20VC The First ICO Blockchain Incubator Ever, Why ICO's Will Change The World of Venture As We Know It & How The M&A Market Will Respond To ICO's with Mike, Jones, CoFounder @ Science Inc

In a dynamic episode of "20 Minutes VC," host Harry Stebbings converses with Mike Jones, co-founder and CEO of Science Inc., about the evolving landscape of venture capital through the lens of ICOs (Initial Coin Offerings) and blockchain technology. Jones, with a history of successful exits including Dollar Shave Club and a stint as CEO of Myspace, delves into the rationale behind Science Inc.'s pioneering move into the world's first ICO blockchain incubator. The discussion highlights the shift in early stage investing, as traditional VC practices are disrupted by the liquidity and global reach of token sales. Jones outlines the differentiation between utility and securitized tokens, the potential challenges in M&A, and the implications for venture capital structure. As the ICO presale looms, Jones and Stebbings explore the broader impact of blockchain on startups and investors, predicting continued growth and integration of crypto assets into mainstream investment strategies.

• Science Inc. is launching the world's first ICO blockchain incubator.
• The ICO presale will commence in 13 days from the podcast's date.
• Science Inc. has a history of successful exits, including Dollar Shave Club, Hello Society, and Famebit.
• Mike Jones, co-founder and CEO of Science Inc., has a background as the CEO of Myspace.

"And none could be more timely than our guests today, who in just 13 days will commence their ICO presale, becoming the world's first ICO blockchain incubator."

This quote introduces the topic of the upcoming ICO presale for Science Blockchain, highlighting its significance as the first of its kind.

• Mike Jones started his first company in college and sold it to a partner.
• His second company was acquired by AOL.
• He enjoys working with early-stage founders and has seen successful exits with Science Inc.

"I had started my first company in college and sold that to a partner. Then my second company was acquired by AOL."

This quote provides background on Mike Jones' entrepreneurial journey, leading up to his role at Science Inc. and his experience with company exits.

• Science Inc. explored crypto and bitcoin about four to five years ago but faced challenges.
• With the rise in crypto market cap and investor base, they saw the ICO as an innovative financing method.
• Science Blockchain was created to finance early-stage companies through an ICO.

"We felt that it was highly innovative, very disruptive to the way that we might finance our early stage companies and decided that we wanted to create a dedicated vehicle for it."

This quote explains the reasoning behind choosing an ICO as a financing method for Science Blockchain, emphasizing its innovative and disruptive nature.

• ICOs involve companies running token sales, which can be divided into utility tokens and securitized tokens.
• Utility tokens are compared to the early domain name market, with high liquidity and global reach.
• Securitized tokens comply with SEC guidelines and have potential value over time.

"In a utility token world, it's very similar to the early days of domain name sales... In a certain sense, these utility tokens mimic that same format, except that they are global, they are highly liquid on the exchanges."

This quote explains the concept of utility tokens, drawing a parallel with the early domain name market and highlighting their global liquidity.

• Utility tokens have a promise or current utility within certain technologies.
• Securitized tokens are registered securities that comply with SEC guidelines and crowdfunding acts.
• Blockchain Capital was one of the first to raise a venture fund through a token sale.

"So then there's this other idea of saying, can you create a token that is compliant with certain components of the crowdfunding act from the SEC that is registered as a type of security and does work to comply with SEC guidelines."

This quote discusses the concept of securitized tokens, which are designed to be compliant with SEC regulations and have the potential for value appreciation.

• The Science ICO will be securitized, following principles similar to Blockchain Capital.
• The focus is on incubation and early-stage investments.
• Compliance with SEC guidelines is a priority for the ICO.

"So we're using very similar principles as blockchain capital. We're doing a larger vehicle. We are complying with SEC guidelines."

This quote confirms that the Science ICO will be a securitized token, emphasizing the importance of legal compliance and the focus on incubating early-stage companies.## SEC Guidelines and Accredited Investors

• The SEC provides specific guidelines for crowdfunding in the U.S.
• Science Blockchain works exclusively with accredited U.S. investors.
• Accredited investors are given the opportunity to own tokens which can receive additional tokens from incubated companies.

We are working with us accredited investors only. This quote emphasizes the exclusivity of the investment opportunity to a specific investor class, as per SEC regulations.

• The token operates on the Ethereum platform.
• Token holders receive tokens from incubated or invested companies directly into their wallets.
• Investors have control over the tokens they receive, unlike traditional LP fund relationships.

