Richard Kastelein, a journalist who spent eight months in the ICO world, explains how projects raise money by issuing new digital tokens. Gnosis raised $12.5 million in 5 minutes. He covers the mechanics, market data showing 76% cite speculation as their motive, and how regulatory pressure is pushing projects to crypto-friendly countries like Switzerland.
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Hello everybody, my name is Richard Caskelein. I'm originally Canadian. I actually live in the Netherlands at the moment. I flew in from Amsterdam last night, so I'm a little bit tired, but I really wanted to come here and talk about ICOs because it's something I've been involved with for about 8 or 9 months at the moment. It's a very new— it's a nascent industry. It's very young. Probably you've heard some of the stories about ICOs. Some of them, probably like Bitcoin, a little bit negative. Scammers, etc. I've seen quite a few posts on LinkedIn and elsewhere. But let me talk about— initial coin offering is something that we talk about at the moment now, ICO, but actually we're moving away from that language, mainly because of the SEC and the potential implications of offering coins or currencies. So you might actually see people talk about initial token offerings more now, ITOs, or crowd sales, or token sales. But really what it— for me, it's a hybrid of cryptocurrency, crowdfunding, and IPOs, basically. It's a mixture of the 3. So let me go through the history a little bit. Mastercoin was the first ICO, kind of like around August 2013. 2014. The initial one. Then we had Ethereum, of course, did quite an interesting raise, $15 million. Moving on here into 2016, was a very busy year actually last year, and this year it's even getting busier. So what is an ICO? Well, let me explain a little bit. Forget this graph for a moment, but I first got involved in ICOs in kind of a strange way. I started something called Blockchain News about 2 years ago. And I decided— I'm a journalist by trade, so, you know, there's no jobs left in my industry anymore. So we have to look at doing other things with our skills. And I noticed when I was researching blockchain starting in 2014 that there was no publication covering the specific area of what blockchain could— what could be done with blockchain outside of Bitcoin, like really focusing on it in other verticals. like health and energy. So I started writing about, you know, what blockchain could be done in other verticals. And I never made any money for about 8 months of, you know, writing 3 or 4 articles a day. I'd written 700 articles plugging away, doing the old Malcolm, you know, the Gladwell 10,000 hours. I'm gonna get there, become an expert one day. And suddenly the— because I was writing about startups in the blockchain space, some of the ICOs started coming to me. Oh, really? People that were doing ICOs and saying, hey Richard, can you help us with marketing? And we want to put an ad in your publication. I'm like, yeah, ad money, it's coming! That was never my model, of course. The idea was just to really create an open-source repository for information about blockchain. And there's a great library at the website, about 250 PDFs. Everything's free. I don't charge for press releases like the other guys, etc., etc. So I started working with several ICOs, helping them on the marketing side, and then I just got stuck in helping with all kinds of it. And then I really started understanding how they work and what makes them work and why they're successful and why businesses are raising money, tons of money. Gnosis just raised $12.5 million in about 5 minutes last week. Wow. But that $12.5 million only represents 5% of the total currency they're giving out, so it's actually the valuation of that company is $300 million. It's insane, actually. We've had a couple of them like this recently where they're being sold out within 10 to 20 minutes. People are raising $8 to $10 to $15 million. And you know what? They're foundations, folks, most of them. They're running open-source software. How many people are VC here, or investors? Okay, maybe a few. Maybe you don't want to put your hand up, I don't know. But would you seriously invest in a foundation doing open source software? Does that seem like a good place to put your money to get a return? No. But you know what? The people in our world that are working in open source, especially in Europe where I'm living, which is— there's just a lot of this going on. Uh, they're building foundations, horizontal organizations. And are raising millions of dollars like in the '99, '97, '98 era on just ideas, on vaporware, and nothing more. But a good blockchain— here's something we can do with blockchain technology. Ha! Let's go raise $5 million. Okay. 3 weeks later, white paper, good enough. Put a team there, some guys that know what they're doing, excellent. Boom! People are throwing Bitcoin and Ethereum at the project, which we're taking. And we're issuing them our, you know, whatever we arbitrarily determine our coin to be worth. So, it sounds kind of strange, we're creating our own money, in effect. But money which actually, after the ICO, can be traded on an exchange to BTC or Ethereum or any other currency, and then can be moved into fiat currency once it goes into BTC. So it's real money. It's real stuff. We could take that $5 million we have and pull it all out and start hiring people en masse if we want. Or we could do what Decent did. They just— they raised $5 million in Bitcoin and they just kept most of it in Bitcoin, and Bitcoin went up. So actually their $5 million went up to like $8 million pretty quickly after their ICO. So we're able to raise liquidity, we're able to create our own liquidity in essence. create our own money. And we were able to support the foundations that we create, and we're able to support the open-source protocols which we want to build our software on because we think it's unbeatable. And it is. So CoinDesk did some, some studies here. I'm not going to go into detail. 76% cited investment speculation as a primary motivation. Yes, no doubt. I mean, a friend of mine bought— his mother remortgaged her house so he could buy tons of Ethereum when it came out at 30 cents. She made him sell it all at 90 cents. Ethereum was worth $52, I think, 2 days ago, or it's around $50 now. $63. $63? I guess sell it all. Anyway, 29% of entrepreneurs— I'm used to thinking in euros, sorry. Entrepreneurs reportedly have not raised money with an ICO, but seriously considered or attempted to, or want to attempt it. 90% of investors who participated in an ICO would invest again. 50% of those felt it was limited by a lack of information and third-party research. That's very, very problematic. Probably you've heard of the scams. What's interesting about our world is that our ICOs take place mainly in a place called BitcoinTalk. That's where they're announced. And there's been so many scams from the early days that you have this like pack of like wild dogs. We crowdsource our due diligence now in the community. So instead of like one person with a tie and an MBA that just came out of school, you know, doing the due diligence for some big firm on Wall Street, or a couple of guys, analysts, you've got these like crypto-anarchists ganging up on these ICOs coming out, digging into the research and burrowing through the internet, finding everything out about these people and who they are. That's kind of interesting, crowdsourcing due diligence. We also have companies like Crown Smith, ICO ratings, so there's some commercial operations that are moving into this space as well to help us understand what's investable and what's not investable. So the scammers aren't really— we're getting there. 26% believe the more, you know, they could have raised traditional VC or angel investment. I don't think so. Well, if you're a foundation. Doing open source. 45% believe that institutional capital will start to control ICOs eventually. If the SEC will allow them. That's the main problem. I just wrote a piece in VentureBeat actually a couple weeks ago about comparing China and the US and Europe and how the regulatory systems are taking it and what's going on. And the US has a long ways to go, I think. in dealing with ICOs. I mean, now when we're doing an ICO in Europe, a lot of the ICOs will actually IP block all of the USA. So you can't invest in us. Sorry, we don't want the Americans investing because everybody's scared of what the SEC is going to do. So not only are you, as an investment, as investors, you're being pushed out, but also your startup ecosystem doesn't have any going on. They're having to go domicile in Switzerland or in Singapore. They can't do it on their own base. You get busted.
