Are initial coin offerings (ICOs) the future of tech startup fundraising? BTC Labs CTO Justin Litchfield certainly thinks so.
This kickstarter form of fundraising involves companies offering cryptocurrency tokens to investors anywhere in the world to fund the development of new products or cryptocurrencies.
But instead of giving up ownership and board seats to investors, companies dish out tokens that will hopefully increase in value as the company gains momentum.
Litchfield and his team are doubling down on the ICO process, creating a platform that makes ICO raising more secure and more efficient for interested companies and investors.
“We’re democratizing the access to equity,” said Litchfield.
The first major ICO was in 2013 from Ripple, a San Francisco-based fintech company founded in 2012. Ripple sold 100 billion XRP tokens to investors to fund the development of its real-time global payment platform in exchange for flat currencies or bitcoin.
Ethereum followed in 2014, raising the largest ICO at the time, totaling $18 million. Since then, the ICO process has completely taken off.
This past September, Techcrunch reported that ICO funding hit a record high in Q2, totaling over $800 million.
However, as widely accepted as ICOs have become — except for in China and South Korea where ICOs are now banned — Litchfield said there tends to be a lot of technical problems at the time of crowd sales.
“It’s very tricky to handle a bunch of transactions at once to make sure everyone gets a fair deal,” said Litchfield. “Some platforms have done this and do it fairly well, but they are very expensive.”
When he calls it expensive, he’s not exaggerating. Litchfield said these programs can cost companies $250,000 to run for a few hours during the sale.
To get around this fee, Litchfield said companies have adopted some non-secure habits like sending an unverified iMessage requesting recipients to “send money to this account.”
“It’s super sketchy when it’s someone you don’t know,” said Litchfield, adding that the average ICO investment is about $4,000.
That’s where BTC Labs’ software comes in, providing a free platform for companies to host secure ICOs on.
“We want to keep people from getting cheated and scammed,” said Litchfield. “The quicker we can take people out of risky situations, the faster the whole ecosystem wins when there is more capital coming through these channels.”
With BTC Labs offices in Los Angeles, Nashville and New York City, Litchfield is here in Austin developing the product and his team.
“We’re building a software company here, and hiring five to six engineers and four to five support people,” said Litchfield.
While Litchfield plans on making ICOs easier for companies across the globe, he said Austin can especially benefit from this style of fundraising.
“I know this tech scene, and I know it’s a place that can benefit directly from more capital,” said Litchfield. “I spent four to five years trying to raise money here and as soon as I went to California I was able to secure funding rather quickly. ICOs are a huge opportunity for the Austin community.”
