“ICO vs VC” at Global Venture Summit 2018

Speaker: Hai Ho — Triip.me CEO, Co-founder

Hai Ho: Good afternoon Jakarta!

Audience: Yeah.

Hai Ho: Before I begin, don’t trust me. Ok? I may tell you that I am going to give you some free money throughout my speech, don’t trust me. I’m going to tell you how to raise funds in a faster and different way, don’t trust me. Why? Because everything I say is just my knowledge, my observations. Only trust what you come up with, what you can think of after listening to my observations. So trust yourself only. Are we good?

Audience: Yes

Hai Ho: Thank you, Jakarta. These are observations of me building a company 5 years ago. How many of you in the room are “startup founders?” Please, can you show your hands?

— 1, 2, 3, 4, 5. How about VC? And the rest of you are from Jakarta. Thank you

In 2013, I had a dream to build something like Uber but for local tours. It’s a simple website where you can go to every city for example; Jakarta, find someone, book a local tour, it is a unique tour designed by locals, not any tour by a tour company. That was simple. The model is, we are the ones who stand in between, so we take a 10% cut. Normally in the travel industry, the middleman takes 90% and only leaves the tour guide with 10%. But what we’ve done is that we’ve changed that, we give the tour guide 90%.

We had the first customer in 2013, we bootstrapped everything ourselves, went to 10 countries around South Asia, and we ran out of money, just like every other startup. We had no choice; then I sold my house because I still believed something was there. After selling the house, things got better a little bit. We had an office, but we still didn’t have enough money, so we built our own tables, everything was done there, with US$3 per table. And then we got better, we got angel investment from Singapore, then we got the award winning, we attended TechCrunch, we attended TechinAsia (in Jakarta) and so on and so far, and all those awards came along.

But again, it was still hard to raise funds, because it is not 2018. Back then, especially where we’re from in Vietnam, we don’t have local investors. We were jealous of what you guys have in Indonesia; we don’t have a lot of opportunities even though we were on the news a lot.

So we tried really (really) hard, we never gave up. But luckily one day in 2016, Gobi partner came in and invested US$500,000 in us for our seed round. So actually, during about 3 or 4 years, we first had our first VC fund. In the last 5 years, I’ve pitched to thousands of investors across Asia and a few in America. Along the way, I’ve had other stuff to raise funds as well. So I’m sharing these stories just to let you know that I do feel the pain of any FOUNDERs out there trying to raise funds. And in the morning, you can see that from Mr. John; he said that the acceptance rate for any accelerators is one out of thousand. So far we have been lucky enough to survive until today that we are profitable. And going through all that painful process with VC funding, I found myself on a new journey; and we are going to do an ICO.

So why we came to an ICO, what is the difference between an ICO and the VC? That’s something I want to share with you today. So that you will have a comprehensive view of other ventures, other than just, Bitcoin is going to die? Or cryptocurrency is a scam. Well, let’s tell a story from the insider. OK?

So first of all, in order to raise a VC round, it takes a lot of paperwork. When you meet a lot of investors, you have to send the deck, prepare the data room and you have months of negotiating. Even in our case with Gobi, we closed the deal in December 2015, but because of a lot of paperwork, we only got the money in April 2016 which is about 4–5 months delay. During those 5 months, we know that we are going to have money, but we don’t have the money and we have to borrow from friends, everyone, to survive, and all of those things were because of there was a lot of paperwork.

After we raised another few rounds, every round, I estimated about 5–6 months and tons of paperwork. And trust me, for a founder, looking at all those legal documents is like an alien language. If anyone comes with an AI, please use AI for the law first. If you can solve legal document by AI, I will buy, everyone will buy the product. But when you do an ICO, there’s no more paperwork. Everything is transparent with a smart contract.

So what is a smart contract? It is a simple line of code that you put all the conditions in the beginning. When you do an ICO, there are a lot of keywords like Soft-Cap and Hard-Cap. So for example, an ICO raising about US$20,000,000 they have a soft-cap of about US$2,000,000 to US$5,000,000. Which means if you put the money into that startup, if the total amount raised is not enough and not equal to US$2,000,000, all the money will automatically go back to your wallet, you cannot do that with normal paper and you cannot do that with other programs like “Kickstarter or Indiegogo.”

