The good news: venture is crashing. It’s time to seed again

TL;DR – we are facing (another) economic downturn. But every cloud has a silver lining. This time the downturn provides the opportunities to start seeding startups again in a sane and financially-viable way.

The venture downturn is here” scream the headlines. “Tech’s new season of shrinking”, say the financial articles. Financial analysts do their usual job and spout doom and gloom predictions for the tech market (Business Insider: “The tech industry is bracing for a historic slump”). Me? I sit back, look at the markets, and smile. It’s my favorite time again. It’s seeding time.

Anyone actively involved in venture investing can skip to the next paragraph, but if you’re still here let me give you a brief recap of the startup funding journey. The average startup would start its life with a seed/pre-seed/angel investment. A small (relative term, I am aware) investment that will allow it to reach its first major milestone before raising more substantial rounds of capital to fuel growth (known as the ABC rounds). For this stage I will use the all-encompasing term “seed investing”.

In recent years, with tech booming, seed investing has been upturned. Seed rounds have ballooned in size from an average of $1.7M in 2010 to an average of $4.6M in 2021, while the total number of investments (i.e., companies raising money) has shrunk.

Source: CrunchBase

The reasons for that are obvious. With more money flooding the market, VCs raise bigger funds, and bigger funds prefer to invest in later stage companies. Later stage companies, flushed with cash, recruit talent aggressively, raising salary costs, and draining the talent pool in the major tech ecosystems. This, in turn, means less incentives for talented entrepreneurs to leave cushy jobs to start a new (and risky) venture, and a major cost hike in recruiting talent for early-stage companies. As a result, seed stage companies require more capital to hire and seed rounds grow while the number of seed rounds decrease. Just to put some perspective behind this process, between Q1 of 2021 and Q1 of 2022, total seed investment amount grew by 45% while then number of deals decreased by 33%!

Source: crunchbase

For VCs this is bad news. To quote the article that provided one of the charts above: “’The imbalance between supply and demand has pushed round sizes and valuations to a point where investors are no longer rewarded for the risk they take, and seed rounds are now done at Series A prices and sizes from three years ago,’ Jeff Clavier of Uncork Capital”. So it’s no surprise that enthusiasm for seed stage investments has waned.

For early-stage startups this was even worse news. The snowball effect is that while VCs may have invested larger sums in seed stage companies, they required them to be more mature and provide more aggressive KPIs. Which, in turn, meant less companies fit the VC seed-stage mold and less seed investment rounds. Rinse and repeat.

But now the wheel is turning, again. Just like in 2000 and 2008, a downturn is coming, and VCs are pulling back from the larger deals, tech companies are laying off staff, and the future is looking rosier for sane, seed-stage investments.

Don’t believe me? Look at the numbers from the last turn, as published by (again) crunchbase.

Source: crunchbase

In the years following the 2008 downturn, the number of seed funding rounds tripled while the number of later stage rounds remained virtually unchanged. These seed investments are the reason for the current tech boom and the existence of so many unicorns.

So what happens next? I am not a prophet, but based on past experience (I have been involved in startup on and off for over 20 years), a lot of talented people will find themselves out of work or stuck in a tech company that is stagnating, and will start developing their own thing. These new entrepreneurs will be able to gather teams around them from other talented people who have found that the beer taps (or organic yogurt fridge) in their previous company have run dry. We’ll see a new boom of companies seeking smaller funding amounts to get to market. We’ll see seed stage opportunities again. The flood gates will open. Today, my friends, is a good time to start a seed-stage fund.

Angels, micro-VCs, rejoice! Now is the time to return to pre-seed investing

TL;DR – we are facing an economic downturn. Now is the time to incubate new ideas that will emerge from R&D once the market awakens. The people who can invest in the pre-seed stage now will reap the largest rewards after the recession.

The economic downturn is upon us

The COVID-19 pandemic has gone through economies like a tropical storm, leaving havoc behind it. It is not yet clear the extent of the damages, but one thing is clear, it will take the market several years to bounce back. This is even more evident in the world of venture investments, where the term “bubble” was already beginning to pop up since 2018.

We are already starting to see VCs holding back on investments and lowering valuations, and I assume this trend will continue for at least the next year if not for longer. We have yet to fully understand how the results of the enforced social distancing will play out, but it is quite obvious that many businesses will not survive this period, which may start an economic snowball that will drive us into a prolonged recession.

For startups this means harder times are coming and fundraising will be difficult (even more than usual), especially for later stage companies with unclear business models. How bad will it be? It is impossible to know at this time. However, what we can do is examine the last two major downturns – the 2000 dot-com crash and the 2018 financial crisis for clues.

Figure 1: Funds invested in US startups by VC funds


The dot-com crash was directly linked to the over-valuation of startups and it took 3-4 years for the confidence to return to the market. The 2008 financial crisis mostly placed VCs into a holding pattern while they waited to see the effects it will have on the market and within just two years investments returned to their former levels.

