 Here you are. Thank you for joining us for what's going to be a rapid fire fireside chat on crypto. So just to get started, how many people here own some cryptocurrency? How many people have invested in token sales? ICOs? A few, not many. And how many people here are working on a crypto project right now of some sort? Looks like a few of you. Great. So you know our topic today is mostly going to center on what's happening currently in the in the world of raising via a token sale. And because I'm assuming a lot of people here are focused on companies or are looking to start new projects. So you know both of us have a lot of experience with investing in traditional equity and and also via ICOs and helping companies get token sales up and going. So just to kick it off Marissa, I know you've been working with a lot of companies on their token sales. Perhaps you can share a little about your experience and your background there. So I started a company called Arc about a year ago and we advise companies that are going through the ICO process. So kind of high-level strategy fundraising legal and regulatory frameworks and we're also we do a bunch of syndicate a lot of the deals that we advise and we're also raising a fund. So we have advised over 20 ICOs in the last year which is a lot and the landscape has changed quite a bit which I'll tell you about. Great. And in my background real quickly is I ran several I was an angel investor and I ran a fund focused on frontier tech in this case AR and VR but I was also personally investing in ICOs and valuing projects and meeting with the heads of projects there. So you know we've kind of seen from 2017 last year a lot of new regulation come into play especially in the US. So Marissa perhaps you can share a little bit about you know how do you feel the stuff has changed since you started working on token sales. Yeah I mean so in the beginning when companies would go out and try to raise money through this through an ICO there was hardly any nobody really hired law firms that people were raising 20 million dollars in 24 hours they were not doing KYC on any of the people buying tokens so it was very unregulated and then over the past year we've seen the SEC in the US as well as regulators around the world kind of jump in and make comments some of them kind of indicating that they will regulate cryptocurrencies or you know banning ICOs in the case of China. So what I haven't seen is I haven't seen it dampen the appetite for companies to raise money this way so I think in 2017 there were close to a thousand ICOs and they raised like five billion dollars worth of capital which is crazy easily dwarfing venture capital. So what percentage of deals that you've looked at do you feel have been that can't fall into like kind of sketchy or scammy territory. Let's start with let's start with not not necessarily following the rule of law but more like clearly out to not build a product and just raise money and maybe run away with it. So I would say that when we're looking at companies to work with we very much approach it the same way as a venture capitalist you would look at whether you want to invest in a company so you're looking at the team the product they want to build doesn't make sense have they done this before does the yeah does the technology make sense in terms of the ecosystem and who are their competitors so I would say that we don't get involved in those types of projects and I think most companies that are raising money this way do intend to build product but they're I think the biggest problem is they're raising way too much money and they're not tying it to milestones there is no self-governance for the most part. That's an interesting point how do you determine the right amount of money to raise. Well I think you know in any any startup needs to have some sort of a product roadmap and they need to you know just like the companies you look at they need to have some idea of what their their budget looks like to get to the first milestone whatever V1 of their product is and it really shouldn't be any different through when you're raising money through a different mechanism so. So have you ever advised companies to not raise via token sale instead go the equity route and what were the criteria for that. Yeah I guess we have told companies you know an ICO doesn't make sense for you for various reasons I I don't think it's also either or like I think sometimes companies want to have a seed round of equity and have a few investors on board that are really focused on longevity and you know someone who's going to sit on their board or help them once they raise all this other capital so I don't think it's an either or. That makes a lot of sense. What's your view on that. Well I mean so when we look at companies where it's all about the people and what's interesting is that regardless of the fact that these companies are raising you know tens of millions or hundreds of millions of dollars these are still effectively seed stage companies there's still companies that don't have a product yet that don't have any traction yet but now they're sitting on just like piles of cash and you know when you're investing in frontier technologies it's not an unlike you know a normal startup that's you know maybe building a mobile app or a marketplace or something like that you know these a lot of these companies are building on a platform that's not yet built right so even if you're building on top of Ethereum you're still building on something that has the reach of maybe you know hundreds of thousands or millions of people nothing like the internet right so when we when we look at you know these companies and classify them I would put them in the category of frontier tech yeah a company building a crypto has a slight advantage of company building for VR for example both are nascent platforms so you really have to focus on the people and their ability to persevere and have grit and I think you made an interesting point also about governance so something that you know we consider when we're investing in companies especially at the early stage or the equity stage is how do