How can companies go from talking about innovation to innovating?

There is a strong trend, especially in larger organisations, to try to further innovation by appointing Innovation Directors (mind the capital letters), Heads of Innovation, Innovation Evangelists etc. While the intention is good, it is simply very difficult to pinpoint how successful innovation can be introduced and integrated into a very long tradition of doing things by the manual. Does that mean that more innovation is happening? Do the people responsible for spurring employees to “think outside the box” actually change culture or do they one day find themselves playing cajón in a giant drum circle of executives wearing black turtlenecks? (Note: from a real life situation, without the turtlenecks).

We at Crowdstart Capital don’t pretend to know the answer to these burning questions, but we can say that the need for innovation is not receding. It’s more likely rising exponentially with the emergence of new technologies and concepts such as convergence or game theoretic advances, which require a new understanding of the future of society. By changing perspective, applying concepts from other fields to problems previously unsolved (like game theory in Bitcoin or physics to evolutionary biology) or simply taking a moment to recognise already existing ideas, groundbreaking innovation can be achieved.

The hard selling point for many investors in our digital token sale is how we develop companies and promote innovation better than corporate incubators or accelerators. There are two reasons why I believe in our investment hypothesis: 1. Our well-developed and customisable acceleration process, and 2. Our direct connection to and understanding of corporate needs. Below we will outline the five steps of our acceleration process:

Phase 1. Selection
Based on industry criteria, CSC sources and selects startups in the following industries: 

  • Industry 4.0 (IoT, Automation, Supply Chain)
  • Energy (Solar, Wind)
  • Legal Tech (AI, Compliance)
  • Healthcare (Data Accessibility, Security)
  • Space (Earth Observation, Satellites)

Our selection is based on three parameters:

  1. Product – feasibility, innovative-ness, market-need, location, etc.
  2. Team – vision, expertise/competence, “coachability”, i.e. communication and cooperation skills, diversity, etc.
  3. External factors – current CSC portfolio, industry needs, legal aspects, etc.

Phase 2. Onboarding
Aligned with industry requirements, we onboard the new startup into our acceleration process. We make an in-depth assessment of the technology, vision, financials, etc. in order to accurately adapt the following steps of the process.

Phase 3. Product Development
As a response to Phase 2, in close collaboration with the startup team we develop the product using agile methods. Collectively, we have decades of experience of developing scalable products from scratch. This experience will be put to work for and taught to each startup. The product development is constantly being correlated with strategy and vision of the future exit partner.

Phase 4. Matching
As a final reality check, we match the needs of our corporate partners with the product developed during Phase 3. If needed, we go back to the drawing board and adapt, if not we proceed to Phase 5.

Phase 5. Exit 
In the guided sales process, we leverage our experience in private equity, venture-funded firms and as investors to create the maximal value for all parties. 

Using this process, we attempt to leave innovation in its natural environment, the entrepreneurial and curiosity-driven world of startups. Without altering the habitat or motivation for startups to realise their vision, our goal is to aid them in their hard work.

Identifying Diamonds in the Rough as Blockchain Enters the Trough of Disillusionment

Gartner Hype Cycle

According to Gartner research, 2017 is the year that Blockchain tech entered the so called Trough of Disillusionment. This is the time that comes after irrational exuberance has faded and technologies enter a long night during which the winners are separated from the losers.

Right now we’re still somewhere in the uncanny valley between the bubble and the moment it pops.  There’s hundreds of new ICO’s every month. Some have a viable raison d’être but there is a huge need to separate the wheat from the chaff.

Compared in both number and scale with traditional VC funded projects the Blockchain area has a long way to go. According to Venture Scanner Blockchain related acquisitions this year aren’t off to a great start. In total there aren’t a lot of firms making exits. In 2016 there were just 16 such events.

Blockchain Exits 2017
Photo Credit: venturescanner.com

Compare this to the number of exits and deals backed by VC firms and the immaturity of the market comes into focus.  According to tech.eu, among just EU Tech startups there were 783 VC exit deals in Q2 2017.

This underlines the Crowdstart Capital position. We don’t believe in huge exits with many competing industry buyers fighting for the next unicorn. We aim to be the adults in the room, the ones who know what industry actually needs and can push that dealflow number up by catering to those needs specifically. In order to do this we leverage both our experience building blockchain-based applications for a wide range of industry players and the industry specific knowledge gained from those collaborations.