I hope that the COVID pandemic crisis is more like the 2008 financial crisis than it is the 2000 dot-com crash, but you never know.

The good news

Downturns are also an opportunity. They (usually) have an end. That end, the period of exiting the recession, is the best time to introduce a new company or product to the market.

I launched my first company in 2003, just as we were getting out of the dot-com recession and the fast growth we experienced (with almost no marketing) was mostly due to the post-recession feeling that was hitting the markets. I have been working as a consultant and investment banker for startups since 2011 and I have seen a post-recession laxness taking hold of VCs in the post-round A funding rounds, something that was difficult to see since late 2008.

But you need to prepare now

However, being able to launch at the end of a recession requires you to be ready. That means finishing all the R&D and having a market-ready product. Luckily, the best time to go into deep R&D mode is during a recession – there is usually an abundance of quality employees, costs are lower, and you will find more openness to experiment from design partners and customers (as long as it doesn’t cost them anything).

So, the real question is, how can you finance your R&D stage during a downturn?

Angels and VCs, this is where you come in

R&D for new startups is usually financed by the pre-seed or seed stage. These are small rounds, often supplemented by government grants, that are performed by high net-worth individuals and small VC funds (known as micro-VCs). The rounds, often up to $1 million, enable these angel investors to attain a respectable stake in the company for relatively little.

The smart angel investor will use the downturn to seek out new opportunities, knowing that at the end of the recession the valuation for his investment will be much higher and he will profit twice – once from the direct investment in the company and a second time from the market upturn.

It is no surprise then, that in both previous downturns, seed investments remained steady, while round A and higher rounds declined. It is more apparent after the 2008 financial crisis when angel investing and seed rounds continued to rise.

Figure 2: US angel & seed deal activity (2006-2020)

Source: NCVA and Pitchbook

While early-stage (late seed, rounds A and B) investments lagged and began and only started increasing in 2010/11.

Figure 3: US early-stage VC deal activity

Source: NCVA and Pitchbook

Therefore, now is the time to double-down on pre-seed and seed investments. It is important for your portfolio, but it is also important for the economy. If we don’t have enough early-stage companies when the recession starts to end, what will the VCs invest in? And startup founders – don’t hesitate to start your new venture now! Just make sure that the idea itself is viable

What exactly is investment banking for startups?

Let me start off by explaining why I felt the need to write this rant. I want to share with you one of the biggest challenges of my professional life – answering the innocent question: “What do you do?”. Yes. Whenever I meet someone new, the first thing they ask is, “so, what exactly do you do?”. When I answer, “I do investment banking for startups,” I usually draw blank stares and confused nods. Investment banking is usually associated with power-suited professionals closing multi-million-dollar deals on Wall Street, not with techie Israelis you meet at a conference or meetup. I, therefore, have to explain the long answer, which is to break-down the process and method of investment banking and how it perfectly relates to startups.

Understanding investment banking in 5-seconds

In short, investment banking is the process of connecting companies with capital. Sounds simple, right? It’s not. Investment banking firms offer a wide variety of services that, in the end, culminate in exchanging money from an investor for securities in a company, these services may be provided to both the company and the investor in a deal to ensure its success.

The first thing you need to understand is what an investment banking firm does (did you notice how I did not say ‘investment bank’? There’s a reason for that, performing the investment banking process does not mean you are a bank, and I do not want to have the two confused). An investment banking firm seeks to help companies find capital and/or help investors find opportunities for investment. However, as opposed to brokers (or “finders” as they are commonly called), investment banking requires the company and the investment banking firm to be (for lack of a better word) invested in an in-depth process and long-term relationship that will eventually culminate in a capital injection to the company.

An investment banking firm will not simply bring any company that approaches them for capital raising assistance to the firm’s network of investors. That would be futile and irresponsible. As part of its responsibility, the investment banking firm will perform a measure of due diligence on the company, its business, its market, and its future prospects. A company that fits all the necessary requirements will then undergo a process of financial advisory, which is business-speak for selecting the right way to raise capital, e.g., type of security (equity, bonds, IPO) and its pricing, and only then will the investment banking firm locate the right investors for the company and present to them the investment opportunity. Startups, of course, need these services most of all. However, most startups fall under the illusion that investment banking is for mature companies seeking late-stage financing, M&As, LBOs, or IPOs. They are wrong.

Why investment banking is a good fit for startups

Many early-stage startups prefer the spray-and-pray approach to capital raising. A startup founder will send its investor deck, one-pager, or business plan to everyone (relevant or not) and will employ brokers to shop it around to their networks in the hope of closing the round. This is a wasteful and time-consuming process that mostly results in disappointment or a bad investor-startup-fit. A smart startup will enlist all its resources, and most of its management team, to pre-qualify and approach investors, to internalize investor feedback and to follow-up on any investor lead that is truly relevant. Regretfully, the process that smart startups employ is very time and capital intensive.