we you know how do we take them from being you know two or three people that have an idea on a prototype to having a business or path to where they're ready for venture for actual like a series a venture round where you know dollars allowing the scale the business and I haven't really seen that yet in crypto you know if you think about actual consumer applications of crypto outside of store value crypto kitties is probably the closest thing to an actual mass market consumer application and they're seeing tens of thousands daily active users which is you know small by any you know by any measure so from our perspective this is this is truly early stage investing and you have to focus on the team first and like you said right size in the round is a big part of that as well yeah and there's also really cool things that you can do in terms of smart contracts in terms of locking like if you're contributing to a project in Bitcoin you can actually lock it and make the company hit certain milestones or you know tie governance into the smart contract which I haven't seen companies do but I feel like it's gonna be required hopefully in the next year or so yeah it's really interesting it's like you know when you raise an equity round or you start a company you're forced to vest your stock yeah right but for a long while founders didn't have to vest their their tokens that they were raising and additionally investors they would put money in before an ICO get a discount not be locked up and then as soon as the as soon as the the tokens become publicly tradable they would go and sell them yeah right so it's as if you invested in a company pre IPO and then immediately dumped all your shares day one as soon as it started trading which would be obviously awful for any public market investor who you know and gotten after you so like the governance is obviously evolving perhaps we could switch gears a little bit and talk about the regulatory environment I mean if you're gonna decide if you do decide to go down the token sale route yeah how do you not end up in jail well I think the biggest thing is get the right advisors and and hire law firms I mean these are very novel legal issues that even the experts disagree on so you can go to a bunch of different law firms and they will all tell you a slightly different interpretation of the law so it's not something you should be trying to interpret yourself tax advisors the Deloitte is charging like a half million dollars to structure an ICO right now so it's a lot of money the basically the funding mechanism to me is a hybrid between angel and IPO which is crazy because there's a lot in between but it has some factors that are very similar to going through the ICO process and part of that is tax advice structuring really solid legal advice you have to be also it's a it's an international crowd sale for the most part so you have to worry about all the different jurisdictions you're raising money in and get legal advice in all those jurisdiction which is a lot so if you're a founder and you're your team you have a project an idea yeah and you don't have half a million dollars to go and spend on legal advice and an accounting advice how what's the path to actually getting out there with you know with with advisors that are going to help you I mean we really like to tell companies to raise your first seed round of a million dollars in order to go through the ICO process because everything costs money hiring advisors road shows pitching at conferences unfortunately in crypto it's a lot of it is pay-for-play so all the people who are pitching at conferences a lot of them have paid a pretty big sponsorship fee to be there so we did not pay to be here so yeah go go raise money first and if you can't raise money as a seed round maybe you shouldn't be raising money from the general public that's great and so are there any projects that or is there anything that you know you you haven't seen yet that you think would be would make a really great ICO candidate or token sale candidate that's not yet you know come across so I think we're still very much in the infrastructure building infrastructure building phase so if you think about an analogy to web 1.0 like building browsers and you know the consumer kind of plays I feel like it's way too early you can tell me if I'm wrong about that but I think wallets exchanges I'm seeing a lot of platforms for building and launching security tokens because I think that's gonna be a huge in the next year Dave Sacks the ex one of the ex executives at PayPal is actually working on that right that's a couple of us Harbor yeah yeah yeah so I think that we're still in that phase I mean for the most part it's still really hard to buy crypto and hold crypto and most of the people who are even doing it are not doing it in the right way and there's still a lot of issues with security so I think there's a lot of opportunities for companies to address the security issue and maybe they are they do an ICO or they don't but it's still valuable to the ecosystem the idea of security tokens is getting a lot of steam at least in Silicon Valley and a lot of people believe that that's actually gonna be the next wave of ICOs are you seeing any of those start to pop up yet yeah so for those of you who don't know security tokens are tokens that are backed by assets revenues equity basically any type of asset where you can kind of share in that return and they're under registered just to be clear they're also registered they're either registered or they're under an exemption with the SEC or whatever the regulatory body is so I think there's a lot of opportunity to kind of bring previously illiquid assets and make them more liquid so even all the LP interests that people have in venture funds and private equity funds you can tokenize all of those trade them tokenize real estate fractionalize it trade them I think there's going to be a huge explosion of that those types of projects so the idea with security tokens you don't want to be the first lemming off the cliff right because the first person to figure out how to actually do one of these things is probably