There’s a new and snazzy business model in town helping startups raise billions of dollars in seed capital without having to spend months or years on demos and endless pitch decks in front of tight-fisted VCs.
The new model doesn’t even need a real product before a business can raise millions or even billions of dollars. Why bother with the drudgery of years of product development when you can use part of your millions to buy real-world companies with real products?
In the new world economy, all you need as a startup is an idea (meritorious or not), a coin and gullible investor lining up to throw money at your fledgling business.
Welcome to the world of ICOs, where your success is only limited by your imagination. A world where pre-product ICOs have become the norm rather than the exception, with the largest ICO to-date ($4 billion) being by a company with zero product.
Now, the ICO model has taken yet another intriguing turn and could soon start giving mutual funds a run for their money.
Case in point: crypto startup TRON, which recently forked over $140 million for popular P2P file-sharing company, BitTorrent. If you are already wondering what synergies a file-sharing company could possibly bring to the table of a cryptocurrency company, then you’re probably a purist who’s not very well versed with how the crypto world operates.
TRON did not buy BitTorrent to gain some kind of economy of scale or to bulk up and trounce the competition. Rather, BitTorrent will help give TRON a cleaner face by legitimizing its tainted model. Related: Trump Orders “Space Force” With Zero Support
The company has been facing controversy regarding its alleged plagiarism of Ethereum and FileCoin during development. Nevermind the fact that BitTorrent is controversial itself.
Secondly, buying a company that claims to move 40 percent of total internet traffic would no doubt put it in good stead with millions of its users.
Thirdly, TRON probably felt the need for some redemption after all the misguided pumping by the idiosyncratic John McAfee.
The final reason is trite: TRON bought BitTorrent simply because it could afford to. After all, what’s $140 million spent on a little PR exercise when you are a company worth nearly $4 billion?
If BitTorrent ends up being totally worthless to its cause, then TRON can simply resell it or write it off and get on with it.
Risky Business
It’s a well-established fact that 90 percent of all startups fail.
Although a good chunk of those failures state in their post-mortems that lack of sufficient funding did them in, having tons of cash without a solid product will not improve the odds for ICOed companies. If anything, it’s likely to make them worse by making them complacent and prone to deviate from their core competencies.
(Click to enlarge)
Source: Fortune
According to a 2014 survey by CB Insights, the vast majority of startups fail not due to lack of funding but rather due to a lack of market need for their products.
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Specifically, 42 percent of founders mentioned it as their biggest cause of failure compared to just 29 percent who said lack of cash killed their young businesses. If ICO companies have no idea how to come up with useful products, the next best thing is for them to use their tons of cash to buy companies that actually have marketable products.
Maybe the idea of a crypto company buying a file-sharing company is not so dumb after all.
By Alex Kimani for Safehaven.com
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