There is really no reason that the same methodologies that are used in the investment banking process for large companies seeking capital cannot be applied to a startup in their quest for funding, employing investment banking methodologies to assist startups in improving the fundraising process, maximizing its effectiveness, and lowering the time investment necessary by the startup’s management.

So, back to the question – what is investment banking for startups?

Let me break down the investment banking process. Essentially, there are three major stages to the investment banking process: becoming investable, investor lead-generation, and closing the round.  Here’s what happens at every stage:

Becoming investable – perhaps the most important, yet most overlooked aspect, of the investment banking process, is ensuring that the startup is a viable investment opportunity. This means evaluating the current status of the startup, identifying areas for improvement, and focusing on those areas that do not cost additional money. Typical areas include strategy, business model, plan, story, materials, pitch, team, partnerships, traction, investor strategy (including deciding on the type of investment, sum, and valuation), and more. The process of becoming investable can take anywhere from a few weeks to a few months. During this process, investment bankers work with the startup’s legal and finance team to ensure full compliance and preparedness for all eventualities.

Investor lead generation – most startups assume, incorrectly, that we will simply send their materials out to our network of investors. If that was the case, we would be no better than regular brokers. Each startup must be matched with the investor that suits its specific industry, stage, offering, and strategy. Doing this might include introducing the startup to investors the investor bankers know personally and work with, but most often means identifying the relevant potential investors, pre-qualifying them, and introducing them to the startup CEO for direct contact. Some CEOs like to have their investment bankers in the meetings or roadshow; some prefer to do it alone.

Closing the round – once investors start showing interest, the investment bankers will be involved in all investment negotiations and investor due diligence to ensure that the deal closes in the best results attainable for the startup. Hands-on involvement by investment bankers will include providing all necessary information to the investor in a professional manner, advising on terms such as valuation, investment amount, warrants and options, board composition, as well as other business terms.

Often after the investment, the investment bankers will continue taking an active part in the company, such as sitting on the board of directors or continuing in an advisory fashion to begin preparing for the next round of funding, which will inevitably arrive (inevitable means within 12-24 months).

How long is this process? The investment banking process is lengthy and may take anywhere from three to six months and more.

Who is this process for? Usually, I find that such a process fits a startup raising $1 million to $10 million, which means a large seed round (in Israeli terms) to an early B-round. The sweet spot is usually Round A, which on the one hand, is difficult to execute while trying to build a business from scratch and on the other hand, is large enough to warrant such an extensive move.

When should you start? Truthfully, you should start your next round as soon as you complete your current round. Yes, you heard (or read) me correctly. If you just finished raising your seed or Round A, take a couple of weeks to celebrate and then start working on your next round before its too late. My partner, Aaron Rothenberg, wrote a blog entry about just this, and you can read it here.

How much does it cost? I will not go into exact numbers here but take into account that as a rule of thumb, each funding round will cost you approximately 10% of the sought-after capital for the various services, expenses, and fees you will require. This means that if you are raising $1M, you should be prepared to depart with $100,000 for that raise. Some of this money is paid in advance and some after the money is in your account. I hope to write another blog entry about the real cost of fundraising in the near future. Well, if you got to this section, then congratulations! Next time we meet, and I tell you I do investment banking for startups, I hope you will know what that means. And if you still don’t, feel free to send me an email, WhatsApp, or any other form of communications, and I will gladly explain more.

Are you thinking of raising your next round? You may already be too late!

Money makes the startup world go ‘round. But money tends to run out fast. One of the common problems startups face is just that: running out of money. In the back of every founder’s mind, there is a countdown to running out of money. In investor speak, this is called “the runway”, that is, the cash balance in the bank divided by the startup’s monthly burn rate. The runway tells you exactly how much time is left before you need to close shop.

The real cost of raising money – your time

The rule of thumb is that raising a new round of capital takes an average of six months. This might be ok when it’s the first round of capital because the founders may still have salaries from other jobs during the road-show and spend is usually very low.

However, this time-frame is very problematic when it’s the second or third round of capital. Why? For several reasons:

  1. The startup’s resources are diverted to the road-show. This slows the operations of the startup, which in turn hurts its chances of successfully fundraising. A real catch-22. You fail to raise due to the lack of progress during fundraising.
  2. Demands from investors are more stringent. It was ok not to understand what investors want and need when you just started out, but for your second round, you are expected to show KPIs that are relevant for investor decision-making, i.e. “talk the talk”, have a clear indication of where you stand vis-à-vis product-market-fit, and present professionally. When you focus on day-to-day startup operations, often preparing this information clearly and succinctly is ignored until the last minute which adds two-three months to the investment process.
  3. The instability seeps into the company culture. Hiring talented people is easiest when the startup has money in the bank to pay salaries for at least one and a half years. As time passes, people who work for the startup are risking that the fundraising will fail or be late, which means getting let go, or suffering a salary reduction, or not getting paid on time. When people start fearing for the future, panic grips the organization and becomes part of its culture.
  4. Reality trumps “the plan”. Milestones and financing plans make a lot of sense when they are created. A typical timeline posits 18 months of capital runway post first financing. Twelve months are used to reach the next funding milestone, and six months are used to raise the next round of capital. This works if everything goes smoothly and on time. Things never go smoothly or on time. A common adage of investors is that reaching the milestone takes twice the time and three times the money.

