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.

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.