Many startups have discovered the Initial Coin Offering or ICO as a better way to raise funds. Instead of sellings shares they offer crypto-currency based tokens. As far as we could find, Follow Coin BV is the second Dutch company to do an ICO. In this article we explain what they are doing exactly.
About Follow Coin
Follow Coin is a Dutch BV led by founder and CEO Thomas van der Bijl (pictured here together with Jamal Boykin, one of the other founders.). Follow Coin intends to build a platform that helps people interested in investing in cryptocurrencies: the platform allows people to follow ‘influencers’ who share their opinion on various cryptocurrencies. We asked Thomas why he started follow Coin:
“I have been interested in cryptocurrencies for a few years now, and so have the otehr founders. There are many currencies out there and their value compared to euro is changing constantly. This creates a ‘fear of missing out’. Our platform and apps will help people stay informed of changes in value and trends from influencers. We talked to people about this idea and found out that many people would like to either share their opinions, or hear opinions from other people. We believe that cryptocurrencies are here to stay and that a platform like ours will be of interested to many users”.
What exactly is an ICO
An ICO is way of raising money, based on cryptocurrencies. A cryptocurrency is a type of coin that exists only in digital format. Bitcoin was the first mainstream cryptocurrency, but most ICOs use the second large coin Ether. Cryptocurrencies have no intrinsic value or direct use. The value fluctuates based on people’s expectations. In the past 2-3 years the value has really exploded: the example of bitcoin has shown everyone that digital currencies can become quite valuable.
In an ICO, a company creates a new currency that is linked to their product. One can compare this to points or credits in a computer game, or to food and drink tokens used at festivals. For instance Uber could introduce an Ubercoin and decide that this coin can be used to buy Uber rides.
Believers in ICOs assume that the value of these coins will rise together with company growth. If more people want to use the service they will need more coins or so the argument goes. Investing in such coins is thus a good way to bet on product success: Instead of buying shares in the company, you can just buy their coins and sell these on later to actual users. Based on this simple ideas, several startups have decided to not sell shares but only offer their own coins. They have organized Initial Coin Offerings (ICOs) where friends, families and fools can buy their coin ahead of the service offering.
Successful ICO examples
In both normal funding and in ICOs, there is a big difference between ‘successful funding’ and real success. Many companies are good at collecting money by making promises. Not all of these companies deliver on their promises: in crowdfunding there are many examples of companies good at raising funds but not good at execution of their plans (Interesting examples are this report on the failure of the Zano mini drone, or the coolest cooler failure story, ). At Startupjuncture we encourage entrepreneurship and allow people to fail, but we would not call these failures ‘successes’. For ICOs the situation is comparable to the situation of crowdfunding 5 years ago. As far as we know, there are no successful companies yet that were funded through ICOs. All companies have yet to deliver on their promises. If you know of any successful company that has been ICO-funded, please let us know.
Having said this, there have been many ICOs that are successful from the founder perspective. Examples include:
- Coindash – a crypto based social trading platform
- Metalpay – Transfer money instantly around the globe with nothing more than a phone number
So the concept of raising funds via an ICO has been proven. More information on past ICOs can be found at ICO stats.
Benefits for startups and investors
The benefit for startups in clear: if you do an ICO you can raise money without having to give away any shares. The founders keep full ownership of their company while still receiving funding. Another benefit is that companies can raise additional funds by selling more coins, assuming that they kept some of the coins in reserve. For investors, the benefit is that the tokens bought at an ICO are tradable. Trading is completely digital and almost immediate. Once you have created a digital wallet you can sell or buy from other investors.
Initial Coin offering
Like most ICO-ing companies, Follow Coin has published their business idea as a ‘White paper’. They have also raised some funding by a pre-ICO (an informal funding round among friends and family) in August and september. Today October 27 the official ICO will open. The company has created a smart contract that runs on the existing Ethereum platform. Anyone who would like to invest in Followcoin tokens can create an Ether wallet, buy Ether and send Ether to Follow Coin. After the ICO, the company will use the funds raised to improve their apps and the launch their full website.
ICO questions and next steps
It will be interesting to see if more companies in the Dutch startup ecosystem will organize ICOs. ICOs might become an efficient way to get funding for startups. We are also curious to find out whether these startups will be successful in the long run. As far as we could find out, Follow Coin is the second Dutch ICO after Triaconta. From an ecosystem perspective it is always good to have more funding options. There is no one size fits all funding concept. Any startup should make an informed decision between the available options. We will try to keep track of all Dutch ICOs and keep you posted.