Democratization of venture capital with Initial Coin Offerings - an interview with Brock Pierce
"This [an ICO] can make traditional venture capital companies obsolete in the coming few years. Every industry eventually gets disrupted, venture capital hasn’t been disrupted. So VCs invest in innovation and they finance the disruption of industry but they very rarely innovate themselves," Brock Pierce, Co-Founder and Managing Partner of Blockchain Capital.
Blockchain Capital, the venture capital firm which backs startups using blockchain technology, now plans to transform the way companies and business ideas raise money.
The firm is coming out today with its Initial Coin Offering (ICO) to raise around USD 10 million for its latest venture fund.
But what is an ICO? It is similar to an Initial Public Offering (IPO), where a company sells its equity on an exchange. In an ICO, entrepreneurs looking to raise capital for a cryptocurrency (like bitcoin) project, offer part of their blockchain based tokens at a discount to prospective investors. Some cryptocurrency projects offer a combination of equity stake as well as discounted tokens.
Brock Pierce, Co-Founder and Managing Partner of Blockchain Capital and Chairman of the Bitcoin Foundation said that an ICO or what the blockchain technology is doing, is the next major leap in the democratization of venture capital or early stage finance.
Listen to the entire conversation.
Speaking to Moneycontrol from the sidelines of SingularityU, INK India Summit, Pierce said that Venture capital is a sector where only the elite, and big high net-worth rich people have had access to this asset class.
He said that crowdfunding was the first major step in the democratization of early stage financing or venture capital, where it opened the market to a broader set of potential investors. ICO is nothing but a more sophisticated form of crowdfunding which will make such deals available to a much larger number of people who would not have access otherwise.
"This [an ICO] can make traditional venture capital companies obsolete in the coming few years. Every industry eventually gets disrupted, venture capital hasn’t been disrupted. So VCs invest in innovation and they finance the disruption of industry but they very rarely innovate themselves," he said.
Brock further said that this is an experiment through which he wants to show entrepreneurs the right way of using ICOs for funding.
Listing his views on custom made private, centralized blockchains, he said that the approach towards its adoption has been very similar to how big institutes approached the Internet in the early days. They used the intranet, which is like private internet similar to the use of private blockchains.
He said that a large government or company has to be cautious towards such disruptive innovation and needs to learn how to walk before it starts to run.
Bitcoin civil war: The hard fork debate
The ongoing debate on how to scale the blockchain in order to accommodate increased volumes of transactions has the entire bitcoin community divided and has raised the chances of a hard fork.
Pierce said that being open source in nature, the debate on bitcoin scalability is public and so we are going through that unpleasant process of how to scale bitcoin.
When asked between Segwit and bitcoin unlimited, which one he thinks is a more feasible solution, he said, "Segregated witnesses is very good code, I am fan of the work that’s been done by the Bitcoin Core but they have done a very poor job at communicating with rest of the industry."
Bitcoin legality debate in India
Recently, members of the Indian government and the RBI has raised concern over the unregulated bitcoin industry in India and some also want it to be declared as illegal.
Many countries have laid down the rules under which bitcoin businesses work and Japan has also declared it as a currency.
Despite of rushing and declaring bitcoin as illegal, the regulators should monitor the progress of this innovation and watch what the other countries are doing with it in the world, advises Pierce.
"The advise that I would give regulators is that whether they believe if innovation matters or not and whether they want to embrace innovation or prevent and stop innovation. Innovation is always going to come with concerns," he said.
"The rest of the world is letting innovation occur in this area, does India not want to be competitive with the rest of the world? Does it want to prevent a technology that could be as innovative as the internet?" he asked.Follow @shukla_05sid