If you fund a project on “Kickstarter or Indiegogo,” if it fails, your money is gone. But we changed that with a smart contract where you can predefine all of these things, and that’s the beauty of doing an ICO. An ICO increases transparency. Why? Every ICO, for example, our project, we have to put up our whitepaper. That is something very different from traditional VC pitching. For example, in the early days, Grab, Go-Jek and Traveloka, when they sent their presentation in a deck to the investor, that document is confidential. Only a few people can see the entire business plan to raise funds. But with an ICO, every company out there has to publicly put the whitepaper for everyone to read and comment. That is the key different thing. So for example, right now I’ve got no secret to hide, all our data is on my website, and you can go and read them. Imagine you can read all the information about your competitors as well, right? That’s something not happen within the VC funding world, but in the ICO, the more transparent you are, the better people trust you because it works just like IPO listed company.

Here is another example of how transparence is, in the ICO and cryptocurrency world. There’s a website called Etherscan. You can literally put any company wallet address, which means it’s something like bank account number that you put on this website and you can see exactly how much money came into the wallet or the bank account of this company. As an investor, you can see clearly how much money has been invested in this company in real time. No other startup will show you their bank account. But in the crypto world, you can do that. And even with that, you can see that, for example, this company Appcoin they still have one wallet with about 60% of all the money they’ve raised. And every day they check and if they do something wrong or they misuse of money, that money will go to some other people’s wallet, and they get replaced and they can ask a question

And because of this type of transparency, ICO gave normal people a chance. Imagine Facebook was invested by Peter Thiel, would anyone of you want to invest in Facebook in the early days? I bet everyone, right?

Audience: Right.

Hai Ho: But right now, the only way to invest in Facebook is to wait, when they get the IPO and then you have to have some ways to invest in an American listed company. But if you lived in Asia, it is very hard to do so. If you lived in my country Vietnam, there is no way to do so. But with the ICO, every normal person can invest in any startup anywhere in the world. Let’s set aside all the legal issues. For example, some countries have banned a few different nationalities to participate in the ICO, but more or less at the moment, I can put money anywhere in the world and join the very early round. It’s also changing the game for the small VCs compared to the bigger VCs. Bigger VC like Sequoia, they have the network and always get the best deals in advance.

But with the ICO, all the information is public; you can join the private sales round, you can join pre-sales round, you can join any round at any time. So it gives us a paradigm shift in the distribution of capital.

I will example in my country Vietnam, we recently had one of the world’s biggest scams in the ICO, US$ 600,000,000USD was raised by a fake ICO company and the total amount of people that put money come up 50,000 to 100,000 people. So why do people put money in a fake ICO? Well first, for VC funding, you put about US$5,000,000 to US$10,000,000 to a bigger startup. That money is made up from the VC, maybe its money from the LV or some rich family but it’s the money from a few people. But with an ICO, a normal person will put US$200, US$500, a little amount of savings because with that small amount of savings, when you put it in a bank you don’t have much interest. If you want to get some extra money, you have to do some trading or opening a small coffee shop or selling something online.

But if you’re just a normal accountant, who works days and nights, with your US$ 500 extra, what can you do for an investment to get you about 300% or 400% return. That’s why people turn to the ICO, and that’s why a lot of young Koreans are putting money into crypto currency because for them it’s still better than putting money in the bank. However, if some body gets greedy, instead of putting a small amount of savings, they put their entire life savings. So if you have an extra saving, take 1/10 of out that and try it out in the crypto-world and see how it will work, but do not ever put entire fortune or savings into. Last week I was told that one of my friends lost about US$2,000,000 in Bitcoin. Out of that US$2,000,000, US$1,000,000 is borrowing from his girlfriend, and obviously, they broke up. But sometimes people don’t know when to stop, but I hope that everyone after my sharing this afternoon, please know when to invest and how much to invest.

The crypto world actually has the same market cycles like every normal economics. When you get in early, like in the stealth phase, you can make some money there. There is another story from in the US. There is one VC; she was trying to get into the crypto funding for the first time, so she put in some money in the very early stage and then one of the hackers changed the wallet address and stole US$1,000,000 from the ICO. So the VC was so scared, this is my first attempt and I lost US$1,000,000. In the end, thanks to the mania phase, thanks to the media and thanks to thousands of believers, that ICO raised US$ 30,000,000. In the end, they were able to pay off the US$ 1,000,000 debt that was stolen and that VC made about 30 times within 3 months. So within the cryptoworld, time runs different scales, it’s running very fast.

So if you decided to trade in the cryptoworld, brace yourself because it is going to be so tough. But you can also choose to relax, do slow trading, buy here, forget about it, next year you come back, and you see your portfolio grow. The big question for owned stocks and a lot of VC as well: ICO or VC? As someone who has done both ICO and VC, I saw some pros and cons. But here are some examples, when you do a VC fundraising it is more like B2B sales, when you have to present to a different corporation to get their money, It is pure B2B sale and the process is ranging from LinkedIn, road show, events, also is to get to the table with a term sheet. So if you’re a startup that’s still building a B2B product, you still need VC funding. Because not only the VC gives you money but also the network, something that the ICO will never be able to get you through.

