Are Sin­ga­pore VCS los­ing out to ICOS?

Funds raised by ICOS have al­ready over­taken an­gel and seed ven­ture cap­i­tal (VC) fund­ing, rais­ing more than US$550M for is­suers glob­ally, com­pared to the US$300M raised from VC firms by June of last year.

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IPart of the al­lure of ICOS is its liq­uid­ity, speed, and the amount of in­ter­est cur­rently gen­er­ated by cryp­tocur­ren­cies.

n June, Sin­ga­porean fin­tech startup Tenx raised close to US$80M from a to­ken sale, mak­ing them one of the most suc­ces­ful start ups glob­ally to launch an ini­tial coin of­fer­ing (ICO). Tenx aims to bring bit­coin into the real world by con­vert­ing cryp­tocur­rency into fiat money in a phys­i­cal Vis­abacked card, noted Tenx founder Dr. Ju­lian Hosp.

As more star­tups like Tenx utilise th­ese vir­tual cur­ren­cies as a more in­no­va­tive al­ter­na­tive to rais­ing cap­i­tal and ex­pand­ing their op­er­a­tions, the Mone­tary Author­ity of Sin­ga­pore (MAS) pub­lished a pa­per of­fer­ing gen­eral guid­ance on the reg­u­la­tion of dig­i­tal to­ken sales. ICOS, par­tic­u­larly, are in­creas­ingly be­com­ing main­stream as a way for star­tups to raise funds, with

200 ICOS rais­ing over US$3.3B glob­ally last year. Stud­ies in­di­cate that Sin­ga­pore is cur­rently the third largest ICO hub in the world after the United States and Switzer­land and this sit­u­a­tion will likely ride on an up­ward tra­jec­tory given the pol­icy and reg­u­la­tory back­ing by the Sin­ga­porean gov­ern­ment through MAS.

No­table deals in 2017

Sin­ga­pore Busi­ness Re­view rounded up the big­gest ICOS of 2017 by Sin­ga­porean rais­ers, and whilst we can­not ver­ify all fund­ing quan­tums, we be­lieve the ta­ble pretty much sums up the most talked about ICOS in 2017. Some of the no­table deals in 2017 in­clude Us-sin­ga­porean startup Quoine which raised US105M in fund­ing.

Nizam Is­mail, part­ner at RHTLAW Tay­lor Wess­ing also cited Ap­toide, an app store with 200 mil­lion users, which suc­cess­fully raised US$15M out of Sin­ga­pore. They are con­sid­ered the first app store to use blockchain. There is also Me­gax, a Sin­ga­pore-based com­pany that set up an e-com­merce fash­ion ecosys­tem. Based on our com­piled list, th­ese ma­jor deals amounted to US$381.42M in fund­ing, with av­er­age fund­ing around US$25.43M.

“As MAS has been very up­front about what they will reg­u­late re­gard­ing ICOS, this has made Sin­ga­pore at the fore­front of the ICO space,” said An­son Zeall, chair­man of AC­CESS, Sin­ga­pore’s lead­ing in­dus­try as­so­ci­a­tion pro­mot­ing cryp­tocur­rency and blockchain. “AC­CESS mem­bers have raised over US$220M worth of fund in the form of cryp­tocur­ren­cies. And ob­vi­ously there’s more now.”

How it works Alex Bue­lau,

CEO and co-founder of Coin­sched­ule, a web­site that mon­i­tors the ICO in­dus­try and pro­vides a plat­form for its users to find the best ICOS to join, ex­plained that the process of how startup firms pur­sue ICOS is through the cre­ation of cryp­to­graphic to­kens on top of an ex­ist­ing blockchain plat­form. “Star­tups that are rais­ing funds would

be rais­ing in bit­coin and ether for ex­am­ple, and the in­vestors will re­ceive the newly minted to­kens.”

Ba­si­cally, ICOS work mainly with blockchain and other dis­trib­uted ledger tech­nolo­gies—which MAS has been in­tensely fo­cus­ing on lately with their guide­lines and re­search pa­pers—that star­tups use to sell trade­able, cryp­tocur­rency-like dig­i­tal to­kens, noted Is­mail. “The dig­i­tal coins or to­kens gen­er­ated in an ICO are blockchain-based ledger en­tries, the ‘own­er­ship’ of which is tied to a cryp­to­graph­i­cally se­cure key that al­lows the holder of the key to add ad­di­tional en­tries,” he said.

“Th­ese com­pa­nies sell th­ese to­kens to peo­ple around the world in ex­change for an es­tab­lished cryp­tocur­rency such as bit­coin or ethereum within a cer­tain time pe­riod,” Bue­lau said. “The com­pany ends up with all the in­vest­ment re­ceived in an es­tab­lished and liq­uid cryp­tocur­rency, which they can ex­change for cur­rency, whilst the ICO par­tic­i­pants end up with the to­kens they pur­chased which may ap­pre­ci­ate over time in case the com­pany suc­ceeds.”

