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Q1: What is the difference between a startup and a business?

A (Parul): I like Eric Ries definition of a startup: ‘a human institution designed to deliver a new product or service under conditions of extreme uncertainty’. Once you have a product and have proved that you have an audience to sell to, you are in the process of creating a viable business. I know of a large corporation that describes itself as a 100-year-old startup, but this can’t be true. They can have functions within a corporation that behave like a startup, but I’d be worried if a conglomerate genuinely believed that it was a startup. Blockchain startups face added challenges, something that Marina and Vlado come across daily.

Q2: Marina, you are working with a number of blockchain startups at the moment, what are the issues that come up time and time again?

A (Marina): We work with two types of startups, pre-ICO startups and post-ICO startups. One of the biggest challenges is jurisdiction, specifically knowing where to incorporate. In previous AMAs we have mentioned Malta’s progressive legislation framework, and many startups are choosing to incorporate there.

The next big challenge for startups is their product, which should be the core, but is usually not. Finally, marketing is complex for blockchain startups. It has become very complex and expensive, so we estimate $100k to $500k is needed to organise an ICO.

When the ICO is successfully executed, the listing of tokens on exchanges usually becomes a very expensive nightmare. Being active on social media channels and talking to the community is very important, especially about the updates. This is where Mayank helps projects with their Telegram.

Q3: Concerning legal issues, can you describe one of the most important similarities and differences between a normal and a blockchain startup?

A (Matevž): One of the main issues that hasn’t changed in the “distributed age” are the complexities regarding the relationships among the project founders. The undetermined and consequently legally uncertain roles of particular team members many times lead to disputes and setbacks of the whole project, if not a complete shut-down. However, one important difference can be seen in terms of liability of the founders. It appears that (at least at the beginning of the ICO craze) the founding teams were quite reckless and seemed to disregard incorporation in the form of limited liability entities, which might at any point in time in the future result in them being personally liable, should the ICO be deemed a ‘general partnership’ (or a similar legal construct among different jurisdictions). It will be interesting to see how this will play out in the coming years and whether there will be a rise of a whole new market for lawyers — ICO litigation.

Q4: What about the differences in funding rounds — equity in traditional startups versus utility tokens for funding? And how can crypto startups be made more accountable, considering no equity is diluted by startup owners in the case of utility tokens?

A (Vlado): There have been a few ideas to do so, Vitalik’s DAICO proposal is one example, but none have proven to work very well. On the one hand, investors would like more transparency to know what’s going on with their funds, but on the other hand, the vast majority of them (investors) act as speculators, expecting hockey stick, NAY, bamboo stick returns :).

There are (understandable) reservations from VCs and other investors to do follow-on rounds when you have thousands of people invested in a company, and if they also have voting rights, then that’s just too complicated. So, at the moment, everyone is concerned with tokenizing securities, but accountability is still missing. In my opinion, monitoring models for crypto/blockchain startups should be at least as good as for ‘non-BC’ startups.

Q5: Will Cofound.it be willing to include some changes to smart contracts in the future to include more accountability (either DAICO or otherwise?)

A (Vlado): DAICO makes sense only if there are no voting rights attached and if there is indeed a way to monitor and, if need be, influence the startup that is doing something wrong.

We are considering many options, always keeping in mind accountability and transparency, but DAICO at the moment is not our focus.

Q6: Do you see any differences in terms of amount of valuation and in the amount raised?

Q (Vlado): Both actually. Expectations of investors into crypto/blockchain startups are frankly unrealistic. Mostly that probably has to do with the fact that the majority of investors are actually speculators. There are very few circumstances when a startup that raises more than $100 MIO will ever be able to improve on that valuation and even return gains to its investors. :)

Q7: Besides valuation, which would you say are the crucial differences between blockchain and traditional startups?

A (Marina): I was recently talking to a serial entrepreneur and he said ‘I will have a startup when I retire’. Blockchain startups are so much more demanding, especially the ones doing a crowdsale. You need to fight multiple battles simultaneously: where to incorporate, how much to rely on the technology, what would be the go-to market strategy and also blockchain adoption.

Q (Vlado): Blockchain startups are basically (mostly) IT startups that have to face added challenges because of using or dealing with blockchain in their business model. A simplified explanation: you take an IT startup, add a whole lot of legal and regulatory uncertainty that could demand a total change of your company at any time, sprinkle it with the unreal expectations of your speculating ICO supporters demanding ‘the moon’, and top it off with a side order of mostly unscalable public blockchain techs and voila. :)

Q8: Are you seeing issues with scaling the team?

A (Vlado): Definitely, just as with non-blockchain startups, it is hard to find the right balance between increasing and onboarding the team and staying true to the business development milestones. But new types of challenges arise when you have the added obstacles of having to procure scarce and expensive talent (Blockchain DEV, smart-contract vetting, etc) and you have to be constantly aware of any regulatory changes that might hinder your entire operation. Combine all of these with the ‘regular’ obstacles of scaling and one quickly realises it’s much harder.