Fundraising for Blockchain Companies
The craze of ICOs back in 2017 brought the idea to revolutionize how we fund companies by creating a tokenized business. Offering a lighter mechanism than the IPO, STO became one way to tokenize a business. However, STO is just the beginning. Watch the sixth episode of Blockchain Beyond Hype with Sergej Stein from DLT Capital GmbH and find out his experience and thoughts on the tokenization!
Laks: We’re here today with Sergej, welcome to Blockchain Zoo. We’re excited to have you here to discuss your thoughts on a change in the way businesses are funded, how startup landscape is changing, and what is tokenization of assets. So please tell us a bit about your background and how you got into the blockchain. What about it attracted you, or was it rather the environment and opportunities which blockchain created for the financial world?
Sergej: Thanks for having me. I’m excited to be here. I got into blockchain two years ago, I would say. I’m based out of Frankfurt, Germany, it’s one of the main capital cities for the banking system in Europe in general, and it’s the right place to disrupt with blockchain technology. My background is in Corporate Finance. I studied in Frankfurt, as well. I have a degree in International Business Administration, and I used to pursue a career in investment banking. So bitcoin and blockchain are, in general, the right technology to disrupt the finance world, and this is what got me most excited to get into space, I would say.
Laks: I see you’re currently enrolled in the Master’s program in Digital Currencies at the University of Nicosia. What specific aspects of digital currencies are you learning there?
Sergej: This program covers a lot of aspects. It covers technological aspects, the fundamentals of Bitcoin, a lot of applications, use cases, and it tries to connect those things to the real world, to the finance world, to economics and so on so forth. So it’s a very broad program. It’s also taught by Andreas M. Antonopoulos who is a famous bitcoin educator. You can even pay your tuition fees with Bitcoin which is pretty exciting, and I’m doing that to support it.
Laks: You also spent seven months as a scientific assistant at the Frankfurt Blockchain Center that describes themselves as a think-tank and a research center which investigates implications of the blockchain technology for companies and their business models. What exactly did your position entail and what kind of activities did you perform there?
Sergej: Yes. So the Frankfurt School Blockchain Center is one of the first research centers at the German university. The Frankfurt School of Finance is very business focused, and the Frankfurt School Blockchain Center itself is trying to find out what kind of blockchain business applications are out there, and my position was basically doing a lot of research and trying to figure out exactly those kinds of questions. I wrote research papers and was looking for fundamentals in the crypto and bitcoin space. I was helping with meet-ups and was also doing lectures myself there.
Laks: In your company DLT Capital, you focus on blockchain valuation, token modeling, and fundraising. Can you tell us a bit more about what you do and maybe an interesting story or two from your time working with the blockchain?
Sergej: Sure, DLT Capital is a Blockchain and Corporate Finance advisory in the blockchain space. We focus on the finance side a lot and on the investment side as well, doing tokenization. We started as many other companies with ICOs. There was this ICO craze in 2017 which was very wild west, let’s say. This pretty much changed to the more security token topic.
Exciting stories, I’m not sure, I think there are a lot of exciting stories. I mean, we organize events, we have a lot of companies coming to us from all over the world which is pretty cool and also the projects are very interesting. They’re often in the IoT and machine-to-machine payment sector which is very interesting. I myself am learning a lot out of that.
Laks: My question may seem to be very basic, but I’m curious to hear the definition from someone who studies this topic in an academic environment. So how would you describe the difference between ICO, IPO, and STO?
Sergej: That’s a good question. To keep it simple, ICOs are rather unregulated crowdfunding sort of products. You still need approval by the financial regulator nowadays. But they do not represent securities. You don’t need to follow heavy regulation, but the investors also have way fewer rights. IPOs and STOs are usually regulated securities. You probably know yourself, IPO is when a stock goes public or a company goes public in a stock market, raises a bunch of money. The problem with IPOs is that they’re very expensive, and it takes a lot of time to get an IPO through. STOs, they’re the light version of an IPO, and the difference is that you also tokenize your business and the goal is to have fewer costs and still to be able to raise any amount that you want. I think this is the main difference here.
Laks: How do you envision the future of blockchain and crypto project funding evolving?
Sergej: I think that all assets in the future will be tokenized. All stocks, all equity, and all debt will be tokens most likely in the future. I think security tokens are just the beginning. A lot of infrastructure is not there yet, and there are no real security token exchanges that list a bunch of STOs. So this takes a lot of time. But I think from now on, looking two or three years into the future, we will see this a lot more. Banks will probably also come into this space and will also tokenize businesses. We saw the JP Morgan coin coming into the space. So I think that’s the future.