Want to avoid running out of money? Work differently. Start sooner (that means now!). Seek outside assistance.

Starting sooner

Many fundraising activities can already be done immediately after raising the last round of capital.  This means that operations are working in parallel to the next round of fundraising from day one. Examples of fundraising preparation include strategy, business planning, documentation, milestones, validation, team building, pre-marketing, and investor relations.

By continuously doing these activities from day one in parallel to operations, you gain four major benefits:

  1. You save time
  2. You dive deeper into each item slowly improving over time
  3. You are ready to fundraise at a moment’s notice
  4. All decisions are focused on what is really important – closing the next round

Seek outside assistance

Another way to avoid wasting time and resources (and eventually running out of money) is simply to hire professionals who specialize in investment banking to be dedicated to this work from day one. In this way, the resources of the core team can focus on the product, and the financers can focus on the money.

A funding-dedicated team can prepare for investors as above, and also start a dialog with investors, ones with whom they already have an ongoing relationship, about the startup. The investment bankers and startup founders then learn what the investors’ objections are, how they view the market, and if they have similar companies in their portfolio. All this information is valuable as it saves time, enables focusing on the relevant investors, and improves the pitch.

So what are you waiting for?

The Angel Investor Manifesto: why and how to invest in pre-product startups

Up until around 2010, many startups would raise pre-product seed rounds using only an investor deck, idea, and the spark in their eyes. Those times are long gone. Today investors know that the cost of reaching a viable product (in many sectors) is low enough that serious founders will create their product, and initial traction, before seeking external funding. Continue reading “The Angel Investor Manifesto: why and how to invest in pre-product startups”

Digital securities are revolutionizing investing – and it’s going to be amazing!

There is a silent revolution happening today in the early-stage investment space. It’s a confluence of all the various technologies and investment methodologies of the past three decades, and yes, it is going to be amazing. What am I talking about? Digital securities, or as they have been previously called: security tokens (I will probably use these two terms interchangeably during this post).

Let’s start from the beginning. What is a digital security?

A digital security is essentially a blockchain-based representation of:

  • financial assets, such as stocks, bonds or some other types of monetary collateral
  • physical assets such as gold, real estate, or simple fiat money in the bank

This representation takes the form of a digital token, that is a set of numbers that securely symbolize a one-to-one relation with the underlying asset. I will not go into the whole concept of blockchain cryptography, but to make a long story short, using blockchain tokens for digital securities ensures that there can be only one copy of each token and that just one individual can own it at any given time. Using blockchain then ensures that fraudulent transactions (i.e., sending the same token to two different people) are near-impossible.

But what can you do with a digital security?

A digital security (token) is used therefore to represent ownership over some underlying asset. This means that if you hold the token then the underlying asset actually belongs to you. Much the same as any digital document, you can either keep the token to yourself or send it to someone else. However, since there can only be a single copy of the token at any point in time, sending it to someone else means that you are giving them ownership over the underlying asset.

This opens up a whole world of potential peer-to-peer trading possibilities that today are very difficult to perform. For example, if today I hold equity in a company, and I wish to sell it to someone else (provided this transaction meets all the regulatory restrictions), I will need to go through a process (the exact process is very much jurisdiction dependent) that usually involves some 3rd party mediation (e.g., a broker), and a slew of paperwork. With tokens, transferring ownership can be as easy as pressing a button on a mobile app.  

Why do we need blockchain for this?

Distributed ledger technology, a.k.a. blockchain, is the technology that makes all this possible. Before blockchain, the information about ownership of assets had to be held by some company, for example, a bank, and all transactions had to go through that company. This limited trading potential and usually helped that holding company make a lot of money. By using blockchain, we can remove the intermediaries and enable the owners of the tokens themselves to be in control of their assets.

Ok, I think I understand now. But why is this so revolutionary for investing?

Investing and blockchain have been getting a bad rap lately because of the many scandals and frauds related to initial coin offerings (ICOs). However, digital securities are a new way of merging the old (traditional investing techniques) with the new (blockchain tokens) to create new and incredible ways to invest in assets in general, and in companies in particular. To understand this, we need first to understand current investment methods.

Today, if you want to invest in a company that isn’t traded publicly, you generally have two ways:

  1. Invest directly, or as part of an investment group (e.g., crowdfunding, angel clubs) in exchange for equity
  2. Invest indirectly, for example, through a venture capital firm in exchange for some promised future returns

Once you have invested, you are generally locked-in with your investment for a long period of time, usually 8-10 years, before there is any type of “exit event”, such as an M&A or an IPO, and you can liquidate your investment. If in some point in the middle, you wish to sell off your investment, you will be met with bureaucratic obstacles and will probably need to discount the value of your shares on some secondary market. Selling off your investment in a company may also reflect badly on the company itself.