gonna incur a lot of cost so when do you think the first security tokens gonna become available and start trading well where's it gonna trade it's I mean it's so there's t0 is one of the big exchanges where you'll be able to trade security tokens and they're not live yet but they will be there's gonna be a couple others that pop up in the next six months so there will be places to trade and there are actually a lot of projects that are already doing security tokens so there's a project called 22x which is actually a bunch of founders from 500 startups that incubator got together contributed 10% of their equity tokenized it so it's basically an LP and an in a venture fund but it's represented by a token and the smart contract you get dividends if there's an exit and I think it's just a really cool new model of early-stage tech investing oh it's awesome yeah so I'm sure why Combinator will be doing this and all these other that makes a lot of sense yeah so you know post ICO post token sale how are people you know if some of these companies have raised you know 20 30 40 hundred million dollars in Ethereum or Bitcoin or whatever how are they like what are they doing with those funds like where they living yeah like how they could like how they securing it like like you do you help them with that as well yeah so I mean there's a few things going on one is that a lot of these companies a year ago raised most of their funds in Bitcoin and Ethereum when the price was much much lower so when they were initially sitting on 20 million dollars they're now sitting on 100 million or whatever it is and so they're basically a fund now so instead of being a company there they have to worry about actively trading or investing these assets and so they most of the ones I know are having a little bit of trouble finding the motivation to build their product with you know sitting on that much money and there's also the kind of custodian issue there aren't there now are a few custodians that will custody crypto assets but that that wasn't true six months ago so even just worrying about security and how to store your crypto yeah I mean it's it's everyone's you know the the whole promise of crypto is to be your own bank but turns out yeah extremely stressful to be your old bank yeah it is so just you know just to give you some color here everyone here some color you know we've actually gone through I run a company called rare bits it's a digital exchange for crypto goods I do believe that the consumer stuff is a bit earlier right now but I think there's an opportunity potentially built in the future but we spent a lot of time going through the NICO process and eventually decided to pull the plug on it because we just determined it was too risky additionally and this is something that I found interesting is that most of the experts in the field of people who actually know what's going on it seems like they're really backed up there's you know for you know for our lawyers we use Perkins Coey which is considered one of the top top tier firms in the space you know they're backed up months and so you know have you been seeing that across the board it doesn't make sense for people to go with the big names or can they use smaller firms and you know how is how is your workload have you seen the same thing on yeah I mean I can't take any new companies and especially now that we're investing as well so we have to analyze deals on that from that perspective I'm just I have zero time to do anything but I totally agree that all the people who kind of know what's going on have no bandwidth and it's I I do think it's you know it's it's okay to go with smaller players but if they don't have the experience under their belt it's not going to be useful so so so what will your advice be to come to a smaller company now maybe you've gone and raised your first million dollars of equity you're like I want to go spend this cash go out and do a token sale and and raise you know 20 million plus and I mean the other question I have is that what's the minimum do you think that someone should raise to do a token sale but yeah it's a two-parter yeah minimum you should raise and then what should you do in order to actually get there given this problem I think given the the effort and the cost of capital raising under 10 million doesn't make sense so 10 million plus there's a real real hurdle once you get to kind of beyond 30 million it gets a lot harder to raise capital because you kind of sat you know the market's very saturated as it is and you kind of tap into all the different investor communities and then at that point you really have to go deeper or wider or you know do something to raise the the rest but I think there's a huge sense of like urgency and FOMO and I think it's better for companies to take their time and realize like yes there are regulations that shift you know basically on a daily basis so you're gonna have to you know adjust your playbook as you go but I think this feeling of like if we don't do it in two months like we can never do it that's a bad approach that's just when you end up going out and having to push your sale date back and a lot of things that are that don't look very good so it doesn't make sense to time the market all obviously crypto's down significantly yeah doesn't make sense to time the market wait sorry what's your question that doesn't make sense to time the market to try to time the market yeah I mean okay so there's two things I think it's it's hard for me to tell whether it's better for crypto to be up or down because when it's up there's a huge opportunity cost to you know taking your Bitcoin and buying another type of token there's also the whole issue of realizing capital gains so I'm not actually sure I mean I think people who are in the space who are sitting who are kind of the crypto nouveau riche who are in the last year or so have are sitting on huge piles of crypto those people need to diversify anyways so it's kind of always a good time to raise money from them great thank you so we're on time but we'll be at the the cafe later for Q&A if you have a specific question for us thanks again