I have [an example] one company called the “Addvocate.” Addvocate is an American platform that turns any employee to become the brand promoter. It was founded by one of the seniors who working in Oracle. Before he started the product, he already had all the network and all the clients already. So all he does is: he just raised some money and built the product and then sell it to all of his friends within his network. So that’s how you build a B2B product. But when you do B2C product, an ICO may be a better choice because this is when you really sell directly to all the crypto-owners out there, to all the normal people. And if they love the product, they will invest in your product ICO and then they will actually use the product. But for me, the best of both worlds is still a better option. If you’re raising a round with a VC fund, announcing it together with your ICO that will be the best game because most of the ICOs out there, last year, were all scam. But this year, there are more and more VC backed companies starting to do ICO and that will have to change the image of the cryptocurrency in normal people eyes. It is no longer scam but more real companies finding the application of blockchains.

How to spot a good ICO? Well, first of all, you can see that: Should you invest in Bitcoin or Litecoin to start? I just say that, try to invest in the You-coin, invest in yourself and your knowledge. Whatever you make, spend about half the savings investing in your knowledge. Only invest in the ICO or the product that you understand so well, only invest in the ICO that you’re going to use by yourself. If you’re an accountant, let invest in something related to the fintech. Don’t invest in pharmaceutical industry, don’t invest in mobile healthcare because you don’t understand. For the ICO, you only invest in the thing that you understand and spend your time to actually know and invest $50 or $100.

The beauty of ICO is you can invest with US$50 or US$100; you don’t have to do US$10,000 or US$50,000. The start is very little.

The second thing is, the ICO stands for “Initial Coin Offering” but for me; it’s about “Initial Community Offering.” Because doing an ICO which means you’re going to issue virtual money and you have to design an economy where people have to buy and sell the coin to make the coin have value. Imagine you create a new country, create a new currency. So for the new currency, you have to make sure there is an economy where people to buy and sell which means a community to really use and adopt the coin to use for real. A lot of people say there is no real value with Bitcoin. Because it is the first cryptocurrency and that’s why people still buy it, to store.

With Ethereum, there is a real value in Ethereum, because Ethereum powers a lot of ICOs. So when normal people want to invest in an ICO, they have to go and buy Ethereum from people who already had Ethereum, and that created an exchange of value, the smaller the ICO doing will higher the value of Ethereum. So it’s the same.

And also you can find this chart on the world economic forum. Ask this question, does your startup or does that startup really use blockchains in their solutions? Because ICO and blockchain is such a trending keyword, that everyone is going to say, “Alright, I’m gonna do blockchain.” But sometimes we have to ask the question; does this company really need blockchain? Usually I come across an ICO from the healthcare industry and they say that every time the doctor gives you an instruction, you have to drink this pill 3 times a week, you have to exercise 5 times a week, then they say they’re going to put that into the smart contract, so that if the patient follows exactly what the doctor says, he/she will get rewarded with some coins.

And I was like if your health is not your concern, will a smart contract make that person follow the doctor’s orders? So that’s some of the not so good example of using blockchains. And how to spot a good ICO? One of the biggest scares or fears for all investors in ICO is when the Founding team runs away. I heard about 3 or 4 different stories of an ICO team that had good intention and really wants to raise money and then they really want to do something nice, on the day when the ICO closes, they have US$20,000,000 in their wallet. That night changed their minds. Because when you go from a founder who has nothing, a founder that has to live on US$1,000 per month, to a founder with US$20,000,000 in his wallet and you have no commitment at all. So a lot of people change their minds. They ask themselves, “Why should I work or spend the next 5 years working so hard, when I can have this my retire money at the moment?” So before you invest in any ICOs, check their social media personal accounts to see what kind of person they are. Is it someone who values building something good for society or someone who wants to build a startup just for money and fame. Follow their Facebook very closely, to see what kind of person they are or what kinds of motivations they have?

Because somebody can say that “I will never change my idea, I will never change my heart to do something good.” The ICO is only the real test whether the greed has overcome as swallow every person or not.

So that will be the end of my presentation, and I would like to invite you if you want to learn more about ICO in general, let’s have a talk after this. The last but not the least, I would like to share one more thing, whether you like it or not, blockchain will continue to evolve. Whether you like it or not, cryptocurrency will become a strong and important part of your daily life very soon.

It’s up to you to join it, to learn about it, invest in your knowledge or you can just say I don’t care.

Thanks a lot!