The financing of startups through ICOs using blockchain technology changes the concept of a unicorn. Is it the same to reach a valuation level of $1 billion in this way as through traditional rounds of investment?
Unicorns are the success symbols of startups. The name of this fictional animal is used for companies which, while not having listed, hit the valuation barrier of $1 billion dollars. The concept has given rise to a whole body of academic, professional and media literature on success in digital entrepreneurship.
As a result, financial people and journalists closely track the number of unicorns that are ‘born’ every quarter in the most entrepreneurial of companies.
As in the case of many areas of innovation, the takeoff of blockchain has changed the unicorn ecosystem.
By means of ICOs (Initial Coin Offering) using blockchain, companies can take in thousands of millions of dollars quickly issuing tokens, or cryptocurrencies. But can companies that surpass the $1-billion-dollar valuation barrier as a result of an ICO be considered unicorns?
Until the irruption of blockchain, a startup grew through financing rounds which in exchange for part of its capital brought on board new investors. This process of rounds of financing, which normally extends over a number of years, is also an implicit test of the viability and solidity of a company. To reach the unicorn category in this way is like passing a series of increasingly difficult competitive exams.
Blockchain offers a much quicker way … if ICO tokens are granted the same status as the shares issued by a company in financing rounds.
There is a fundamental difference between traditional financing and ICOs which is that the shares issued as part of the former carry voting rights while ICOs offer little more than a piece of paper. The valuation of a crypto-company is simply the result of multiplying the number of tokens that exist by the price they are trading at, normally in the form of cryptocurrencies such as ethereum or bitcoin, whose volatility compared with fiat currencies (money backed by public institutions) is very high.
Unicorns and crypto-unicorns are, therefore, two different animals, with the former having more grounds for taking pride in their valuation. But examples such as Juicero, the startup that sold a mere juicer as a marvel of technology and ended up being wound down with its valuation way off its maximum level of 270 million euros, or the demise of the technology company Jawbone, which closed shop in 2017 after being valued at €3 billion euros, show that neither of the two ‘species’ is exempt from problems.
They key is not how to capture economic resources but what you do with them.