David Drake, the founder and chairman of LDJ Capital. (Photo courtesy of David Drake)
Increasing ICO Success Through a 360-Degree Advisory Approach
BY :DAVID DRAKE
JUNE 18, 2018
When digital assets entered the financial scene in 2016, many people were wary of the new innovation, which, at that time, was downright unpopular. However, after studying the technology behind digital assets, I decided to invest in them and follow their progress. My decision to do so was largely informed by a desire to see capital formation being decentralized.
How an ICO Management Support System Can Transcend an Advisory Role
This is because, in the period leading to the assent of the Jumpstart Our Business Startups (Jobs) Act, I was part of the movement that lobbied for the approval of the bill in the United States Congress. Support for the bill was overwhelming, more companies supported it compared with those that did not. The Wall Street Journal reported that only 15 companies were against the bill, while 48 supported it. Finally, the Jobs Act was enacted into law upon signing by then-President Barack Obama in April 2012.
For people like myself who lobbied for the Jobs Act, this piece of legislation was a game-changer for various reasons. One, it facilitates disclosure and accounting of new or small companies and allows them to raise capital faster through crowdfunding. Those who gave their support to the Jobs Act say it encourages job creation.
Secondly, this piece of legislation paved the way for non-accredited investors to own a stake in startups, a privilege that was accorded only to accredited investors under the Securities Act of 1933 and Securities Exchange Act of 1934. It is the provisions under Title III and IV of the Jobs Act that laid the groundwork for the wave of initial coin offerings, or ICOs, we are witnessing now. While under Title III, startups are allowed to issue equity to investors and raise a maximum of $1 million over a year, Title IV paved the way for startups to crowdfund up to $50 million in what has been termed "mini-initial public offerings."
Entry of ICOs
The crowdfunding approach found its way to the cryptocurrency world in 2013, ushering in a new way of raising capital specifically for crypto-related projects. This led to the birth of the concept we now refer to as ICOs. This involves companies creating new cryptocurrency ventures and then inviting investors to purchase units of that venture in the form of digital tokens.
The first ICO was launched by Ripple Labs in 2013. At that time, Ripple began creating a payment system and developed 100 billion tokens that it sold to finance the creation of the Ripple platform. In mid-2014, another venture, Ethereum, launched what became the most prominent ICO. After the success of these two ICOs, the cryptocurrency movement attracted many investors, both accredited and non-accredited.
Having supported the democratization of finance since 2011, I am a strong believer in financial technologies, or fintech. This year alone, I have been interviewed by Bloomberg, CNBC and Fox News about cryptocurrencies, ICOs and the need for regulation. However, I have always emphasized that participation in ICOs must be based on informed decisions. I am very vocal in my advice to an average of 50 active ICO firms I support at any given time, now nearing 200 firms in total. Often, my role is to guide them on how to run their crowdsourcing campaigns.
ICO Advisory Strategy
Following the exponential growth of blockchain technology and ICOs, my family office, LDJ Capital, stepped into the ICO space in mid-2017 to provide advisory services. We did this because we saw an urgent need to support ICO teams to get the right answers to their questions, particularly when they are not sure whether those questions are correct.
As is the nature of ICOs, the teams have to showcase their ideas and brand over a very short time, with sale schedules running for a maximum of nine months. To help with this, we chose to provide more support to the ICOs I advise, beyond the ordinary advisory services.
This is how the ICO Advisory Program we run through The Soho Loft Media Group, a subsidiary of LDJ Capital, was born. The sole purpose of the advisory program is to give ICO companies a head-start by guiding and supporting them in their media and marketing strategies, as well as public and investor relations.
We have put together a 25-member ICO management team to support this program. The team features managing directors, client relations managers, events managers, content managers, social media managers and admin managers. It also features tech and media support and editorial staff.
The Soho Loft Media Group, which reaches millions of people through its content and distribution, provides advertising services to complement the personal time I spend advising ICOs. As such, we are adding services to ICOs on a weekly basis and at no additional cost to augment ICO marketing efforts. It is similar to an incubator with an end-to-end full service, a 360-degree agency that includes development partners who can do an end-to-end fulfillment of any ICO concept. This is precisely why LDJ Capital established the $200 million LDJ Cayman Fund. The Fund is designed to provide financing to some of the best ICOs we can find. We deployed short of $10 million to some of the best companies across the globe and we are still looking for worthwhile ICO projects to support.
The Soho Loft Media Group has established a 50-plus step process for onboarding ICO companies or projects. Every best-in-class ICO has to go through these steps, after all, Wall Street, institutional investors and the family offices we deal with demand proper governance and high accountability from ICOs.
The Future for ICOs
2017 was the year of cryptocurrency revolution and it is not abating this year. According to CoinDesk, the total amount raised by about 340 ICOs was $5.33 billion in 2017. However, this amount was exceeded in the first quarter of 2018 when an estimated 200 ICOs raised $6.3 billion. With Wall Street companies such as Goldman Sachs now showing interest in cryptocurrencies, we are likely to see an increased flow of institutional capital into this space. This could double, triple, or even quadruple the amount raised via ICOs in the coming months.
David Drake is founder and chairman of LDJ Capital.