What You Need To Know About ICOs: Suneel Gokhale Partner, VentureSouq
What offerers and investors need to understand about Initial Coin Offerings (ICOs) to avoid getting burned.
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Entrepreneur Middle East asked a few UAE-based investors and entrepreneurs about their thoughts on the brave new world of Initial Coin Offerings (ICOs). Here's what Suneel Gokhale Partner, VentureSouq, had to say.
How are traditional VCs, both globally and regionally, reacting to ICOs disrupting the world of investments?
"Crypto and ICOs are potentially highly disruptive to the VC industry and different VCs have taken different approaches. Some have stayed away, almost digging their heels in and continuing to take the position that "this is a bubble'. Others have gone all in and in some cases completely shifted away from traditional venture funding and moved almost 100% in crypto. For VentureSouq, we are somewhere in the middle– we have not gone headfirst into ICOs but rather have looked at investing in companies that are built around blockchain with clear use cases that address some of the existing friction points with respect to crypto. I think that we, along with all other investors in the VC space, are likely to have the same thoughts– how we raise money and invest in early-stage technology companies is likely going to look different in the next 2-5 years. That could mean only raising money through ICOs in the future, which would be the most aggressive form of disruption, or something milder like using smart contracts to close investments and agree terms with our investors and then using blockchain to keep registers or KYC information.
"For now, there has been significant demand from our investors to see investment opportunities in crypto and blockchain, so much so that we have even had dedicated events and programming with respect to cryptocurrencies. At least a couple of times a week, we get a call from an investor asking us about the latest ICO or development in crypto. It's been great as we love the high level of engagement from our investor base, and we don't see this as a threat but rather an opportunity for our investors. The thing we often hear about early-stage and venture opportunities is the lack of liquidity and the longer hold periods. At the end of the day, if crypto and ICOs allow for enhanced liquidity earlier in the lifecycle of a technology company, that makes the venture capital space all the more appealing."
Tips on approaching ICOs- for investors and entrepreneurs
"Regulators, be practical and commercial and don't resist cryptocurrencies just because of perceived deficiencies. Disruptive technologies or concepts are not perfect so address the deficiencies in a way that still allows for the initial use cases to play out. There is clearly interest and demand for crypto which should not be ignored. Accordingly, regulators should create practical safeguards and build regulation in a commercial way. Investors, proceed with caution. Like any new market there is a lot of garbage out there and the "push and pull" around ICOs will continue as new entrants on the financial institution side and regulators and governments become more active. We are still in the infancy stage of crypto and blockchain, so investors need to be careful. Entrepreneurs, if you're thinking about using an ICO to raise money, do your homework. Make sure you've addressed regulatory issues and that commercially you can handle all the ins and outs with regards to issuing coins as the market is dynamic and will continue to change."
Related: What You Need To Know About Initial Coin Offerings: Carlos Domingo, Co-Founder and MP, SPiCE VC