Value-added investors effectively act as "free" management consultants, and also make introductions to potential customers and partners. Those services are valuable, at least to founders who lack experience and industry connections. Small investors can't provide those services.
Most ICOs are simply scams and in no way comparable to legitimate investments.
Wouldn't you prefer an advisor then? Same exact benefit but with better alignment. Usually advisors are actually currently in the industry and can give meaningful introductions outside their portfolio.
I also don't think it's fair to call all ICOs scams. It's certainly in its wild west phase but provides an alternative funding mechanism.
- Maker/DAI is a sort-of-stable coin. [4] DAI is supposed to be stable with respect to dollars, but is backed by Etherium and the right to dilute Maker coins. So Maker holders are subordinate creditors. Unclear how that will hold up in a downturn. Interesting, though.
- Filecoin has been going way up lately, with institutional backing. That's interesting and needs further attention. It's a scheme for trading disk storage capacity.
- Chainlink has gone way up. Although the system for actually storing files is only in beta, and hasn't been priced yet.
- Cardano - way up at the ICO, then way down for three years, now back up to slightly above the ICO peak. This is a proof of stake system.
- Etherium - big peak in 2017, crashed to about 15% of peak, now back up.
All true but what matters to ICO investors is their buying price. For Ethereum for example, the ICO price was between 30 cents and 60 cents, depending on when they bought. At the bottom of the post-2017 bear market it was $82, and at this moment it's $2098.
The only way Ethereum ICO investors could have lost money is if they bought over 43 cents, and sold when it dipped down to that point several months after launch.
Advisors can certainly play that role, though they’re often low commitment roles with a small degree of aligned interests. Advisors are on their side and investors are on yours ideally.
Consider also that bank loans require that you make frequent structured payments with interest. That simply doesn’t apply to venture backed investments. Nobody ever got anywhere at a bank by taking risk. The role of the VCs is to provide the right level of risk tolerance on their capital.
> I also don't think it's fair to call all ICOs scams. It's certainly in its wild west phase but provides an alternative funding mechanism.
Usually switching out of the wild west phase is marked by regulation.
VCs certainly have a role for high risk high reward investments. Equity is very expensive and if you can avoid giving it up, you should. Bank loans aren't an option for everyone but if both VCs and loans are on the table, you should pretty much always take the loan (unless it's personally collateralized).
I don't have any issue with the idea of VCs and generally I think they're better aligned than private equity. The big point is not to value smart vs dumb money. Just take the best deal and use the money you saved to hire someone. No amount of "smart" is worth even an extra 0.5% on the cap table. When comparing VCs, I'd like to safe vs dangerous instead. Does a VC have a reputation of creating problems for founders or giving them space even if things aren't going well? That's way more of a consideration than if a VC has better intros or a smarter team.
> No amount of "smart" is worth even an extra 0.5% on the cap table.
I respectfully disagree. Your equity is worthless until it’s worth something. That 0.5% could be the difference between a unicorn and a bankruptcy. I would counter with: don’t over value your equity. Don’t make stupid decisions of course but don’t let 0.5% be the reason you fail.
An investor has other constraints that prevent them from acting in the best interest of the company. Especially VCs have a timeline they need to hit for their fund so they'll push founders to make -EV decisions to speedup the timeframe. Investors also only care about the value of their portfolio, not the value of an individual company. Portfolio infighting, for example lawsuits, is highly discouraged even if it's for the benefit of one company. An advisor is usually an industry professional with fewer constraints and fewer possible sources of conflict.
Most ICOs are simply scams and in no way comparable to legitimate investments.