There’s only one market

February 3, 2018

There’s only one market.
–Oki Matsumoto
CEO of Monex Group

I was speaking with a startup CEO the other day about a fresh new entrant company in his space that had just raised an ICO. This first CEO’s startup was kicking it old school, i.e. they had launched long before ICOs became a thing, had raised some angel and VC money, and were now plugging away on a gradual grind toward profitability.

Unsurprisingly, it was easy to disparage the new entrant, who was flush with new ICO cash but only just starting now. How could their young team possibly excel in this new market for them without the benefit of battle scars ? Furthermore, the shoehorning of their business premise into a token model smacked of ICO opportunism. For these and other reasons, the startup CEO was understandably dismissive.

ICO opportunism or not (and in this particular case I agreed that it smelled as such), my retort was that this does indeed matter.

When Oki-san made his one-market observation, he was speaking in the context of how some financial institutions treat cryptocurrencies. Those who dismiss crypto as a fringe market are missing the big picture: that crypto will have an impact on their traditional markets whether they want to acknowledge it or not. For instance, just as capital flows to find its optimal risk/return point, rampant speculation in the bitcoin market may make equity markets calmer.

Back to why I told the startup CEO that it matters…

I would submit that we’re starting to witness Oki-san’s same astute logic bear out among early-stage tech startups. Startups flush with ICO cash (or coin) impact their non-ICO counterparts in at least three potentially adverse ways:

The obvious one is that ICO-rich startups will have more funds to spend on talent, equipment, customer acquisition, paying off channel partners, etc.

A new competitor straight off an ICO also raises the noise level in the space, perhaps adding to confusion in a market which now encompasses both relatively mature product offerings on one end with hype machines on the other.

A third more subtle impact is on human capital. Granted, labor is not as liquid as money, but even beyond the attraction to potentially high salaries, workers gravitate to where the excitement is.

All this being said, I would contend that we’re currently undergoing a transition period, not a steady state. Any conclusions drawn based on current market dynamics may not be so relevant over a longer time horizon. To ICO or not to ICO is a legitimate question many tech entrepreneurs may be asking themselves these days (and I’ll explore this further in a future post). It’s tempting to become caught up in the current ICO euphoria, but it’s important to not lose sight of the long term goal.

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posted in venture capital by mark bivens

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