As someone who works mainly with early-stage startups, it is not uncommon for me to see a startup’s CEO having to spend valuable time helping early investors sell some of their equity to finance a son’s wedding, or for some other financial emergency.

With digital securities, all this can be a part of the past.

How? Digital securities enable the digitization of the investment itself. This means that the investor can receive a financial asset from the company (for example equity) in the form of a blockchain token. This token is essentially tradable from day one on security exchanges, which provide immediate liquidity to the investor.

Is this really such a big deal?

I think so. Let me tell you why.

Once investing through digital securities becomes more commonplace several things will make this market really stand out. Here are the key reasons that digital securities investing is a real breakthrough for investors:

  1. Liquidity – as I stated before, the main advantage that digital securities provide is the possibility of trading your tokens at any point in time. For early-stage investors, this means that they can invest in companies during their initial stage and sell off their investment (hopefully at a substantial profit) after a year or two and/or once that company hits a major milestone, instead of having to wait for an exit event. For later stage investors, this means that they can purchase investments in a company at any stage without having to commit to being part of a large investment round, thereby diversifying their investment portfolio
  2. Valuation – one of the main problems with early-stage companies is the ability to evaluate their worth. Many of these companies are losing money, and yet are worth many millions/billions of dollars. Today the only real way to get valuated is by having someone invest at that valuation (which is kind of reverse logic). The real result of this thinking is that venture-backed companies keep chasing investments just to increase their valuation for the earlier investors. Since digital securities are tradable on a securities exchange from day one, they are, for better or worse, valued by the market. This is the exact mechanism that works for the stock exchange and is dependent on the investor’s belief in the potential of the company as well as its ongoing performance
  3. Versatility – traditional investors put in capital and receive equity in trade. However, digital securities enable companies to compensate investors in additional ways, ways which may be more lucrative for the investor. For example, a real estate company can award investors in a commercial project with a share of all the rent generated by that project, or a services company can provide its investors (e.g., its token holders) with a lifetime discount on services. The only limit here is the imagination
  4. Transparency – one of the guiding principles of blockchain is its openness to everyone. An investment in a blockchain-based token is no different. A company issuing tokens for investors must provide full transparency to its operations (within commercial limitations) in much the same way that a public company must. This means periodical reports as well as connecting as much of the company’s financial activities to the blockchain itself
  5. Globalism – one of the main problems for investors is investing in opportunities outside of their own country. This is due to many reasons, but some of them can be easily addressed by digital securities, which enable easy cross-border transfer of value. This means that investors can easily invest outside of their country as well as trade in their investments internationally
  6. Compliance – each jurisdiction has its own rules and regulations regarding investments and keeping track of those rules is no small headache. Using blockchain-based smart contracts, the per-jurisdiction rules can be coded into the digital security itself which makes it self-compliant, i.e., no transaction that is not compliant can be performed on it. Headache – gone!
  7. Control – when investing in publicly traded companies the investment and exchange platform must be decided in advance and from that moment on the company is subject to its rules and whims. Does a company want to be traded on the NYSE? They must pay anywhere from $35,000 a year and more for the listing. Does an investor want to trade the NYSE issued stock? Just the list of fees is enough to make you rethink it. However, in digital securities, there is a complete separation between the tokenization platform (i.e., the company that will create the digital securities) and the trading platform (i.e., the digital securities exchange). This also means that digital securities can be traded on several exchanges simultaneously and that you can sell a digital security you purchased on one exchange to someone else on a different exchange. You control where and how much you are willing to pay for any trade
  8. Robots away – a major issue with today’s stock market is the manipulation by high-frequency trading algorithms. Blockchain-based exchanges make this essentially impossible. Initially due to the actual limitations on the number of transactions that a blockchain can perform every second (known as TPS – transactions per second), but once that is solved, these manipulations will be blocked by smart contracts that will be built directly into the token itself

So, as you can see, there are major advantages for investors in using digital securities as their investment vehicle.

For companies too, digital securities offer a great way of raising capital, for a specific project or for the company in general, but I think I will address this in a future blog entry.

One final point which must be stressed: be careful

The fact that digital securities are an amazing investment vehicle does not mean that it is without its risk, as any early-stage investment is. Digital securities are just the form of investment. And like with any investment, it is the job of the investors to do a thorough due diligence on their investment – make sure that the company is legit, the team is serious, the business model is sustainable, the strategy is viable, and the opportunity is as good as it seems.

In my next blog entry (which hopefully will not be a year from now) I will discuss how digital securities investments impact early-stage companies that are seeking funding.

So, you wanted to ICO?