The way our token works is if you're a qualified us investor and you happen to own or buy one of our tokens, and you have it then sitting in your Ethereum qualified wallet, what that means is, over time, as we incubate businesses, and if those businesses also run their own token sales, you, as a holder of the science blockchain token, will receive in your wallet the tokens from the companies that we incubate or invest in. This quote describes the innovative mechanism of the Science Blockchain token, highlighting investor control and direct receipt of tokens from incubated businesses.

• Science Blockchain tokens provide more control to investors over their assets.
• Liquidity of these tokens is dependent on marketplaces and exchanges.
• The structure allows for potential selling of tokens, providing liquidity on demand.

Right now, I just say it provides a lot more control. This quote underscores the enhanced control investors have over their tokens, as opposed to traditional investment structures.

• Investors can see returns by selling their tokens on exchanges.
• The token market is active, with ICOs occurring daily.
• Early investors often sell their ICO tokens on exchanges at a profit due to high demand.

So if you are sitting on 100,000 tokens from some cryptocurrency company, and those tokens could be ethereum or bitcoin or a startup where you participate in the ICO and you have those tokens, depending on what country you sit in and your ability to get into certain exchanges, you may be able to sell those tokens. This quote explains one of the ways investors can realize returns from their ICO investments by selling tokens on exchanges.

• Wealth from Bitcoin and Ethereum is often reinvested into ICO tokens.
• Investors support their community and diversify their crypto holdings through ICOs.
• Outside money is flowing into crypto, with traditional investors seeking exposure.

Somebody that bought 10,000 bitcoin years ago, and suddenly they're sitting on tens of millions of dollars of value. And part of it is that they do want to diversify out of bitcoin, and so they'd like to move a portion of that crypto value into an ICO token. This quote highlights the trend of crypto investors diversifying their portfolios by reinvesting in ICOs, supporting the crypto community's growth.

• The crypto market is evolving with different phases of investor entry.
• Traditional investors are increasingly interested in gaining crypto exposure.
• The complexity of participating in ICOs is a barrier to entry for some investors.

I believe that we're seeing within months, this third phase of wealth moving into crypto, which will be traditional lps and investors, finding managers they trust, like us, to basically move large amounts of exposure into crypto, and that will continue to support the ecosystem. This quote predicts the influx of traditional investors into the crypto market, seeking trusted managers to facilitate their investments.

• Traditional investment evaluation methods may not apply to crypto companies.
• The crypto market consists of many small investors and a few large ones.
• Technical expertise is required to navigate the crypto ecosystem.
• The mindset for crypto investing differs from traditional early-stage investing due to the potential for quicker returns.

Transferring Ethereum between icos and securitizing your wallets through a protocol that you feel comfortable having a lot of value in is not easy, and it's going to be very foreign to traditional investors. This quote advises traditional money managers on the technical challenges they may face when entering the crypto market, emphasizing the need for technological understanding.## Liquidity Options in Early-Stage Investing

• Traditional angel investing involves selling a significant company stake with governance for a few million dollars.
• Initial Coin Offerings (ICOs) provide a different approach, with companies raising large sums without giving away as much equity and offering immediate liquidity to token owners.

"I definitely think that through the lens of the traditional angel that believes a founding team should sell 20% to 30% of their company for a few million dollars, with a ton of governance, this feels highly logical."

This quote explains the contrast between traditional angel investing expectations and the new ICO model, highlighting the logical appeal of the latter in certain market conditions.

• ICOs have changed the way venture capitalists view equity and early-stage companies.
• The crypto market cap's growth to $142 billion, with some tokens exceeding a billion in value, shows significant impact.
• ICOs won't replace traditional funding entirely, but they are suitable for certain companies that benefit from blockchain technology.

"I think it does. It is going to change venture."

Mike Jones acknowledges the transformative effect ICOs have had on venture capital, indicating a shift in investment strategies and considerations.

• Blockchain is suitable for companies needing to transfer digital ownership, establish trust, or transfer value globally.
• ICOs are a good fundraising alternative for companies that match blockchain's strengths and can benefit from a limited supply of digital tokens.

"Well, I think if you can, from a blockchain perspective, if you are creating something where you need the ability to irrevocably transfer ownership of a digital object blockchain makes a lot of sense."

Mike Jones outlines the specific criteria that make a company a good candidate for using blockchain technology and considering an ICO.

• Post-ICO companies still need operational advice for scaling.
• The M&A market's response to acquisitions involving companies with tokenized systems is uncertain.
• Future protocols may need to address the relationship and potential conflicts between equity and token owners.

