Dear investors,
I would like to start this letter by sharing with you a song of Bob Dylan, the first song writer to get Nobel Prize in literature:
This is my message to you: The times are changing.
We, the entrepreneurs, and you, the investors have lived in a symbiosis since the early days of venture capital. You need us to multiply your money. We need you to provide the much needed capital to invest in our dreams. The numbers of this game are very known to all of us.
For every 100 ideas you listen to, you choose 1 to invest on. For every 10 ideas that you invest on, 1 ends up being a success. So, for an average entrepreneur, our chances of success are 1% for getting initial capital and, for those who get capital, 10% for being a success. Therefore, our chances of being a success are 1/1000.
It´s a tough game for the investors as well. According to this [1] Quora thread of Venture Capital returns, only 15% of the VC funds in the US raise a good enough return to justify creating a second fund. And the US has the most mature VC industry in the world. Those numbers are worst if you are in a developing nation.
The VC Game is a tough one. We all knew what we signed up for. But we must admit that, in the historic symbiotic relationship of entrepeneurs and VCs, we the entrepreneurs are the weaker part.
I remember the first investment offer I got from a VC in Brazil. He would agree to invest USD$30k in my idea if I put my house as a warranty in case the startup failed. Also, there are "accelerators" who want 40% of equity of your startup for their "smart capital", which means your startup will not get actual money, just introductions.
But, for our felicity, the times are changing. The VC Game is changing. And that tsunami of change is brought upon you by the blockchain technology. And as Bob Dylan said: "You better start swimming or you will sink like a stone."
The tsunami I am talking about is the advent of ICOs (Initial Coin Offerings) or, as it is also called (Token Offers). If you do not know what ICOs are, watch the video below before continue reading.
Ok... Now that we are all in the same page, let´s talk about how this new beast that was introduced in our ecosystem (the ICOs) is going to disrupt our symbiotic relationship.
Capital Availability: In the old days of the VC Game, wealthy individuals would place 1%~5% of their networth at the hands of VCs who would invest on their behalf during 2~5 years and wait 3~5 more years to have liquidity on that capital. Now, anyone in the world with USD$1 worth of Bitcoin, Ethereum or other cryptocurrency can invest in an ICO. This is a huge impact in the VC Game for two reasons: (1) The capital availability for innovation was mutiplied by at least 10x; (2) The capital can have liquidity within a few months after the ICO ended, instead of the 3~5 years how it was before;
Disrupting the disruptors: In the old days, even in Silicon Valley, there must be at least 1000 entrepreneurs for every 1 investor. All those entrepreneurs craving for capital to fund their dreams. Despite we need each other, there is a serious imbalance of power between investors and entrepreneurs.
But ICOs are disrupting the disruptors, the professional venture capitalists. The capital does not need "professional VCs" to be deployed anymore. The crowd starts to review and curate the projects in plataforms like [2] Token Market or in foruns like [3] Bitcoin Talk. As entrepreneurs, we need to convince the crowd now, not the investors.
Why do we need VCs? : If we do not need VCs for capital and nor to introduce us to the right people, why do we need them? Here are two cases of investors who found very interesting niches to stay relevant:
Tim Draper, who is our earliest investor, used to say at Draper University (where I studied) that it is better to surf in the disrupting wave than being caught by it on the shore. That is why he is backing a few selected ICOs, including ours ([4] Swapy Network). So, the role of household investors like Tim Draper after the rise of the ICOs is more of a beacon of quality for the crowd.
Since we are all navigating in unchartered territory in the ICO industry, it is a perfect opportunity for new guys to become experts. The guys at Outlier Ventures found a very good nich on being thought leaders in this industry by creating tools like [5]Token Tracker and producing and sharing knowledge for free through the publication of their [6] articles on different topics. I like this one in particular about [7] Community Token Economics.
So, my dear investors, the times are changing. You are being disrupted. What will you do to stay relevant? This Meme has the best piece of advice:
[1] https://www.quora.com/What-is-the-average-IRR-achieved-by-venture-capital-funds
[2] https://tokenmarket.net/
[3] https://bitcointalk.org/index.php?board=159.0
[4] https://www.swapy.network
[5] https://outlierventures.io/tokens/browse/
[6] https://outlierventures.io/research/
[7] https://outlierventures.io/research/what-specifically-does-a-cte-provide/