This story was originally written when ICOs were at their APEX and every second entrepreneur I would talk to wanted my help in ICOing. Since then, things have gone south for the ICO industry. So many scammers and bad projects have sullied the waters of what might have been an amazing new industry. But, no worries, a new breed of block-chain based investments have since taken root — the regulated STO, which is a new way of fund-raising that combines the old (better due diligence, better investment stake in the company) with the new (digital assets, liquidity). So, if you are still interested, I suggest reading my blog post about STOs. Otherwise, if ICO (or IEO today) is still your cup of tea — read on.

2017 ended with a bang for startups raising capital using crypto assets. With over $4B raised in 2017 in ICOs every entrepreneur today wants to get in on the action. But what does it really mean to ICO and who is this good for? Before jumping on the ICO bandwagon, you will need to consider: is your venture right for an ICO?

In this article, I will try to show you how to answer this question.

Some Background first

Let’s start with the basics: An Initial Coin Offering (ICO), or a TGE (Token Generating Event) as it is known today, is a process by which a company issues a crypto asset (such as a crypto-coin) and offers individuals the opportunity to purchase those assets when they are first offered (hence “initial offering”). This is essentially a way to raise money for a future product (presell), service (utility), or some asset (security).

An ICO is not a single one-day event. It is an ongoing process that may take several months and is divided into several stages. While there is no official “rule-book” for what to do, several industry standards have been set, and most startups choose to follow these standards.

Is your venture right for an ICO?

Before rushing forward with an ICO, here are several questions to ask yourself to see if the ICO route is right for you and if you are the right company to succeed in an ICO.

Question #1: is blockchain an integral part of my solution?

Since we are about to generate a new coin (or token), the underlying assumption is that this coin is used on a blockchain which is a core component of your company’s product or service. However, in the rush to raise money in an ICO, many companies are artificially adding blockchain to their technology without any real reason or added advantage to them, their customers, or the market.

If you can take your solution and replace blockchain with any regular database and not lose any functionality, economic value, or unique advantage, then you are not using the blockchain properly.

Only use an ICO as a funding tool if your answer is: blockchain solves a real need and is properly used in my solution.  

Question #2: Is there an economic advantage to using a token/coin in my solution?

Generally speaking, there are two types of coins – security coins and utility coins. Security coins are generally a means of improving current securitization processes, and utility coins are about creating new economic value.

Therefore, you should really examine if there is logic in issuing a new coin? Are you able to create new value where there is none? Are you able to overcome limitations set by the current economy’s processes? If you can take your solution and replace any mention of your coin with a standard fiat Dollar, or a standard tracking ledger (even an Excel), then you have done nothing of real economic value and should not be creating a new coin.

Only use an ICO as a funding tool if your answer is: my new coin is creating new economic values (utility) or will fundamentally improve on today’s way of handling value (security)

Question #3: Am I in it for the long haul?

ICOs are a new way of funding, and they are changing the way companies operate not only in the short-term but also in the long-term. Essentially, since ICOs are a non-dilutive way of raising money, all the company equity remains in the hands of the founders. That sounds great, but this means that most of the value created by the company will actually be held by the user or investors in the form of the coin.

So here’s the problem -What happens in the case an M&A? to phrase this in startup speak – how can you plan an exit strategy? If before founders knew that at a certain stage they might have the option of selling their shares and exiting the company, it is not exactly clear what will happen with a company that has ICO’d. There are too many questions right now even to know if a company that is operating its own economy can really be purchased by another company and what that involves.

It stands to reason that these issues will be solved, but if you are planning on a quick exit using an ICO, think differently. As a coin holder, you may receive an influx of money, but as part of the company’s core team, you should know that you may be required to be part of the company for a long time.

Only use an ICO as a funding tool if your answer is: I am committed to this company and idea for the long-term.

Question #4: Do I have the team to execute this?

The amazing things about ICOs is that when they succeed the company receives an amazing influx of capital very fast, sometimes tens of millions (sometimes more). However, this means that with money in the bank, the company must execute on their promises very fast. For that, you need an ace team on board. You need to be a company that brings the product to market fast and markets it successfully with a development team that is able to scale fast while maintaining a great user experience.

In addition, since there are so many ICOs out there right now, one of the differentiating factors between all these companies is the strength of the team. If you, or your team, have the track record to show this is not your first rodeo then you will give your investor the confidence you will be able to execute (also the confidence this is not a scam).

Take into consideration that even before the ICO is launched, your team should include positions that are not found in the regular startups – a blockchain expert, a token-economics specialist, a marketing guru with ICO knowledge, a community manager. Find these people and get their help in launching the ICO.

Only use an ICO as a funding tool if your answer is: My team can execute and scale fast, it imbues anyone who hears about them with the confidence that this is the right team for the job, and I have the right people to launch a successful ICO.

Question #5: Do I have the budget?

