Background
I have over ten years of experience in the “traditional” investment management industry co-managing funds with approximately $2,5bn in assets under management. Throughout the years I have analyzed global markets and invested in publicly traded companies, and companies coming to the market through a so called initial public offering (IPO). Three months ago, I heard about a new form of fundraising, called ICOs (Initial Coin Offerings). Companies, often startups without any existing operations, were raising hundreds of millions of dollars globally, without selling equity or diluting existing shareholders.
This doesn’t make any sense
Initially I thought to myself that this whole concept must be a scam. It was going against everything I had learned about investing in companies and how the world of finance works. Having some time on my hands I decided to research the whole concept behind an ICO.
Through a former colleague I got in touch with Starflow, Sweden’s first ICO. I was able to ask all the stupid questions I could come up with and they answered every single one of them. I am not a big venture capital name but that didn’t matter. David, the founder and CEO, and his team politely gave me the full story of Starflow, the crypto world and the risks behind participating in their token sale.
Reasons for participating in an ICO
Eventually I understood the whole business model and the mission that Starflow and David Gabor had in mind when they launched the company two years ago. I liked it. But what about the idea behind an ICO? Using my traditional investment approach, I concluded that there are five reasons wanting to participate in a token sale:
- Pure speculation and fear of missing out. This is what I would call betting.
- Participating in the vision of the company. Sort of a good deed for society and mankind.
- Participating in the product (often a platform) of the company and expecting that demand for the token used on that platform will increase while supply is limited.
- Buying the token for private use on the platform.
- Supportive macro conditions for the asset class as whole and an industry trend that should benefit the company or the product in question.
Why did I take part in Starflow’s ICO?
Firstly, I continue to see supportive macro conditions for the whole crypto asset-class. With very low returns expected over the next decade in other asset classes, such as equites and fixed income, more people will look for alternative assets to add to their portfolios. The crypto world can be an attractive alternative for diversification and increase in expected return.
Secondly, I believe we have a major shift in the ad-industry. Major brands like P&G are cutting their digital ad-spend because surveys are showing that the average view time for an ad on a smartphone is 1.7 seconds. This is pushing the ad industry to innovate as companies are looking for ways to create efficient communication channels to build their brands. In my view, this is very supportive of the influencer economy. Starflow is building a platform that will simplify exposure to this. Content creators, content consumers, brands and other value providers will meet on one single platform. To my knowledge, no platform offers these features today. This will drive user growth on the platform and in turn the demand for the token.
Thirdly, I see multiple social platforms popping up as the giants of social media, such as Facebook, face a wave of regulation and dislike from their current users. Starflow already has a product that collects the feed from all the different platforms into one. By doing this you can follow your favorite musician, politician, soccer player or any creator in one single application. This will drive user growth.
At the same time the heated discussion surrounding the rightful owner of your digital footprint and your digital identity is in it’s infancy. Starflow is building a platform where, creators of content and their fans have full control of their data and their digital identity. At Starflow, communication as well as exchange of products and services is done and paid for instantaneously, without any fees, middlemen or gatekeepers. This is made possible by using the blockchain technology and the token used on the platform.
Fourthly, Starflow already has a product that existed before even ICOs became popular. In addition to this, the company has a subsidiary called Starflow Talent which basically is a generation Z talent agency. The agency already co-operates with over 50 brands, which have made over 160 campaigns in collaboration with approximately 50 influencers and where the reach is over 80 million followers. The goal is to integrate Starflow Talent into the platform during the summer. The company is already engaged into fulfilling their mission which is obviously important.
But what about the equity?
I keep coming back to the fact that through taking part in the ICO and purchasing the token I am not entitled to any ownership in the company. In fact, I am either betting on that the value of my tokens will increase relative to the currency I used to purchase my tokens for or I intend to keep the tokens and purchase content with it on the platform. If I am right about the demand for the platform and the expected user growth, the relative value of the token will increase. If I am wrong I will have a token that, if not worthless, I will exchange for something else. I get to participate and bet on a startup’s ability to create a platform that millions of people will use. I get to be a part of a global crowd that funds a project that hopefully will distribute the power in the ad-industry and raise the profit margin for the actual content creators.
In the end, a direct investment in a startup or participating in the crowdfunding of the startup, through participating in the token sale, is risky no matter if I have equity ownership or not. If the startup fails I am left with worthless shares or worthless tokens. At least through an ICO I, as an individual, get to fund and participate in a project that would have previously not been possible.
Anelis Redzic | Investor Relations Officer
Starflow
Disclaimer
This article should not to be viewed as legal advice, trading advice, financial advice, investment advice or personal advice.