Laks: So do you still see a place in the market for ICOs and utility tokens or do you think the equity funding such as STOs will completely replace them?
Sergej: I think ICOs will be some sort of crowdfunding. They will probably still exist. There maybe won’t be such crazy ICOs anymore. Even though, maybe you heard of the new thing which is called IEOs, initial exchange offerings. So, the same thing with the exception that big exchanges like Binance, Bitfinex and others are doing the fundraising centralized on their exchange because they have millions of subscribers and it’s much easier. But it’s also very expensive. But even those IEOs, I’m not sure about them, a lot of them fell in price quite heavily. I think there will be space, but this will be like a niche market probably.
Laks: So raising money via initial coin offering is considered as almost unethical due to the multiple companies that managed to gain funds at the right time and did not proceed with the project. So how are you selecting your clients not to fall under this wave of black PR?
Sergej: We have our own internal due diligence process. So usually when the client reaches out to us, we have like a first initial call, we send them a client survey which are two pages with a lot of questions to get a full picture. We do a lot of background research if the company is already registered. If it’s not, if it’s just a startup not incorporated, then we try to figure out whether this is a legit business. We try to meet with the team. But we do not recommend any ICOs at this point in time because it’s just very hard to raise any money. It’s better to go with regulated projects, products and try to go into the STO space.
Laks: So the market became so obsessed with ICO that it seems like companies which use the blockchain technology do not consider any other form of funding like VC funding, angel investments, and others. What is your view of the situation?
Sergej: I think VC funding and Angel investments are still a good thing because this is usually the hard way. You know, trying to get a VC convinced to invest his money into your business is not that easy. If you’re able to do this, you usually have a legitimate business. Raising money from the public with STOs, even shitty business can sometimes raise money, right? Because the public retail investors do not really know what is good and what is not good. I think to go with the VC way and maybe doing an equity round and later an STO is probably the best way to do fundraising.
Laks: So what kind of blockchain use cases do you think will be the first big success stories?
Sergej: I think the first use case or the biggest use case is micropayments combined with stablecoins. Why is that? Because micropayments are needed in a lot of things. One example is again the machine-to-machine economy where autonomous machines need to pay each other. They usually have just microcents that they need to pay and doing a bank transaction is pointless for micropayments at this point in time. But also for emerging countries where let’s say Africa, they cannot afford high transaction fees, for example, like with the Bitcoin blockchain. Once we have the lightning network, micropayments will be possible. And then emerging markets can profit from that a lot and have very cheap and very fast transactions.
Laks: What kind of blockchain projects are or will be getting attention and funding in the German market in comparison with Asia?
Sergej: I think Germany is very conservative when it comes to investing, in general. They invest only in very legitimate projects. Shady startups or just white paper projects wouldn’t get any money because it needs to be very legitimate. But it can be any type of business. I don’t think they differentiate a lot.
Laks: This has been very interesting. Thank you for telling us about ICO and tokenization. We do like to ask all our guests how do you envision blockchain changing the world?
Sergej: It’s a heavy question. I hope that finance will be disintermediated, meaning that everyone controls their own money, everyone controls their own value. This is similar to what we have now with the Internet, with the decentralization of information which we control. So basically we control what we want to know, what we want to read and so on. The same should happen for finance, and hopefully, people will understand that and will use that and not just give away their own power to other central companies or authorities.
Laks: And how do you think the market for blockchain-based solutions will evolve??
Sergej: Blockchain-based solutions, maybe we will have more sort of blockchain as service solutions and more modular solutions. One interesting project that I just saw is you can build blockchains without the need for programming yourself. You just have modules that you can put together and create your own private chain. Solutions like that make it easier to implement it. I think this is pretty cool.
Laks: All right. Well, this has been fascinating. Thank you again for coming to speak with us at Blockchain Zoo about DLT Capital, fundraising and startup ecosystem, and we wish you luck on all your current and future projects.
BBH Guest: Sergej Stein, Co-Founder at DLT Capital
Sergej is a young business owner. Financial education led him into the career connected to financial modeling, budgeting, projections and later funding, investing and ICOs for startups, small and medium enterprises. Two years ago, he became a co-founder of DLT Capital GmbH, a Management Consulting firm in Germany. Currently, his role is to maintain relationships with other regions like South East Asia and live out of suitcases due to extensive business traveling, holding meet-ups in different locations, and working with clients onsight. Despite being busy with ongoing business endeavors, he has enrolled in a new Masters Degree in Digital Currencies at University of Nicosia, Cyprus.