How Bitcoin Startups Can Survive the End of the Unicorn Era
John Biggs is a New York-based writer and editor. After spending years as a programmer, Biggs decided to become a full-time journalist. His work has appeared in publications such as the New York Times, Gizmodo and Men's Health.
Biggs is currently an editor for TechCrunch and the CEO of bitcoin stealth startup Freemit. In this piece, he talks about the challenges of raising funding for bitcoin and blockchain ventures in the current environment.
To read the many, many excellent (and often elementary) posts about the developing 'uni-pocalyse', you would assume that VCs have decided to double-up their fleece vests and hole up in Montana.
This fear is largely untrue, especially when it comes to FinTech funding.
First, remember that PayPal launched in a down year. Carry that bit of information like a talisman against the darkness: in slow economic times it's the folks who save consumers money or enable small transactions without friction that come away winners. This is important. Help people when they need it most and they will thank you.
Second, remember that VCs made a lot of goofy bets. Like really goofy. Check out TechCrunch for the past few months and you'll find startups that do everything but tie your shoes before you leave the house. Heck, there's even an Uber for pumping gas.
But those goofy bets aren't truly contaminating the rest of the markets. Think of this as a reset in the mindsets of big money. The VCs who were patient over the last few years, made strategic bets early and didn’t overpay on multiples are still looking for solid businesses that are investable.
Fresh funds are being raised and they need to be invested.
There is one rudimentary concept that we should never ignore: a great business concept plus strong execution equals an investable business. Strong, diligent investors – regardless of the overall funding environment – will always fund those types of businesses.
A solid VC I spoke to said two things were happening – unicorns (which Wikipedia says are companies "whose valuation has exceeded the somewhat arbitrary value of $1bn") are finally being accepted as overblown and many investments in AdTech and e-commerce have borne no fruit.
Did you ever have an inkling that a well-funded company that sends boxes of snacks or clever bow ties on a monthly basis wasn't really going to set the world on fire? You were probably right.
Should you be panicking? No, but you'd better start working. I'm doubling down on Freemit's financing efforts right now in San Francisco simply because we are looking for a solid partner with lots of experience in the money-sending space.
We are looking for solid partners, not just a check.
If you look at San Francisco VCs as massive, Tesla-driving ATMs you are already sorely mistaken. Some of them spent years at Google making amazing products and now want to try their hand at helping others build.
Others are young, with little experience, but with a passion that burns through like a brand on the forehead. Some had seen so many ups and downs they are lounging on the deck with a cigar while the waves crash against the bow.
Take a breath, as Brad Feld suggests:
"￼While going through my daily reading this morning, I came across a bunch of posts talking about how the sky was falling, Silicon Valley was in turmoil, financing was drying up everywhere, and all the unicorns were doomed."
How about a little love from Om Malik?
￼"There are many reasons for the present down-in-the-dumps sentiment, though it is clear everyone, down from Goldman Sachs to your Uber driver is just guessing. Is this a seasonal case of the blues or will the trouble last a year? I don’t know and neither does anyone else. The same investors who six months ago were busy droning on about unicorns, are furring their brows."
And how about this from Alex Iskold:
"It seems that seed capital will be more scarce. It seems that it will be harder to raise money from angels and VCs. But maybe not.
Because the markets are cooler, there are will be A LOT LESS FOUNDERS starting companies. Anyone who is doing Tinder for this or Uber for that will now think twice or maybe even three times before jumping in. Most like they won’t do it.
Less noise will be great for the founders with domain expertise, building businesses with customers and revenue day one.
Angels and VCs will likely pay a lot more attention to you if you have something real, and that will an awesome, awesome thing."
These guys have been in front of some of the most amazing tech in the world and they know that what really matters is the relentless move forward.
If we forget this, then we forget the very thing that gets us up in the morning. So let's just relax and ease into a different funding environment.
That said, there are still some things you can do to optimize your experience.
The first rule of bitcoin is not to talk about bitcoin
Brothers and sisters, this is the era of blockchain!
If you start saying that bitcoin is a panacea, people will look at you like you've gone full Satoshi. Don't let them.
People who don't understand the space want to invest in this whole "blockchain" thing and people who do understand the space have to take the idea of a blockchain-based business to their superiors.
Why make it hard? I don't care if you have pegged your entire business on the white paper – use blockchain and BTC interchangeably. You'll have an easier time.
Go after FinTech investors
Find them. Nurture them. Love them.
The market has long been enamored with easy problems. Uber was, arguably, the last hard problem the Valley had to solve because it was a problem of logistics.
Now that everyone and their dog has figured out how to get a box of groceries from a warehouse to your driveway there isn't much innovation. FinTech, on the other hand, is evolving at a clip.
Blockchain and bitcoin are the engines of this growth and you need a partner that understands what you're doing.
Go East, young woman
Head to New York and London.
Those are the capital of Fin, whereas SF is the capital of Tech. There aren't many active investors there, but if you make the right partnerships you can find some amazingly smart money on Wall Street and in Europe.
Chortle all you want, but now is the time to work with bankers, not against them.
Stop talking, start doing
One of the most frustrating experiences as an entrepreneur is the request for traction.
Traction is easy if you're shipping dream catchers from Vancouver, but it's hard if you're trying to create a blockchain-based shipping contract management service for big ships.
It is a chicken-and-egg problem: you can't get VC-fundable traction until you have customers and you can't get customers until you get VC-funded traction.
But what if you got a pro-bono customer and a bunch of letters of intent from others? What if you built a huge waiting list? What if you go into a bank accelerator and got recommendations from the street?
If you can't build traction, you can shore up your future with things that simulate it. Build something that kind of works, then build something better.
Build things that work at every stage. Don't plan big and build big pieces. Plan big and build small pieces. Do more with what you have.
If there is anything impressive about the blockchain space, it’s that it is full of unabashed geniuses. But don't let your burning vision block out the reality of development and UX cost.
Bonus tip: Hire a designer
I've seen the best companies laid low by short-sighted investors who can't see past a bad deck. I know appearances don't matter... until they do.
Once you get in front of an investor, you can dazzle them with your tech bonafides. But you can't get through the door if your PowerPoint looks like it was made by my (arguably talented) six-year-old. Hire or befriend a designer. It's important.
In the end, bitcoin and blockchain will win.
We are living in an era that will be very familiar to some older hackers: this perfectly mirrors the rise of the Internet. Bitcoin is a place full of acrimonious debate; fear, uncertainty and doubt; undercutting and silly feuds. It is a place where big business is "dipping a toe" into the blockchain space by making their own private blockchains.
After all that worked so well when they tried to build private networks not connected to the Internet back in the mid-1990s.
Back then they didn't want their employees hopping on the web to look at cat videos and ignored the primary engine of innovation in the 20th and 21st centuries in the same way they don't want the big bad bitcoin to contaminate their pool of traditional, tried-and-tested money moving systems including, but not limited to, ACH, SWIFT and strapping money to a homing pigeon and sending it across borders.
Chin up, friends. To paraphrase the Joker, "Wait'll they get a load of us."
Man in flood image via Shutterstock
Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, CoinDesk.
Bitcoin Miners Back Proposed Timeline for 2017 Hard Fork
With Satirical Trumpchain, Donald Trump Meets Bitcoin