IDO Launchpads — Breaking socioeconomic barriers

The rich get richer and the poor get poorer.

You must have heard at least once in your lifetime, probably during your lunchtime break when you are complaining about how hard you work and how little you are earning, while the riches of the world get to grow their wealth while they sleep.

A classic case in point is COVID-19. We might believe that the wealthy people are suffering together with us during such times of hardship, but, in reality, not exactly.

During this pandemic, while unemployment rates are peaking all-time-highs, we are still seeing a rise in the number of high-net worth individuals (HNWI) across the globe. According to The Wealth Report 2021 put out by Knight Frank, the number of ultra high net worth individuals (UHNWI) in Singapore rose 10.2 per cent or by 345 to 3,732 in 2020. The number of UHNWIs rose by 2.4 per cent globally last year, one-third of the growth rate in 2019. This brought the total of these millionaires and billionaires to more than 520,000. The report defines UHNWIs as those with net worth of at least US$30 million, including their primary residence.

You might be wondering how is that possible, my answer to that is — Investments.

There are many stages to investing in a company, but many of us are probably only familiar with investing in publicly-traded equities and possibly IPOs ( that is if you have premium banking accounts). Also, many would probably consider it a windfall to be able to earn 20%+ annual returns on your investments with equities.

However, even before IPOs, there are investors that have already made multiple folds (ie. 10000% or even more) before retail investors like myself have a shot at investing in it. Check out how many multiples early investors made on Coinbase IPO.

The infographic below is a breakdown of how startup fundings work.

Source: How Startup Funding Works by Anna Vital

However, there are barriers to be eligible to invest before an IPO and much of that has got to do with money.

  1. If you wish to invest in an IPO, at the minimum you will need to be a premium bank account holder to be allotted such opportunities by your broker.
  2. If you wish to invest in private equities as an angel investor, at the minimum you need to be an accredited investor. For individuals to qualify to become Accredited Investors, they have to meet at least 1 of the following 3 criteria: A) Income in the preceding 12 months is not less than SGD300,000 (or its equivalent in a foreign currency). B) Net personal assets exceeding SGD2 million (or its equivalent in a foreign currency) in value, of which the net value of the investor’s primary place of residence can only contribute up to SGD1 million. C) Net Financial Assets exceeding SGD1 million (or its equivalent in a foreign currency) in value.
  3. If you wish to invest with a VC (Venture Capitalist) as a Limited Partner, the minimum is probably around USD250,000.
  4. Lastly, you may invest as a FFF (friend, family or fool). Although at this stage, the quantum required may not be high, but the risk of failure is extremely high unless you know what you are doing and the startup founders know what they are doing.

Generally, the earlier you are in the investment stage, the higher the potential returns, but the risk is also higher. However, the risk can be mitigated if you are aware of the pitfalls and what makes a startup successful.

Hence, the question here is — How can I invest in early stage startups with strong fundamentals that have the potential to succeed, yet with minimal capital, where it is affordable for the masses. In other words, an investment opportunity with low risk and entry barrier, yet with good probability for high returns (ie. 100x or more).

The Solution to Enhanced Social Mobility

My solution is—VC-backed IDO Launchpads. IDO for Initial DAO offering and DAO for Decentralised Autonomous Organisation.

In brief, IDO launchpads are fundraising platforms for early-stage startups to raise funds from the public. You might be thinking how is this different from crowdfunding platforms such as Kickstarter or Indiegogo. The difference here is that these early-stage startups are vetted and invested by VCs. Early-stage startups who are keen on listing themselves on the platform to raise funds have to go through a series of due diligence check and audits. At this point, the risk of these startups being scams and Ponzi schemes are reduced, but there is still a chance of failure for other reasons.

Apart from mitigating risks, with their background as VCs, they have the capability to assist startups towards success by providing advice, connections, resources and other necessary support, such as listing on exchanges. With that, it helps to increase the odds of startup success.

Another plus point I like to add is that, at such an early-stage, you don’t have to place your bet on one potential unicorn to reap significant rewards. You can invest in a basket of early-stage startups (ie. with a valuation of USD1 million to USD10 million). It is easier for these startups to grow by 10x as compared to a publicly-traded company that is valued at USD 1 billion to grow by 10x.

Below are some of the IDO launchpads available in the market and their performance thus far.

Source: Cryptorank

Why use blockchain?

By convention, VCs spend significant amounts on lawyers and legal contracts to solidify the trust they have with startups and due diligence to mitigate the risk of any foreseeable mishaps. This makes retail investors like myself almost impossible to invest in early-stage startups without being a fool or significant capital.

Taking advantage of smart contracts and the immutable nature of blockchain, I can be confident that i’ll receive my promised share of tokens without having a lawyer or broker as a middleman and at minimal cost. Also, I can prove my ownership of the tokens as it will be recorded on the blockchain.

Additionally, the decentralised nature of blockchain facilitates the transfer of assets from peer-to-peer without any central authority and this provides the required liquidity in the market for investors to buy/sell. As some would say, paper value don’t matter unless you can exit.

Potential drawbacks

The idea of IDO launchpads is still very nascent and have not been validated with the test of time. At this point, the scale of participants is small and there may be sufficient pie to go around for every early investor. However, as these startups are only in the early stages, the pie available for investments is very small and there might not be enough to go around when the platforms starts to become more popular.

Also, at this point, there are no regulatory framework to provide you with any legal recourse. The smart contracts are bounded by code and logic, but not by law. Hence, if these IDO launchpads are to be dishonest and you have your investments cheated, there is probably no legal way that you can get your investments back.

Conclusion

In closing, as an investor with minimal capital, I am very excited to explore this opportunity. For any that would like to explore this opportunity too, be aware of the potential financial risks involved.

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Dickson Lai

Senior Research Analyst at Bybit Crypto Insights | Certified Bitcoin Professional | Crypto Enthusiast & Investor