Venture or seed capital methodology versus decentralized thinking?

[gregory51gosh]

The problem



I would like to discuss the problem of dissonance following the types of investments made, as well as model of investment. Do you think it is possible to connect ‘old way of thinking’ with the new tendencies under the ‘smart contract’ thinking?

What is the main problem in smart-contracts management.

The process of management of assets value should be focused on development, R&D works and notification in daily management of intangible and legal assets that were produced. In smart contracts there is no problem to build check-points whenever the investment is in the IT branch (mostly validated through github). But the problem concerns other innovative types of investment, like biotechnology, medicine, everywhere the real assets come. Some may say ‘you have a kickstarter alike possibilities’, but is not a solution to the problem. 

This is a major element of building the perspective capital value, which can affect the overall value of business assets and in final round, in overall value of the company. To understand capital value, one needs to understand the basics of capital definition within the terms of law. Capital is the value of the possessed property, which can have different forms. Businesses can provide many capital assets. Many entrepreneurs identify their possessions as only their own fixed assets, such as real estate, technical equipment. The definition of assets is much broader and also applies to intangible assets, which in particular, in innovative companies may represent a significant fraction of their value.

Such components may be, for example, software purchased, software made on its own resources, commercially-generated sales agreements reflecting the number of customers, domains and values associated with the brand and its market position, articles and blogs that generate sales, images, reports, databases.

All these elements must be transferable, meaning they may be the subject of potential trade. For example, a properly managed customer database can be legitimately trafficked with personal data, with the value of such a single customer base ranging from a few cents to several hundred dollars, depending on the complexity and specificity of that customer.

Under smart contracts there is always difficulty to connect these values (book value), especially that was created in the process with the market value. This is very similar to the public listing of companies - smart contracts are a huge perspective and a formal derivative of such ‘old thinking’ giving opportunities to engage private capital in higher scale. One of the forms of aggregation of such value that is created is a VC under smart contract. Why? I think mostly because:
1)VC may open smart contract for the dedicated value, which is the ‘public listed value’
2)VC aggregates the value of distributed assets which are in-the-control of their progress, represents the book value
3)However the VC may be still in a decentralized form with ‘investment committed
4)It may state a DAO-compatible philosphy, however the responsibility is not anonymous which gives resistance to scams.

So what do you think? Which ways is better - typical DAOs or something like a merge of tradition  (VC’s) and innovation (DAO accelerators)?

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[Hydrogen]

Can you recommend a book, white paper or some reading material on smart contracts?

It seems like an interesting concept. Unfortunately, its not something I know much about & so can't comment as much as I would like.

[gregory51gosh]

As far as I know, there is no book that would summarize the ICO process. Searching the google, you should be aware of a lot of fake manuals that are made to hijack data.

Better way is to acknowledge the IPO path and than transform it into the ICO knowledge from the cryptoworld.

The huge difference between IPO and ICO is that ICO is not regulated (in UK yes, in come countries is similar to 'closed-end investment funds'), also mechanism very similar to bonds. So as you may see, there is a little bit of economical knowledge together with the knowledge of the cryptoworld.

I suggest to see as above:

http://www.investopedia.com/terms/c/closed-endinvestment.asp - it is the closest structure to what now is most popular, meaning the VC's making their ICO

and then:

http://www.investopedia.com/terms/b/bond.asp

this is very close to smart contract with 100% buyback in the defined period. It's like a loan to make some investments with specified ROI (rate of return).

I've also recommend this article which shows how goes an IPO process for young and relatively small companies: http://www.newconnect.pl/pub/dokumenty_do_pobrania/Your_guide_NewConnect.pdf

Here is the summarization about CEF's - You can see the common elements (duration of the smart contract, start and end of the block, sth similar to lock-ups like the blockade of trade until the collection is done etc.)

https://www.blackrock.com/investing/literature/investor-education/guide-to-investing-cefs.pdf

Summarizing:
A) the difference in ICO and IPO:
- has simplified information standard, mostly business plans etc. are simplified into white papers
- is great solution for young initiatives, for companies that have a product and do not have a turnover yet, have a proof of concept, etc. - let's call them 'startups'
- regulations are among community, which means they base on trust and smart contract execution
- in some countries lack of regulation may deliver problems in accounting (less problems for ICO's for own ideas, more problems for ICO's for VC-alike projects)
- is faster (2-3 months of preparation, succesfull project may gather in several hours)
- bases on recommendations
- bounties are illegal in the IPO's (especially animation of the market)

B) the similar or common elements
+ requires validation - ICO mostly is validated by the community for the scam processes or threats
+ requires marketing to show what the project is about
+ in some countries regulations require a special license (like in UK - crowdfunding license)
+ it is good to have initial investors that give a proof of the concept
+ for example using Escrow together with known people of the cryptoworld or known stocks, is sth like the security governance)

As You can see, the future will show a combination of these two worlds probably - I say that VC is like grandpa teaching the grandson (ICO's, token market) of life, while grandson teaches grandpa Internet..

