Have you ever wondered how cryptocurrency investing gurus decide what projects to invest in? Tim Draper and his son, Adam, shared exactly that during a presentation at the 2018 Crypto Invest Summit in Los Angeles.
Tokens or Equity? Which Would the Drapers Rather Own When Investing in Crypto Projects?
Unlike traditional companies, where investors purchase ownership shares, cryptocurrency projects offer two different ways to invest: tokens and equity. So which one is the better buy?
The Drapers told the crowd they choose to invest in bitcoin and cryptocurrency-based companies because it represents freedom and improvement over the current, government-dominated financial system.
Adam posited that cryptocurrency is about freedom of finance, that it will shape the future of the global economy. Elaborating on that point, he shared an anecdote from when he first got into cryptocurrency. Someone told him that, eventually, the entire world will run on a single financial system, and posed a question: how will that system work?
From there, Adam said, his mind was blown wide open to the potential of cryptocurrency. To him, that single financial system will run on crypto technology.
Tim, delivering a statement that ignited the crowd, claimed that people have become slaves to their governments through currency. Governments control currency, he said, deciding when to adjust the supply and by how much, which steers the economy and removes economic power from the hands of the masses.
Bitcoin offers an alternative, Tim continued. And because of its potential, he believes it should be left free from the SEC and other government agencies. If that happens, he said, society as a whole will become much wealthier.
Tim Draper: At the End of the Day, It’s About the People
So now that we know why the Drapers invest in crypto, the next question is: how do they decide who they will invest in?
When most people think of investing, they assume the most important factor is the potential for a return on their investment. For the Drapers, though, it’s really all about the people.
Tim told the audience that when he makes an investment decision, he wants to know if the team behind the project have the potential to build a real movement.
“Crypto is a kickstarter for a societal transformation,” he said.
“Are you doing a sociological evolution,” Tim continued, “will people get behind your project?”
Essentially, when you pitch to Tim, you have to convince him that you can change the world in a meaningful way.
Adam said he felt the same way. He said that when someone looks at a flat-performing cryptocurrency and wonders about its potential, they have to really understand the teams behind these projects. The coin might not have much upward movement now, but if it has a solid team, there’s a good chance it could become something great.
Additionally, when given a choice between betting on the government or the people in cryptocurrency, Adam said, “I would bet on people in crypto every day.”
Explaining his choice, Adam told the audience that he has never felt helped by the government, but the people in the crypto world create revolutionary things every day.
Adding to that, Tim said he chooses cryptocurrency because of its security. While banks continue suffering massive hacks, bitcoin has yet to be touched by an attacker.
“Bitcoin, that’s my secure currency,” Tim said, explaining that he’s holding his bitcoin in anticipation of the day when he can use it for everything, and dump his fiat holdings for even more crypto. Draper has been named on Forbes’ list of the richest people in cryptocurrency.
The Challenges Ahead
As the cryptocurrency and blockchain industry evolves, new questions and challenges arise. During their talk at the conference, the Drapers shared some of the new issues that have popped up since they got into cryptocurrency investment.
With the breakout success of the ICO fundraising method, the Drapers seem to have found themselves struggling with the choice of investing in a project’s tokens or buying equity in the company itself.
For Tim, the most important part is making sure all parts of the investment work together to maximize benefit. Telling the crowd he wanted to own both tokens and equity in his companies, he said he wanted “to get all that” out of the way so he can focus on making sure all the parts of the business align.
Adam said he has ran into this issue with companies that have hosted ICOs after he bought equity. So, now that they have had token sales, is he entitled to a percentage of the tokens, cash from tokens sold by the company, or more equity? It’s a new question he has to find the answer to, he said.
Additionally, both Drapers pointed out an issue in the ICO model of fundraising. Traditionally, startups have multiple rounds of fundraising, each one dependent on the success achieved with funds from the previous funding round.
With crypto startups, however, there isn’t a multi-series funding structure. Instead, companies get seed funding to start their projects, and then have an ICO. After the ICO, they have a lump some of funds to use for building out the entire project.
Adam said that such a structure could be bad for entrepreneurs. By getting all the money up front, it can create situations where they don’t know how to best utilize their funds. But while the “checks and balances” process of multi-series funding hasn’t emerged in the crypto space yet, Adam says the industry is still in its early stages, and that a better system could form in the future.
Tim agreed, saying a funding system similar to traditional VC funding could benefit cryptocurrency startups.
Regardless of the challenges ahead, though, both Drapers stressed their belief in the intelligence of those working in the space. From here, they both agreed, the future of cryptocurrency looks bright.
What do you think about Tim Draper and his son’s statements on cryptocurrency? Share your thoughts in the comments section below.
Images via Pixabay, Evan Faggart, The Mercury News
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