The web has filled up with comparisons between Venture Capital and ICOs (Initial Coin Offerings) as sources of funding for blockchain-based startups. Some entrepreneurs have made claims that ICOs are a better source of funding than venture capital, and, in fact, startup funding from ICOs have far exceeded venture capital in 2017.
Despite the rise in popularity of this new source of financing, there are also many detractors claiming blockchain companies launching through an ICO are scams, and that only traditional methods of investment can be trusted.
The reality is that both sources of financing, ICOs and Venture Capital, are being used by entrepreneurs today. As a blockchain engineer, an investor, and the co-founder of a company that helps venture capitalists help their portfolio companies hire, I’ve seen enough evidence that these sources of financing are complementary. After hundreds of conversations with investors, we’ve found patterns that help venture capitals differentiate themselves from ICOs by providing extra support not available through other means. Founders who need a partner-in-crime more knowledgeable than they are might want to partner with venture capitalists.
Venture Capital is an industry with over 50 years of history. Organizations like Apple, Google and Amazon have grown thanks to it. You may or may not like those companies, but it is a fact that they’ve spread all over the world in part thanks to the care that Venture Capital firms have put into the small and big details, supporting those companies and helping them grow.
Entrepreneurs can use the knowledge and best practices crafted by Venture Capitalists to grow faster. Here are four few ways VCs make themselves indispensable to growing companies:
Venture capital grants start-ups access to a vast knowledge base
Yes, information is everywhere. If you are an entrepreneur with a question keeping you up at night you can open your browser and search for a solution. But entrepreneurship is not a science. When choosing between A and B, often there won’t be a single right answer.
In those moments, experts with real-world experience will mean the difference between growing fast or failure.
Great Venture Capital firms can reach almost anyone, and faster than you can.
If you are an entrepreneur and you are talking with a potential VC for your company, ask yourself this question: can they help me reach out to an expert faster than I can? If the answer is yes, it’s a signal you are talking to the right person.
If you only raise money from non-accredited investors with low influence, your progress is likely to be slower.
Venture capital firms help their companies follow best practices
Blockchain technology is being used to create great new organizational structures. From non-profits that issue themselves a percentage of the tokens created every year to a system of bounties where developers contributing to the core technology get rewarded for their work, it’s clear that venture-backed corporations are no longer the only route to fast growth. The game has changed. The downside of being too creative is that you might end up lost, stuck at a place where nobody has been before.
You may have never created a billion-dollar company, but Venture Capitals have. They will show you the best practices followed by successful companies so you can incorporate them into your own. You might want to go off-road, but it will be best if you do not innovate in everything, just in what you are best at.
Can Venture Capital help you follow the best practices in an area where you are not an expert? Then let them help you.
Venture capital helps you find great employees that can accelerate the growth of your company.
What is harder, raising funds or hiring the best people? There are mixed opinions but it is clear that to grow a great company you need to do both.
ICOs may infuse new companies with cash, but they won’t necessarily help with the human capital required for success. Venture Capitalists have established networks full of successful portfolio companies and the leaders that helped them grow. Whether they have a human resources department dedicated to the task or rely on referral systems assisted by software, established VCs are able to leverage their networks and help their portfolio companies find the people they need.
Can your VC help you make your next hire? If you are an experienced entrepreneur, you are aware of how valuable this is.
Venture capital gives startups a way to access future funds so they can keep growing
Your organization will need funds in the future.
Unless your system of tokens has been designed to give you funds over time and you are successful in the open market, it won’t be easy to attract funds when you need them.
Great Venture Capitalists are as invested in your organization as you are and will help you raise new funds. By partnering with them early on they’ll help you attract the funds you need. For example, the largest ICOs raised in 2017 were raised by organizations that were already backed up by venture capitalists.
Can VCs help you attract funds? If so, that’s a positive signal you are in good hands.
Building unstoppable startups
Blockchain technology is here to stay, along with new sources of funding, and so is the Venture Capital industry. By combining both, we are setting up ourselves to create the next Apple, Google and Amazon of the world, on steroids.
Great Venture Capitalists act as a hub of knowledge. They’ve seen what entrepreneurs haven’t seen. They can help you follow the best practices you are not aware of, hire the people who will take your company to the next level and raise funds when you need them. Great VCs will be your partner and help you change the world, independently of the technology you use.