Hosp noted that for star­tups to be able to max­imise the ben­e­fits of an ICO, par­tic­u­larly in rais­ing funds, they have to fo­cus on three things: le­gal, tech, and mar­ket­ing. “If you have those three things, you’ll prob­a­bly have a good ICO. You have to have a legally and fi­nan­cially strong struc­ture to avoid prob­lems after­wards. The sec­ond is the tech, you need to set up the smart con­tract, you need to have your to­ken. Ba­si­cally, you need to cre­ate your own cryp­tocur­rency,” she ex­plained. “I think the key on the mar­ket­ing side, be­cause there’s so many ICOS now, you need to find a way how you can stand out.”

ICOS ver­sus VCS

Such is the growth of Icos—also called to­ken sales and crowd sales— that in­dus­try ex­perts and ob­servers have termed th­ese as 2017’s big­gest tech trend, given that funds raised by ICOS have al­ready over­taken an­gel and seed ven­ture cap­i­tal fund­ing for the first time, rais­ing more than US$550M for is­suers glob­ally, com­pared to the US$300M raised from ven­ture cap­i­tal firms by June of last year. How­ever, this has not fazed many in­vestors and star­tups to dab­ble in th­ese cryp­tocur­ren­cies to raise funds.

Part of the al­lure of ICOS is its liq­uid­ity, speed, and the amount of in­ter­est cur­rently gen­er­ated by cryp­tocur­ren­cies. Zeall noted that the main dif­fer­ence of ICOS and VCS, par­tic­u­larly in the South­east Asian re­gion, is that VC in­vestors are very risk averse. This is apart from the fact that with ICOS, in­vestors don’t nec­es­sar­ily own shares in the firm, but they have liq­uid­ity of the value of the coins or to­kens from the ICOS. From a ven­ture cap­i­tal stand­point,

Chua Kee Lock, Group CEO of Te­masek-backed ven­ture cap­i­tal firm Ver­tex Ven­tures noted, “ICOS can be ei­ther util­ity-based or eq­uity-based. The lat­ter is be­ing reg­u­lated and re­stricted in sev­eral ju­ris­dic­tions, hence the vi­a­bil­ity is still un­clear. Util­ity-based ICOS will likely get more trac­tion and many VCS are re­view­ing op­por­tu­ni­ties in rel­e­vant util­ity-based ones.”

“Many VCS would like to see suc­cess­ful prece­dents first be­fore in­vest­ing in you, which makes it very ironic,” he noted. “How­ever, in the crypto space, the in­vestors are very for­ward think­ing, and that’s what most star­tups are like in the blockchain space,” said Zeall.

Look­ing ahead

In­dus­try ob­servers and ex­perts are in agree­ment that ICOS will re­de­fine the startup and cap­i­tal in­vest­ment land­scape in Sin­ga­pore in the next few years, although they also note that there are ac­com­pa­ny­ing risks that cryp­tocur­ren­cies and this new in­dus­try brings.

On how reg­u­la­tion is nec­es­sary,

Ju­lian Peh, co-founder of lux­ury plat­form for crypto-af­flu­ents

Adi­tus noted, “No le­git­i­mate com­pany op­er­at­ing should ex­pect to be op­er­at­ing in a le­gal vac­uum, this is not good for any­one, and not good for the space. MAS has been ex­tremely prag­matic and col­lab­o­ra­tive in its ap­proach so far, and this has made Sin­ga­pore a fore­run­ner in the ICO space glob­ally.”

On the other hand, Is­mail notes on how the mar­ket may dic­tate the fu­ture of ICOS. “ICOS, if done prop­erly and re­spon­si­bly, are ef­fi­cient ways of rais­ing funds for en­ter­prises. We may see more reg­u­la­tions for ICOS in the fu­ture, and that will largely de­pend on how the mar­ket be­haves,” said Is­mail. “Al­ready, we are see­ing the mar­ket in­tro­duc­ing mar­ket-driven ini­tia­tives to re­quire more ac­count­abil­ity and se­cu­rity for ICO of­fer­ings.”

Some of the con­cerns in­clude mul­tisig­na­ture wal­lets, in­de­pen­dent es­crow ar­range­ments to hold to­kens, anti-money laun­der­ing and com­bat­ing the fi­nanc­ing of ter­ror­ism checks. “Bear in mind, there will be a lot of bad to­kens, as well as a hand­ful of good ones,” con­cluded Zeall. “I urge the pub­lic to only in­vest when they un­der­stand what the blockchain tech­nol­ogy is about, and do ex­ces­sive due dili­gence on the to­kens and founders.”

In June 2017, Fin­tech startup Tenx raised a whop­ping $80m in ICOS, round­ing up in the world’s Top Ten ICO fund­ing last year.

Alex Bue­lau

Chua Kee Lock

Nizam Is­mail

Ju­lian Peh

An­son Zeall

Ju­lian Hosp

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