A blockchain startup that just months ago eschewed initial coin offerings (ICOs) due to there being a “number of unknowns” involved with the process has since changed its tune and is preparing to launch a $25 million raise at the end of this month.
BlockGrain, an agtech startup founded in 2014, spoke to StartupSmart earlier this year after the company was poised to receive $1 million in funding from the NEM blockchain fund. BlockGrain aims to iron out inefficiencies and provide greater visibility to farmers and grain brokers over their supply chains through a blockchain-based logistics platform.
But speaking to StartupSmart today, founder Caile Ditterich says he’s changed his views on ICOs thanks to both a broader maturing of the market in Australia, and a desire to keep the company’s options open.
“We didn’t go forward with the NEM funding, as we decided it was best to keep our options open around what product we wanted to use going forward,” Ditterich says.
“That’s not to say we don’t like NEM or we don’t think it’s great, but we want to make sure we’re making the best possible decision as a company.”
But there’s more to Ditterich’s change of heart than just a desire for flexibility, as a maturing of the Australian ICO market and a “vibe” of confidence from regulators convinced BlockGrain there would be less risk with pursuing the raise.
The founder points to a number of startups having successfully completed ICOs since his startup first signed on to receive the NEM funding, including the likes of CanYa and Horizon State. Thanks to this, a more solid legal framework for ICOs in Australia’s regulatory environment has emerged, leading Ditterich to conclude it is a viable option for BlockGrain moving forward.
“Essentially we were able to leverage off the hard work [other crypto companies] have done,” he laughs.
It’s not just from a legal standpoint that Ditterich and his team have been imbued with newfound confidence, as government bodies such as the Australian Taxation Office (ATO) are also starting to find their footing when it comes to treatment of cryptocurrencies.
“In a general sense we see the ATO has a better understanding of what taxation applies to and how for ICOs. They’ve got a better feel for it, and while it’s nothing concrete, there’s some stronger guidelines in place,” Ditterich says.
“From both the ATO and the government, the vibe we’re getting off them is that they’re open to this form of raising, and they’re willing to support businesses. Six months ago this would have been all up in the air, but now there’s less uncertainty.
“We certainly don’t think the government will draw a line through ICOs like they have in the US.”
$3.5 million in the bag from everyday investors
Blockgrain has already locked in a $3.5 million pre-sale contribution, which will make up part of the total $25 million the company is looking to raise once its token sale commences on April 26.
The presale amount was sourced from 1000 different individual investors, mostly Australian, which Ditterich points out as an unusual tactic for a company commencing an ICO. Often, pre-sales are opportunities for large-scale investors to snap up the tokens by investing millions to receive tokens at a discount.
Ditterich views that approach as defeating the purpose of an ICO, which he believes should serve as a way for companies to raise money from “the people”. The fundraising method should also differ from its analogous funding method of an initial public offering (IPO), where companies discount their shares heavily to entice more investors on board, he says.
“Too many token sales go out and skip all of the people, and go straight to institutional investors and give them huge bonuses. That’s not a level playing field, everyone should be able to get in on the ground level rather than making the big guys wealthier,” he says.
“If you’re doing that, it’s worse than VC funding, as at least VCs who put in money are involved in the business. Offering big investors early discounts means they’re just going to leverage off the public when it goes live.”
Considering the raise, Ditterich says around 60% of the reason BlockGrain chose to pursue an ICO was to raise capital, which will allow the company to scale further and develop its numerous betas currently trialling in the market. He says the startup’s established business and product puts it head and shoulders above many companies trying to complete an ICO with just a whitepaper and an idea, something he notes was possible just six months ago.
He believes any startup considering an ICO must first consider the basic fundamentals of running a startup.
“Have a product that works, have contracts in place. It’s significantly harder to raise funds now as investors are much more savvy. You need a product that ticks all the boxes,” he says.
With the public sale looming weeks away, Ditterich says he’s confident the team will be able to raise the amount they need.