An inside look into raising money the blockchain way

Jared Polites
An inside look into raising money the blockchain way

Many new blockchain companies from around the world are considering Asia’s megacities as possible new home bases

Southeast Asia has rapidly grown into an important area for blockchain — and many new blockchain companies from around the world are considering Asia’s megacities as possible new home bases. In 2017, Singapore was the third largest ICO market, behind the United States and Switzerland, with Hong Kong on the top 10 list and Korea not far behind it. However, with ever-developing legislation around blockchain, where are things headed and how will it affect the tech scene in Southeast Asia?

1. Global Presence

Most of the previous venture capital booms and innovation originated in the United States. Partly due to the United States SEC delaying comments and regulation decisions on blockchain technology, many other countries have moved quickly to embrace the technology and serve as friendly hubs and incubators. Countries such as Singapore, Switzerland, Russia, Lithuania and others have gained a massive share of the industry in comparison to their levels of previous and current venture capital funding.

This global shift and the inherent decentralisation blockchain offers helps encourage a more equitable business ecosystem across the globe. In time, it is likely that even more of the blockchain market will shift away from the United States. Particularly if the SEC implements harsh regulations on the space and technologies opt to move their domicile abroad to more blockchain friendly locations.

2. New Infrastructures

With the recent wave of volatility and due to overhyped projects and “fauxtocols” with raises in the billions, blockchain and ICO investors have begun to ask themselves: “Where are all the innovations we were promised?”

Now, in the aftermath of the 2017 ICO boom, common themes have emerged amongst both companies and investors: mass adoption, ease-of-use, and real products.

Like all technology does in order to gain widespread adoption, it must start with real developers and real products. We can expect more companies, including ones going through the ICO process, to be focused on providing tools to enable blockchain technology for both developers and non-technical minds.

A few new infrastructures for creating better systems in blockchain are being introduced. Among them, Menlo One has created an infrastructure to help developers create Blockchain based-economies through easy decentralised application (or dApp) development. Their technology is set up with four main layers any developer needs to make a web application decentralised — a decentralised database layer, a governance layer, a communication layer, and a transaction layer — making it easier, faster and cheaper for developers to work interoperably with multiple blockchains in multiple coding languages.

Menlo One’s framework infrastructure takes developers 80% of the way to launching dApps, helps companies and teams save money and focus more on the business use cases they are solving. Menlo One’s tech is already being used to transition existing “centralised” web businesses to fully decentralised technology.

Also read: Will the reverse ICO trend tokenise the world economy?

Another innovative startup, Buddy, is focusing on eliminating all development tasks that be automated, giving developers valuable time back to focus on creating blockchain solutions and off-chain applications. Buddy’s automation tools will allow developers to build and ship apps to mainnets quicker and more efficiently. These features include an automation marketplace that acts as an app store, an automation GRID for running automation tasks, and BlockchainOps for designing automation workflows for dApps starting with EOS. The company has already been approved to be listed on exchanges such as MBAex Exchange.

With new infrastructures, it is possible that blockchain technology will gain greater adoption in the future. Due to the added value of the infrastructures in creating new blockchain solutions, this means developers can create Blockchain based solutions as freely and easily as centralised web applications — and investors and consumers alike will have better information for investment opportunities and better access to blockchain-based products. These infrastructures will also likely help the industry adapt to government regulations that are put in place.

3. New Blockchains

There are a few new technologies being introduced right now that offer alternatives to traditional blockchain architecture. Some of these are focused on how blockchain functions, whether related to proof-of-work vs. proof-of-stake or interoperability. These technologies will likely improve blockchain and help foster market adoption.

However, there are also a few technologies offering alternatives to blockchain. Hedera Hashgraph is launching their ICO soon and has a lot of market excitement due to its speed, security, operability, and proof-of-stake mechanism. If Hedera Hashgraph offers an alternative distributed ledger system that is better than blockchain, the blockchain ICO ecosystem might slow down as developers utilise Hashgraph.

4. Heavier Focus on Pre-Sales

Most projects are beginning to utilise private pre-sales, where they offer tokens to institutional investors and accredited investors in an earlier round than their public ICO sale. This helps projects get funding and potentially get support from major funds before approaching the public for investment. This process also helps make the blockchain fundraising system more compliant with established regulations.

This shift from fundraising via public offering to private sales is changing the way the industry functions. As it was primarily established, most “retail investors”  were able to access allocations to valuable project launches, but the projects risked SEC regulations. Now, with a heavy emphasis on private presales, companies aim to get a lot of money from a few major institutional investors and typically offer them a bonused or discounted price on the tokens purchased.

Also read: Ironic as it may seem, the future of ICOs will rely on regulation

5. Equity Funding

Blockchain projects are even starting to raise money via equity financing rather than sourcing money through an ICO. The upside to this process is that it allows companies to avoid SEC regulation and make their profits through user fees. In particular, equity funding can help some projects get initial capital for their development, so they can later launch a utility token with an existing network.

Some of the drawbacks of this fundraising route are that it can be difficult to get VC funding and can sometimes leave you exposed to undue influence from the VC, the very thing ICO’s were created to avoid in the first place. If the fund owns a significant stake of the company, has a board seat, or any special covenants that can allow their interests to supersede those of the company and undermine the idea of decentralisation altogether.

All of the recent developments in both the regulation and funding landscape and in blockchain technology itself have created uncertain but exciting conditions for parties all over the globe: What’s going to happen next, we can’t be sure, but we do know blockchain is here to stay.

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