Finally, do you have the budget to go through this process? This is the question that surprises many entrepreneurs who think that ICOs are an easy thing to execute. Here’s the thing – today there are about 150 new ICOs every week. This number will only grow as long as the regulation does not throttle the market. In order to succeed you need to main things – be prepared fast and stand out above the noise.

Be prepared fast – to launch your ICO you will need to have all your ducks in a row: legal, accounting, and business. Legal means having a top-tier law firm with ICO experience and knowledge consulting you and ensuring you do everything by the books and do not risk a regulatory backlash. Accounting means having an accounting team and a CFO who understand all the tax ramifications of raising money by ICO. Business means having all the answers to the blockchain and token economics as well as your go-to-market and expansion plans – this should be in the form of a white paper (or any other color paper) as well as a very detailed internal business plan and financial model.

Stand out above the noise – once everything is ready, you will go public. Now is the time to put all the efforts on marketing and PR. This means press releases, social network (Reddit, GitHub, facebook) activity, doing a roadshow, and all other actions necessary for ensuring people hear about you. Doing this alone is difficult, and you will probably need a specialized PR and marketing company to help you out.

The problem is that these things cost money. Especially the marketing. And if you don’t have the money to start this process or the means to raise it in pre-sale, you will have a hard time raising substantial funds in the actual ICO.

Only use an ICO as a funding tool if your answer is: I have, or can raise, at least $250,000 for the ICO process (note: frankly $1M-$2M is probably the right number)

To conclude

If you wish to ICO and your solution is blockchain-enabled and creates new economic value, and if you have the team, budget, and stamina for making your vision into a reality, then an ICO may be the right tool for you.

If you are still interested, then contact us today and we will help you ICO!

What is the difference between a business plan and a White Paper for an ICO?

Everybody’s talking about Initial Coin Offerings (ICOs) lately. If you’ve been sleeping in the past few months, ICOs are a way for a company to offer crypto-assets to the public in order to raise funding, and many startups have been doing just that to raise initial capital, often instead of raising angel or VC rounds (side note 1: that’s not exactly true, but that is an article for another day).

There are many different aspects to performing a successful ICO (see SirinLabs’ recent $157.8 million ICO), but I want to take a look at the core document that is provided for the company’s investors – the white paper.

What is an ICO white paper?

A white paper is a document that details all the relevant information for anyone who is interested in purchasing a crypto-asset. White papers have existed for ages, but until recently were used mainly to detail technical data and use case investigation for technological products.

Offering a crypto-asset white paper is a tradition that started with Satoshi Nakamoto’s nine-page white paper, which was a detailed support manifesto for the original bitcoin currency. Since then, any company that issues a new crypto-asset have pitched their new offering using a white paper.

(Side note 2: like any document, white papers can be professionally written, or can be a haberdashery of crypto-slang that was purchased on and is not worth the virtual paper it was published on. In this article I will only comment on the former version).

So, it’s a business plan?

Yes and no. There are many similarities between a white paper and a business plan. Mainly, they both need to convey the essence, plan, and uniqueness of the company to the reader. However, there are also many differences.

Ok, so how are white papers and business plans different?

Let’s start with the similarities. Both a business plan and a white paper must address five major aspects of the underlying business:

  • The need / problem – why does anyone need another crypto-asset. How will it solve an existing problem, or make our lives better?
  • The Solution – how are we solving this problem and why are we doing it with crypto-assets (or blockchain in general).
  • The Team – who are we, why are we uniquely qualified to do this?
  • The Market – who will be using our solution, how big is the market? How many users are there? How are they segmented?
  • The Competition – what other solutions may be solving the same problem? How are we doing it better?

However, even when the two are similar, the business plan and white paper actually address different aspects of the same coin (pun semi-intended). A business plan will focus on the company and how it creates value by addressing the need in a specific market. The white paper, on the other hand, must focus on the crypto-asset, and how it will create value which may not be directly linked to the issuing company. For example, in a white paper about a coin used for car sharing, the business plan will focus on the company providing the software to enable car sharing while the white paper will need to focus on the drivers and riders and their interaction using the crypto-asset.

This is also where the similarities end. In order to convince (e.g., put their mind at ease) investors and coin purchasers that the new crypto-asset offers an amazing investment opportunity, the white paper must address several other issues, including (and this is in no way a comprehensive list):


  • What is the platform the crypto-asset is using, and how is it using it? In the case of blockchain infrastructure this segment must be extremely detailed to convince readers why a new infrastructure is actually needed and how it will work better than existing infrastructure.
  • How are new crypto-assets issued (mined? minted? Pre-offering)?
  • How are the crypto-assets protected? What’s to prevent people from stealing/copying/duplicating crypto-assets?
  • How do the asset-holders hold, sell, buy, and transfer the crypto-asset?


  • What are the different use cases for the crypto-asset? How will they change and grow over time?
  • How does the crypto-asset interact with other existing businesses and crypto-assets?
  • Has the underlying product or service launched? If not, why not and when?
  • Who are the existing miners, node-operators, or stake-holders in the underlying blockchain? What is their incentive structure?


