Note to readers: Hello world is a program developers run to check if a newly installed programming language is working alright. Startups and tech companies are continuously launching new software to run the real world. This column will attempt to be the "Hello World" for the real world.
A few days ago, something phenomenal happened. Short video app Chingari raised $40 million in just 24 hours from investors. It seems every other startup is raising tens of millions of dollars these days. So what’s phenomenal about this one you ask? Unlike other startups that sell shares to raise money from venture capitalists, Chingari raised capital from global crypto investors on a crowd equity platform called Republic, by issuing crypto tokens.
This is a daring move for any Indian startup that’s not a crypto startup in the first place. The only other startup that comes to mind that did something similar in 2018 is car rentals startup Drivezy. Worldwide, various projects built on the blockchain have raised close to $16 billion so far through Initial Coin Offerings (ICOs), according to data from Crunchbase. Chingari’s $40 million raise is one of the biggest among such offerings.
For the uninitiated, an ICO is like a public offering, but here, instead of selling equity or shares in a company, you sell tokens to speculators or investors to raise capital. The capital can be raised in the form of more stable cryptocurrencies or legal tender. The value of the token or coin goes up as the project that it funded becomes more and more successful.
A little more background before we get to the point: the short video app company founded in 2018 surged in popularity soon after the ban on TikTok. The company, which was already in the market, suddenly saw its user base grow from a few hundred thousand to tens of millions in a matter of weeks. Needless to say, even the founders of the company were not prepared to handle that scale.
But as often is the case, entrepreneurs step up to the plate when it is called for. They scaled backend systems to support massive usage, chased and brought new content creators on board, battled competition from well-funded rivals, and raised traditional capital to support growth. Last week, instead of raising more money from traditional investors, Chingari issued a token called $GARI to raise money.
Even as I praise Chingari’s latest move and the democratization of startup finance, I must caution that these ICOs have also had problems. For instance, in November last year, CNBC reported that Confido, a cryptocurrency start-up that raised $375,000 through an ICO, disappeared with the money. But this is to be expected in most early industries. Crowdfunding had a similar problem back in the day when several projects that raised money to the tune of millions could not deliver on time or simply disappeared.
Now it is possible that the startup may fail. And some investors might lose money. But the risk is no different from backing entrepreneurship, which is inherently a risky business. But this chutzpah is what makes entrepreneurs special. They zig when everyone zags. Moreover, a token sale requires radical transparency from the issuer. They need to put down their plans in a whitepaper that clearly explains the rules of engagement. The $GARI token, as per their whitepaper, is built on top of a digitally autonomous organization, which is governed by token holders. That is, tokens can be used as a way to govern the platform (cast votes) and also to make in-app transactions like paying creators or buying advertisements.And now, after a rather lengthy introduction to ICOs, Chingari and fundraising, here’s my point: India already has one of the world’s most active cryptofinance communities. According to the 2021 Global Crypto Adoption Index, published by Chainalysis, India is ranked second in terms of global crypto adoption. If some of this capital can go into startups and disruptive projects, it can create jobs and create a growth flywheel for the nation. These are early days for cryptofinance in India which lost out on the early decades of the internet. We also missed out on the consumerist boom that made China the world’s largest manufacturing base and lifted 300 million people out of poverty. At the risk of being dismissed as a techno-utopian view of the future, I want to say that this is India’s chance to take a lead in a fundamentally disruptive technology which has global momentum behind it, and we must grab it with both hands. Chingari’s token sale is just the beginning of many to come.