ICOs: bullshitting on steroids

Chamath Palihapitiya from Social Capital is, for me at least, the most influential innovator in the VC world. He’s also a very candid person. During his interview at Stanford, he delivered an impressive review of the startup world: “…Everybody is bullshitting. That’s what it means… If anybody looks at you and tells you they know what the fuck they’re doing, they’re lying”.

Even more impressively, he builds his argument on the data analysis declaring that only 2% of the Valley investors in the biggest companies since the 1970s’ overlapped. That means that no investor has found a magic formula on how to allocate capital properly and how to pick the winner. It’s just a guessing game for the high net worth individuals. I’ve seen another analysis that says that 92% of startups fail within 3 years…

Last year people got overdosed with crypto. I started working on one ICO project recently, completely new to the ICO funding. And let me tell you, everybody is bullshitting here as well, but this time, it’s bullshitting on steroids.

White Papers

Bitcoin started by publishing a white paper and it survived even without the founder for nine years. What a tremendous success, considering that it died 315 times till today. Nowadays, all crypto projects try to mimic the process, but the difference to Bitcoin is enormous.

Bitcoin has created an open source community gathered around an idea. On the other hand, ICO projects are raising funds from the VCs in private sales and only then they use white papers to summon the community, heavily supported by VC funds for marketing. White papers have become a standard way how to pitch the idea, although this form is very non-standard for the investors. Nobody can really grasp it — what it means, what is the business model, what is the data behind, what are the projections and scenarios. It’s hard to see white paper as anything more than a marketing tool designed to make the project look good.

Bear in mind that valuations of the currencies are dubious at least. What is the real value of the currency if the product is not ready? Or the mainnet has not been released yet? Or those x thousand transactions per second are just theoretical? Isn’t it crazy to ask the traditional funds for investment by means of an anarchy-style document? Isn’t it even more crazy for the investors to take part in it?

How many white papers are out there? Roughly 700,000. More than 700 tokens have become worthless so far, out of roughly 1500 currencies that were created till today.* Just saying…

ICO Ratings

Since whitepaper has been established as a standardised project pitch form, and is very non-standard to startup pitches, nobody has a clue what they are really telling. Is this project good? Is it real? Can it be a success?

ICO rating agencies wanted to bring more light and professionalism into that and began offering Due Diligence services for ICO projects. Their DD was then provided to their community of potential ICO investors and rating was published.

I know personally one of them that I respect and trust. They were paid by projects for DD and, despite that, declared very publicly those projects as scams.

Maybe there are more honest people out there. But bear in mind that their business model is to be paid for the due diligence they provide to you. So, there is this dichotomy in the motivation. On one hand, they have trust of the community they should never break. On the other, some of the ICO Rating agencies charge 20 Bitcoins for DD.

Advisors

John McAfee's net worth declined from 100M $to 4M$ after the markets crashed in 2009. The picture has nothing to do with this information.

The original idea of an advisors’ role was to give the blockchain startup credibility, provide both the network and the mentoring, help with getting the investors on board and sometimes even doing specific jobs in marketing, PR, and/or business development.

Advisory has developed into a huge business segment. Some individuals are running small to middle companies providing advisory services under founder’s name. They typically charge huge sums of money just for being listed on your white paper and website. Prices start around $50,000.

You should never pay this kind of money. If you have to, it means two things: your project is shit and you are desperate, or you are fucking stupid and deserve it. These advisors represent dozens of projects, many times without even taking care who they are representing. It’s business as usual. More and more, their reputation deteriorates within the crypto community, since we already are seeing first failed projects, or no returns on many supported ICOs. If you google now any ICO rating agency that has a list of TOP advisors, you will know who I mean. Check their background. If the advisor was a journalist Before Crypto (B.C.), you know where I’m going with this… If he/she has built large company before, than it's worth considering.

Mr. Robot, aka John McAfee, is charging $100,000 for a tweet in his network of 828K followers, and $250,000 fee is for his role on your advisory board. Which basically means more tweeting. I have a nice list of LinkedIn contacts I approached who have a similar fucked up offers.

So, how to tackle this problem, since you really need a quality team and quality advisors? Roll up your sleeves and go into deep negotiations with each and every individual. Link everything with an KPI such number of investors introduction, number of PR articles published, number of sharing per month. Release funds monthly based on those results and implement vesting period. Never give free money for no assurances, rather find another advisor.

Community

You shouldn’t trust the numbers. There are many shady ways of how to inflate it. You can buy followers, create fake profiles, you name it. Many of those community members are just bots, especially when it comes to bounty hunting. It’s quite a masterpiece to establish a lively vibrant community, that is both bot filtered and engaged. But if you succeed, the community can make a lot of work for you, lower your marketing costs substantially, or even print their own t-shirts for a local Indonesian group. It’s important that you don’t just employ social media managers, but try to engage with the community yourselves in your role of founders and learn from the best.

Bounty Hunters

This is another form of a crypto job mostly for the low-income population with internet connection. Increase your number of followers in any channel you desire and start earning tokens for sharing, commenting or referring people to the project. Problem is that most of the hunters have many jobs, parallel to your ICO, and they are doing the same shit for 50 other projects.

ICO Agencies

Another prospective business. 40–160 Bitcoins for marketing agency’s work in 3 months? Wow. These are the offers we are getting. How the f.., what…, why…? I don’t get it…

Events

There was one unnamed ICO pitching contest in Europe with enormous price money for the first three winners and listing on major exchange. One of the judges eventually, just out of pure coincidence, historical synchronicity and esoteric interconnectedness, happened to be also advisor of the winner. There are many events like that. If it is not a direct scam, than it’s indirect marketing bullshitting about the number of investors and attendees participating. Again, do not pay overpriced attendance and if you go to an event, make sure you network in advance and prepare your own meeting schedule.

Your partners

Be careful when picking your partners. Even honest people might fall into the money grab hype if they see a project that raises $30 million in 16 seconds. You should always evaluate everyone’s motivation and how it might change in time.

There is one answer to all these wild west problems. And we don’t like it, but it’s to… slow down. Take it easy, bootstrap as much and as long as you can. Develop an honest community, get on board all the required people instead of paying them, and raise the minimum effective dose of funds for the marketing when you have a working PoC.

Want to stay honest in the Wild West? Well, good luck cowboys!

ICOs: bullshitting on steroids was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.