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.

In Search of the 1% of Startups that Work on Products People Actually Want

Three out of four startups fail and 90% of those in the tech industry don’t survive. To become highly successful, good timing, a portion of luck, exceptional leadership and a high dose of resilience are needed.

We at Crowdstart Capital are convinced that these traits and contexts are necessary but not sufficient factors for success. Even within a positive context, the venture capital world remains a gambling game with so many startups working on products nobody wants. Missing market needs are the most common reason for startup failure, way before a lack of liquidity and other factors.

Is there a way for founding teams to better meet market expectations? How could they avoid choosing wrong development paths? First, they must make sure to work on a product the market needs or will need in the future. Second, they should stick very closely with the principles of the lean startup, and work in an extremely focused and agile way to detect any deviation from the optimal path. Third, they should closely watch the players in the market they aim for: do they still wait for the original product idea or have their needs changed?

Easy as it sounds, these requirements are tough to match. Here, Crowdstart Capital comes into play. During a period of 6-12 months, we support startups by guiding them through the above mentioned challenges. Based on our close relationships and working experiences with corporate clients, we make sure that all developed products meet the expectations of either a client’s business unit or broader market needs. In other words, we bridge the gap between the startup and the market.

Our colleagues in venture capital firms rightly point to a startup’s lower potential exit value if it closely aligns its fate with some corporate enterprise. That is true. The more open approach of traditional VCs maximises the exit value since several players in the target market could bid for the startup. However, a traditional venture capital investment phase takes 3-4 years, compared with 6-12 months at Crowdstart Capital. In theory, the Crowdstart Capital model should be as least as efficient as the traditional one, if not more. In practice, we will see first results in mid 2018. If theory and practice coalesce, CSC supported teams will belong to the 1% of startups making sense.

Crowdstart Capital vs Traditional Venture Capital

At first sight, there might be no big difference between an investment by Crowdstart Capital CSC or a traditional venture capital firm – both select promising startups, invest, create value and, finally, help them being acquired  by a target company.  However, If you look at the details, two major differentiators can be unveiled.

First, Crowdstart Capital does not manage a fund financed by so-called Limited Partners, or LPs, typically comprised of financial institutions such as banks, insurance companies or hedge funds. CSC invests money originated with a digital token sale, or ICO. By offering its digital token XSC, CSC collects money that is invested in startups. The XSC token holders do not own any shares in CSC, nor in the portfolio companies, and they are not entitled to receive any financial return in the form of a dividend or another payout.

Instead, the token holder can trade their XSC tokens on cryptocurrency exchanges and profit from a potential increase of value. The fundamental, underlying reason for an increasing value of each XSC token over time is embedded in the CSC investment scheme: 75% of the profits made in the case of a financial transaction, such as an acquisition, will be reinvested. That means, every positive financial transaction may add to the total value of XSC tokens. Since the total amount of issued tokens will not change, each token should profit from the CSC investment scheme.

The next major differentiator between CSC and traditional VC investments is the specific investment process. A traditional VC typically acts quite opportunistically by trying to stir interest for their portfolio companies with a big number of different potential target companies in order to maximise the takeover price. We at CSC, as our colleagues over at traditional VC firms,  also like to profit from investments. But, our goal is not to maximise the takeover price. Instead, we focus on a streamlined, efficient investment and startup development process that is closely aligned with our industry partner’s strategic roadmaps: by guiding our portfolio companies right from the start, working together with them to build their products in a way they can smoothly be integrated into our industry partner’s business units, we optimise the startup’s way to exit.

Within a 6-12 month’s period, a startup should be ready to be acquired and to add value to our partner’s balance sheets immediately. This guided tour to exit can be regarded as a leaner, quicker and more solid version of the traditional VC approach.

We at CSC are fully aware that our approach is a new one. In the fall of 2017, we can not yet prove that the CSC way works. However, we can prove that we have been quite successful in our field of investment, the Blockchain technology. With our company Datarella, we have been working on Blockchain projects with industry leaders since 2015. Our most visible project is the Building Blocks project, United Nation’s first Blockchain project ever, that we developed for the UN branch World Food Programme in a Jordanian refugee camp in the first half of 2017.

Based on our extensive working experiences in the field of Blockchain as well as our team’s personal experiences in building companies, investment funds and working in C-level positions in major global companies, we strongly believe that CSC will become a success in the startup landscape. We actively seek conversations with venture capitalists and would like to learn from them, and to discuss various investment approaches.

First and foremost, we focus on our digital token sale that will start on November, 1st. Before, we offer a portion of our digital tokens to selected professional investors in a pre-sale. We thank all participants in the token sale in advance and are looking forward to investing in promising Blockchain projects!