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1Mby1M Virtual Accelerator Investor Forum: With John Frankel of ff Venture Capital (Part 2)

Posted on Thursday, Jun 14th 2018

Sramana Mitra: Let’s look at 2017. This is our last roundtable. We are about to close the year off. You have, I imagine, seen thousands of deals this year. What are the trends in your deal flow?

John Frankel: We’ve been leaning heavily into AI, cyber security, robotics, FinTech. We’re seeing a ton of opportunities in those spaces. The reality is, AI isn’t a space. It’s a toolset. You’re going to see AI embedded in almost everything over time just the way mobile or SaaS is when you look at enterprise. With regard to other trends, there’s a lot of noise, excitement, and manic behavior around Blockchain and ICOs. We’re looking at it and studying it. It’s not necessarily an area that we think institutional capital should be playing today.

Sramana Mitra: We’re trying to understand the Blockchain and ICO phenomenon as well. It seems very capital intensive. We have had entrepreneurs come here. Vinny Lingham has raised $2 million on an ICO for his venture. He went and did it as an ICO. He basically raised seed capital using an ICO. Are you seeing much of this in your orbit?

John Frankel: You shouldn’t confuse an ICO with seed capital.

Sramana Mitra: Normally not.

John Frankel: I understand, but maybe I’m being pedantic here. Venture capitalists tend to invest in equity or lend money through convertible notes. An ICO is an offering of coins and those coins are generally controlled by a foundation. There’s a question of oversight and governance that often isn’t being addressed. That being said, we’re definitely seeing companies that cannot raise money from venture capitalists raising money on ICOs.

We’re seeing some very interesting projects being kicked off through either an ICO or SAF as security for future token. The valuations are about a hundred times what one might consider to be reasonable in some cases. As we know, not all tokens are going to end up being valuable at the end of the day. I think it’s an interesting space.

I think that as students of the market, we need to understand it. A ton of money will be made in that space both by entrepreneurs and by investors. A ton of money will be lost in the space by investors, less so by entrepreneurs. It’s an area that requires lots of studying and understanding.

The test for an entrepreneur should be, “Does the business I’m trying to build require a Blockchain token that is not only sufficient but necessary. Will the solution be ten times more efficient or will it enable a solution for one-tenth of the cost. If it hits those criteria, then it’s incredibly valuable.

Sramana Mitra: To me, it seems like the early days of the crowdfunding trend. For a while, everybody is like, “Crowdfunding is going to solve all early stage financing problems.” I never thought so. Crowdfunding eventually ended up finding its niche and it hasn’t become the be-all-end-all solution.

It has found its biggest niche in pre-ordering physical products. That’s the one place where it has made a significant difference in terms of early stage financing. Equity crowdfunding of very complex technologies just hasn’t taken off.

John Frankel: It’s interesting. I would still say we’re in the very early days. You’ve had some early adopters who’ve been burnt on some of these pre-ordering of products. I think the space has cooled off with regard to crowdfunding for products. I actually think the space shrunk last year. We’re investors in Indiegogo.

Indiegogo has looked at the problem very differently. Equity funding for products is interesting. What are the other things we can do to really help entrepreneurs? They built a marketplace. They’re an on-demand space which really allows for entrepreneurs to have a virtual shop. They also do equity crowdfunding. It has been very successful in this space. They launched, last week, a platform to support ICOs.

I think what they bring to the table is something that’s missing with a lot of these, which is credibility. The projects that they allow on the platform are pre-screened for being reasonable. They think that by providing a legitimate space for ICOs to be issued, they’re doing a service to the space and entrepreneurs. I would agree.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With John Frankel of ff Venture Capital
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