  • How many coins are there? How many are planned? What is the issuance model?
  • What are the blockchain economies here – what will create new value for the crypto-asset and how?
  • What is the ecosystem for users, merchants, and traders? How will it grow and expand? What is the company’s stake in making this happen?


  • What are the terms of the ICO? How much is pre-allocated to the team and what for?
  • What size of fund raise is needed to make this vision into a reality?
  • Who are the early investors and how much was pre-sold at what terms?
  • Are there any guarantee structures?

Wow, that’s a lot

Yes. And that is just the proverbial tip of the ice berg. Writing a good white paper is about providing information. The more information you have, the more the educated investor feels comfortable purchasing your crypto-asset.

However, just like a good business plan, a white paper should be readable, tell a store (albeit a more technical story), and highlight the company’s strengths and vision.


What can you do with all this information? First off, do not treat the writing of your white paper lightly. This is a serious endeavor. Do not think that by shelling out $100 on you will have a document that is sufficient to raise $10 million and above. Second, write your white paper (or have a professional write it for you), and make sure you are addressing all the key issues.





Why Israelis Suck at Lean Canvas


Lean Canvas is popular. It’s used to create a good strategy by breaking the business down into topics and challenging assumptions. The more time and effort one puts in it, the more value is created, and the main derived benefit is expertise in your business. Israelis are results-oriented, not process-oriented, therefore it is no surprise that Israelis suck at Lean Canvas. When an Israeli entrepreneur sees a Lean Canvas he tries to complete the page ASAP with little or no regard for depth. This hurts the entrepreneur in the long run and prevents generating any real business understanding. Bottom line, Israelis: leave the Lean Canvas alone and go back to writing full business plans.

What is a Lean Canvas?

The Lean Canvas is a popular term that everyone is using.
When you Google it, you see a single page that maps out many key elements of the business.

When you read about it, you learn that it’s a tool for the Lean Canvas process which is supposed to be a fantastic business tool.

What is its purpose?

The purpose is to create, and fine-tune, an investable strategy for the business.

At first, the Lean Canvas process seems easy – it’s just one page that needs to be completed, but that’s not how it works.

How does it work?

One is supposed to identify all the business assumptions, question them, and then validate or change them. Once done, everything is put back together in a way that makes more sense.

Business assumptions exist in all topics: need identification, solution usage case, target market, customer definition, business modeling, pricing schemes, distribution channels, and marketing.

Each subject is broken down into its many moving parts.

Is it hard?

The deeper the process, the more valuable it is. When done right, this single page represents hundreds of hours of thinking, analyzing, and validating.

When a lot of background work goes into the canvas, then the page only represents a fraction of what you know. The knowledge behind the canvas is immense.

When this is done seriously and systematically, this process will lead to many benefits.

So yeah… it’s hard.

What are the benefits?

  • A management team with members that are true domain experts in their business
  • Noticeable expertise in interactions with investors who know the space
  • Better decisions in running the business
  • A clearer understanding of options and choices along the journey

The Israeli entrepreneur’s undoing is being results-oriented

Israeli entrepreneurs are some of the best in the world. There have been so many startup success stories made-in-Israel that it has enhanced Israel’s national pride.

If you would put the Israeli entrepreneur’s DNA under a microscope you would find a results-orientated chromosome rather than a process-oriented chromosome. Don’t believe me? Try managing Israeli’s and then lets talk. Israelis thrive under high-pressure deadlines, not under what they consider to be bureaucratic processes.

Israelis are amazing at coming up with effective ad-hoc solutions to problems.
Israelis are not built for systematic process-oriented tasks.

So why is Lean Canvas a disaster for Israelis?

The Lean Canvas process is well… a process. When an Israeli sees the Lean Canvas, he doesn’t connect to the process; instead, he tries to complete the page as quickly as possible.

The goal of the Lean Canvas process is to create depth and understanding; it’s not a race to fill out a page.

Being results-oriented and not process-oriented is what makes Israeli’s suck at Lean Canvas.

What should Israeli entrepreneurs do?

One thing:

Israeli entrepreneurs need to write a 25+ page quality business plan.


This will force a lean-canvas-like process by focusing on the result and ignoring the process.

A by-product of the long-form document will be the strategic depth that makes one investable.

Lessons from 10 years of writing business plans (part 2)

It’s been ten years and 300+ business plans since I started writing business plans and looking back I have gained some insights about the process (and art?) of creating these ubiquitous document, no matter their form: executive summary, one-pager, investor presentation or strategic plan. Specifically, I have come to believe that a successful business plan comes down to nailing three (it’s always three, huh!?) major aspects: balance, storytelling, and attitude. I covered all matters of balance in part 1. This means it is time to talk about storytelling. Continue reading “Lessons from 10 years of writing business plans (part 2)”

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