[pitham1]

I feel that IPOs are vastly different from ICOs. This is primarily because a company goes public after a few years of operations, when it has a proven product and business model. Seldom do you hit the markets with only a market.
With ICOs, the 'starters' are just raising the funds that they require to build a working model. Way higher risk and chances of fraud.

[gregory51gosh]

I agree and disagree.

In ICO any company may release tokens, that is why the risk may be high and may be defined as well as low for the mature companies. It is an advantage and disadvantage of the lack of regulations, like two sides of the mirror.

In IPO it must be a mature company with turnover and history specified as minimal to the regulations of the spec. market (etc.).

That is why I tried to point out some common elements and elements that are different.

I'm open to a discussion how people would see a model ICO - something like a community codex for ICOs.

[pitham1]

I agree and disagree.

In ICO any company may release tokens, that is why the risk may be high and may be defined as well as low for the mature companies. It is an advantage and disadvantage of the lack of regulations, like two sides of the mirror.

In IPO it must be a mature company with turnover and history specified as minimal to the regulations of the spec. market (etc.).

That is why I tried to point out some common elements and elements that are different.

I'm open to a discussion how people would see a model ICO - something like a community codex for ICOs.

The problem is who will work towards community codes for ICOs.
As seen here, even a debate on blocksize turns acrimonious very quickly.
A coin with huge potential (say Ethereum pre launch) should be launched through a model process and that can be taken as a template for community codes.

[housebtc]

I feel that IPOs are vastly different from ICOs. This is primarily because a company goes public after a few years of operations, when it has a proven product and business model. Seldom do you hit the markets with only a market.
With ICOs, the 'starters' are just raising the funds that they require to build a working model. Way higher risk and chances of fraud.

I agree with you, there is a vastly different between the two term, I would prefer ICO to be called simply token sale, ICO makes it sound like a security and this is what most developers are running from.

[gregory51gosh]

Yes, term 'ICO' suggests that is safe and regulated. Token sale is also misunderstanding, because its representation of the value depends on the smart contract construction.
The real problem is - how to connect real assets with token. Blockchain then should show if anything happens within the asset - not only transaction itself.
Being the derivative of a real asset, it should represent a real force to execute the ownership.

Off the topic, but close to it:

https://www.lawinsider.com/clause/representations-and-warranties-of-the-seller/sufficiency-of-assets

[gregory51gosh]

I found quite good article:
https://medium.com/@TenX/raising-money-from-vcs-vs-doing-a-token-sale-a-quick-guide-to-best-practices-e38e7645727b

concerning the topic

[HeRetiK]

As much as I love the decentralization and democratization of the investment market, I feel like under current valuations the risks of ICOs highly overshadow the possible rewards. While VCs are also high risk / high reward endeavours, they put a lot of expertise and vetting efforts into selecting possible candidates. They make sure that legal safeguards are in place. It seems like most ICO investments utterly lack any of these. People don't do their due diligence. And that is something that unfortunately neither decentralization nor smart contracts can fix.

[gregory51gosh]

Yes, and it is a growing shadow. If more ICOs are scams etc. there more this industry will be banned or centralized.
That is why I proposed "light" regulations and partial centralization which would be something like a bridge between the two worlds.

[HeRetiK]

Yes, and it is a growing shadow. If more ICOs are scams etc. there more this industry will be banned or centralized.
That is why I proposed "light" regulations and partial centralization which would be something like a bridge between the two worlds.

But who would regulate it? I honestly can't think of a single entity or person that would be universally trusted within the crypto community. Even something like a rating agency for ICOs would be difficult, because conflict of interest and shilling is always just around the corner - real and imagined.

[gregory51gosh]

Yes, you're right at this point also. But there may be something like "best practices" to the adaptation of this model. If more entities will formulate such best practces, it may be somehow centralized-decentralized model. If community won't do this, it will be centralized by the authorities, like it is behaving in the united states (draft act delegalizing non-licences entities fro btc etc.)