I can’t help but apply startup investment learnings onto the landscape of crypto-currency investments.
Any startup investor will tell you very few startups make it to success. The path to success looks something like this:
- Build a team, experiment with an idea, build a prototype, try and show there’s a market need.
- Seed round to try and get some semblance of traction.
- Get series A funding ($2-15m) to improve your product as you have shown there’s real potential
- Get Series B funding ($7m+) to mature your product beyond developmental
- Get Series C, D, E…. you’re in fast growth now, it’s time to scale, scale, scale
- IPO onto the public markets, be a house-hold name.
Now here’s the approximate survival rates:
- pre seed 1-2%
- seed funded 2-5%
- series A funded 10-20%
This should be sobering to alt-coin investors. But the story gets worse…
The Dotcom analogy
People liken bitcoin to be like the Internet of circa 1994 vintage. I’m seeing the investment landscape is also in the 1990s, our wild dotcom bubble days. Back then all you had to do was come up with an idea and ride an elevator with a suit and come out with a few million to throw at your launch party.
It’s very similar with alt-coins. You come up with an idea, just an idea, write a whitepaper with liberal use of the word “blockchain” and “groundbreaking”, run an ICO and cash out with a few million.
The alt-coin landscape today
If we survey the alt-coins, we have 750+ today. Only 25 or so have had any kind of work put into them as newish technology that would even qualify for seed funding. The other 700 are like the cliche techie who has a day job but are working on a startup in their spare time.
So we’re down to our 25:
- 24 are at seed stage, working on getting some semblance of traction
2-5% success probability
- Ethereum is at series A
10-20% success probability
- Bitcoin is in its scaling rounds, series C onwards nearing IPO
Most VCs make their money on the scaling rounds, while they lose on the seed and series A rounds.
If this analogy holds up, we can expect maybe 1-2 alt-coins out of 700+ to succeed with our current landscape. It’s a sobering view point, but it’s also what our experience is telling us as we’ve kind of travelled this similar path before.