Crypto is About Community

Before the astronomical takeoff of crypto and ICOs in 2017 and 2018, there were two major sources of startup funding: traditional venture capitalists and angel investors. In crypto, now the two most common sources of funding for crypto projects are crowdfunding or blockchain funds.

I believe the shift from traditional equity-based venture capitalists to new blockchain funds and crowdfunding levels the playing field and makes it easier for entrepreneurs to be successful. In my observation, crowdfunding for crypto projects clearly helps lessen the difficulty in fundraising previously seen with equity-focused startups.

The community support and enthusiasm to fund new blockchain projects has truly surpassed my expectations in the past year. I’m still so surprised to find such a significant population of tech nerds. The Lisk and ICON fans are nearly religious. As Brock Pierce explained, supporting new crypto projects that resonate with you is a lot like joining a tribe. Ethereum and EOS supporters are some of the most impressive global communities.

An $ICX fan rooting for $12+ Icon last January 2018, price is now $1.34.
Opening day at Devcon3 in Nov 2017. Thousands of people tuned in for the livestream.

One of the biggest differences between traditional VC and crypto is that crypto valuations are really just a proxy for how big of a community is behind the project. Crypto valuations are driven first and foremost by the project’s community and fanbase. As a project gets more public support for its concept, hits important technology development milestones and eventually achieves developer and infrastructure adoption, the community base will grow and the market cap valuation should be expected to grow alongside it.

In crypto, a project’s early valuation is determined by its community growth. We’ve seen crypto companies go from $50M to $6B in total circulating supply market cap valuation in a span of a couple months, which simply isn’t ever seen in normal equity investments. With normal equity investments, it can take years to exit positions via acquisition or IPO, which takes years of growing revenue and eventually profitability. I have friends who invested early in Dollar Shave Club and walked away with a 4x return. Compare that with Aion, a cross-chain protocol which return 120x to investors at its ATH over the span of a couple months. Sure, some projects will come and go, peak to the moon and crash to nothing. But long-term, the projects that stick around and continue to grow in adoption and community size will definitely see higher and higher prices in the coming years.

An ICO called Atonomi just started to trade on July 13, 2018, 6 months after the presale and it’s trading just below ICO price. Despite pretty strong project fundamentals, I think this particular project fell short on growing the community and providing consistent development updates to their fans.

If crypto returns are mostly based on community size, then there is really no way in gauging how high the crypto valuations can go. If the number of bitcoin investors continues to grow, it could definitely be on the path to being worth more than Facebook, Amazon, Google and Apple combined. Afterall, there is not enough bitcoins in the world each millionaire in the world to own a whole bitcoin, since there will only be 21 million bitcoins ever.

A table I made the summarizes some of my thoughts on equity vs. crypto investments.

We are truly broadening the funding market from a few VCs and angels, to now the entire global crypto community that is supportive of funding new and experimental blockchain projects. Crypto makes it much easier to raise money from whoever believes in you. Gone are the days of flying to Sand Hill Road only to get rejected or canceled on, or spending 100% of your time negotiating dilutive term sheets for follow-on equity rounds. As a result of the inflow of new money and investors, capital alone is no longer a significant enough value-add in the crypto space. Crypto investors have to be flexible in finding new ways to be helpful and add value to projects. Some of the new ways investors can be helpful include community development, developer adoption, relationship networks, business partnerships, technology development advice and much more.

Sand Hill Road has offices from KPCB, DFJ, A16Z, NEA, Battery Ventures and more.

I first discovered Bitcoin back in 2013 when my good friends Herwig Konings and John Marbach (founders of Glider.io, YC ‘13 class) taught me how bitcoin works. From 2013 onwards, I continued to hear about different cryptocurrencies while I lived in San Francisco. People would enthusiastically explain to me about the pros and cons of new alt coins at startup conferences and hackathons. In fact, in 2015, all of the “Andrew Lee”s in the bitcoin space, including myself, hopped on a Twitter thread to talk about bitcoin.

Thanks to Herwig, John and the few people I met along the way, I picked up an early interest and open mindedness for learning about emerging cryptocurrencies such as Ripple, Stellar and Ethereum early on. My early exposure to cryptocurrencies and background in app development really helped cement my conviction in new emerging infrastructure protocols such as Ethereum, Icon, 0x, Kyber, Chainlink and more. I knew right away in my gut that these early stage projects could potentially be the tools and infrastructure needed to build a new type of decentralized applications and use cases in the future.

The people who educated me about Bitcoin were paying it forward to me. They didn’t have to teach me all about it. I’m really grateful for their help and time spent educating and sharing their enthusiasm, and I have personally made my very best effort to pay back where I could. In summary, the crypto bug got to me out of the generosity, education and help of others.

I mention these experiences on how I got into crypto because I think it reflects a lot of important values that I think we should hold true in the space: paying it forward, helping others, educating, sharing, questioning the status quo, open mindedness, generosity and most importantly adding value to the space.

I think it’s great news that ICOs and blockchain are completely disrupting the status quo for traditional funding markets because we have an amazing opportunity to craft own culture and style for how we want our industry to work. The crypto industry has potential to be built on totally new culture values. I hope we craft an entrepreneurial landscape that can still help the little guys and level the playing field for everyone. We can reward our help and attention to the best projects — but still treat every team, no matter how young and inexperienced, with respect and generosity. We can lend a helping hand, forgive mistakes, pay back and pay it forward when we can.