"Well, I do think that certainly these early stage tokenized ICO companies can absolutely use senior advice as it relates to operations and scaling businesses."

Mike Jones emphasizes the ongoing need for traditional business advice even for companies that have raised funds through ICOs.

• Bitcoin and Ethereum represent initial value transfer protocols, with ICOs being a current primary application.
• Future protocols are expected to evolve to address M&A complexities involving equity and token ownership.

"There's probably a third and a fourth and a fifth protocol that gets released that further kind of creates an evolution around these platforms."

Mike Jones predicts the development of new protocols to refine and address the evolving landscape of value transfer and ownership in the context of ICOs and traditional equity.

• Incubators like Science Blockchain have different structures compared to traditional venture funds.
• Science Blockchain's approach to management incentives through tokens will be transparently detailed in their offering memorandum.
• The goal is to appeal to both crypto enthusiasts and traditional investors seeking exposure to the ICO market.

"So it changes. Granted, ours is an incubator vehicle, and incubators are set up different than a two and 20 structure."

Mike Jones acknowledges the shift in management structures and incentives when dealing with ICO-funded ventures, particularly in the context of incubator models like Science Blockchain.## Filecoin's Impact on Venture Capital

• Filecoin's success or failure is viewed as a potential indicator of the future of venture capital.
• Traditional LPs and institutions may be influenced by Filecoin's trajectory.
• The ICO market is robust and won't be significantly affected by a single company's performance.

"Filecoin story will be the landmark. And if it's successful, the world of ventures over. And we'll see traditional lps move in, institutions move in, and if it's not, then we'll see a cratering."

This quote suggests that Filecoin's outcome could be a turning point for venture capital, with the potential to either attract traditional investors or cause a decline if unsuccessful.

• ICOs are not limited to the success of Filecoin and have broader applications.
• Technology can disrupt fintech, especially in global remittances.
• ICOs have international reach, and many are raising more capital outside the US.

"I think that the ICO irrevocable token transfer vehicle that we're witnessing right now has applicability in lots of areas."

This quote emphasizes the versatility and potential of ICOs beyond the success of any single entity, highlighting their significance in various sectors, including fintech.

• A significant amount of ICO funding comes from international investors.
• Many ICOs exclude US investors due to SEC regulations.
• ICOs enable global investors to compete with Silicon Valley for early-stage technology investments.

"80% to 90% of these icos are raising more capital internationally than they are in the US."

The quote points out the international nature of ICO investment, which contrasts with the traditionally US-centric venture capital landscape.

• A successful venture partnership requires clearly defined roles and expertise.
• Partners need to excel in operations, legal and structure, fundraising, and strategy.

"I think similar to a company, you need individuals that understand what they're good at and they have very highly defined roles and swim lanes where they focus."

This quote highlights the importance of role specialization and clarity in a venture partnership, drawing a parallel with successful company structures.

• The quality of entrepreneurs and CEOs is fundamental to success in venture capital.
• Strong relationships and development of talent are key.

"I think that it all comes down to people."

The quote underscores the centrality of human capital in the venture industry, placing the emphasis on the importance of the individuals driving the companies.

• There is a friendly wager on whether Bitcoin will be above or below $4,000 next year.
• The speakers have opposing views on Bitcoin's future price.

"Bitcoin, $4,000. This time next year, will it be above or below?"

The quote sets the stage for a bet on the future value of Bitcoin, reflecting the speculative nature and differing opinions on cryptocurrency valuations.

• The crypto community is very active on platforms like Telegram.
• Core discussions and idea sharing occur in niche, hard-to-find groups.

"I found that the crypto community is actually very engaged on telegram."

This quote points out the preferred communication channels within the crypto community, indicating the importance of being involved in specific networks to gain insights.

• Companies are innovating in how millennials consume content.
• New platforms and content formats are emerging, particularly mobile and short-form content.

"We have a company that is going to be announcing a big financing round with a great partner, and they're focused on disrupting traditional media."

The quote reveals an investment in a company poised to challenge conventional media consumption, highlighting the evolving landscape of content delivery and consumption.

• The speakers express mutual appreciation for their contributions to the industry.
• There is excitement around the Science ICO.

"Such exciting news on the science ICO and thank you so much for joining me today."

This quote reflects the enthusiasm for the Science ICO and the collaborative spirit within the venture capital community.

• Pendo provides a platform for product teams to understand usage and improve user experience.
• Treehouse offers online coding education with a comprehensive course library.

"Pendo helps companies create products that customers love."

The quote describes the services offered by Pendo, emphasizing its role in enhancing product development and user engagement.