We’re focused on the fundamentals as opposed to the hype.  We identify a need in a big market, learn how to serve it as well as customising the solution and finally sell that product to major industry partners to reshape existing processes. That’s how to make money in the Trough of Disillusionment. As hot as the ICO model of financing ventures is, the industry needs to have a clear eyed look at what real problems we’re solving and how sustainable our efforts will be over the next five years.

Blockchains And Cryptocurrencies – A Disconnect In Cryptoland

Coming from blockchain technology and its use cases in various industries as diverse as manufacturing, energy, automotive, healthcare and finance, looking at the cryptocurrency market is quite interesting. 

Whilst blockchain plays the role of a foundational technology when using it to simplify legacy database infrastructures and adding a lean ‘singleton-ish’ transactional layer to formerly stale and complex technology stacks, most participants in cryptocurrencies don’t seem to be interested at all in the technology behind the tokens. Here, the token’s currency aspects dominate, which isn’t necessarily a bad thing, but…

A brief look at the market shows a huge money influx especially in the last 6 months. About 830 different tokens represent a total market capitalization of just under $90B with the Top 10 currencies representing around 90%, or more than $80B, as of this writing. Six months ago, the total market value was about $15B.

In order to get a better understanding of this phenomenon, we started listening to crypto market’s participants. Since Twitter and Reddit are two major channels of choice, it’s quite easy to get a feeling for the market in a short time. Here is what we have learned so far:

Learnings

  • If you come from the technology side of blockchain, you should put your expertise aside, unless you don’t want to go mad: in cryptocurrencies, blockchain does not matter at all – it’s the currency, stupid!
  • This aspect alone makes you think again: Bitcoin’s CPU-based PoW vs Ethereum’s RAM PoW? Who cares? Single-currency-purpose Monero vs financial settlement network Ripple? Cryptocurrencies, application-specific tokens or meta-protocols, mostly based on Bitcoin? Nothing’s easier than comparing “valuations” of contenders representing totally different asset categories or applications.
  • Then: valuations. What, exactly, does it mean when Ethereum “is worth” $19B?  In its 2014 launch, the Ethereum foundation issued 72m ETH – after three years of mining there’s a total ETH supply of 92m, as of this writing. Mining means, there is a certain inflation built in the currency’s protocol. Is it priced in?
  • Ok, there are certain tokens, especially the application-specific ones, that could be modeled as economic entities rather than currencies. This allows us to use some of the valuation methods we apply to securities, such as well-established economic and cash-flow models used in equity research. However, investors should be aware that the market price of tokens can differ significantly from the underlying valuation models: a large component of price is speculative in nature and will probably decrease with time, as the ecosystem matures.
  • Next, there is a strikingly outspoken communications behavior in cryptoland. Many self-appointed crypto investors, crypto traders or, more generically, crypto experts (!), seem to possess some finite knowledge about individual tokens, the crypto market in general, and – which is no differentiator versus the stock markets – they know the future. In other words: the cryptocurrency market is dominated by the same group of traders and investors as any other financial market in its espective infancy. And, as a side note, some occasional Nonviolent Communication training for market participants wouldn’t do any harm.

Disconnect between asset and its value

Our most relevant learning? Blockchain lies at the heart of crypto tokens, but the cryptocurrency market is dominated by people and their strategies without any connection to blockchain technology. Cryptocurrencies are treated as random assets. From the financial market’s perspective, this should not be much of a surprise. However, this disconnect between the value of an asset and its application could lead to major distortions in the future. The very first of these, the fact that blockchain transactions become more expensive the more the asset price increases, are already visible and have significant impacts on the respective blockchains.

In Germany, there existed a segment of the stock market called ‘Neuer Markt‘. From 1997 to 2003, the Neuer Markt created many success stories and many more bankruptcies. The originally 30, later 50, listed companies represented a total market capitalization of more than 200B EUR. And, today exactly, we saw  the impact of a 1.6 minute sarcastic video presented by Monero developer Riccardo Spagni during the Monero meetup prior to Token Summit.

Evil to him who evil thinks.