[Exclusive] Dialogue with Silicon Valley Investors: The US ICO market is more rational, and VC participants are mainly individuals

After ICO was defined as illegal fundraising in China, some ICO initiators are preparing to go overseas to seek rebirth opportunities, and ICO trading platforms in the United States and Japan are the main options.

In July this year, the U.S. Securities and Exchange Commission (SEC) released an “Investor Briefing” on ICOs, stating that “under certain circumstances, digital currencies are securities and their issuance is illegal without SEC registration or an exemption.”

The U.S. government regards these digital tokens issued through ICO as a financial product that needs to comply with U.S. federal securities laws. Project sponsors need to comply with the law, register with the SEC, and disclose information to ensure investors' right to know.

What is the ICO market environment like in the United States?

All Weather Technology interviewed Qiu Zhun, managing director of Yunjiu Capital, who is based in Silicon Valley and focuses on technology fields such as blockchain and AI. In his opinion, many investors from VC institutions in the United States have participated in ICO and Bitcoin transactions in their personal capacity, but this investment boom has not spread to the general public.

US less eager to regulate ICOs

All Weather Technology: What kind of group are ICO investors in the United States?

Qiu Zhun: ICO still has technical barriers, and not every ordinary person will buy Bitcoin. So from the perspective of regulatory pressure, the US SEC has not banned it, but is more concerned about whether the investor is a qualified investor.

There are many VC investors in the technology field among the participants in US ICOs. Most of them participate in their personal capacity. Most VC institutions are not directly involved and are still observing.

All Weather Technology: Why are there so many VC investors among the participants in the United States?

Qiu Zhun: ICO is a circle behavior, spreading from one person to another. Many investors pay attention to emerging things in the technology field. They hold Bitcoin and Ethereum. Many people in the VC circle participate in Bitcoin transactions. This is a common phenomenon.

In the early days of Bitcoin, there were no applications. ICO is, to some extent, an application of Bitcoin, which can participate in the development of other innovative projects. Therefore, many people in the VC circle are buying and selling tokens, which is also a way of financial management to allocate assets and diversify risks.

All-Weather Technology: What is the current attitude of the US government towards ICO?

Qiu Zhun: Overall, it is still neutral, a little more positive than in China. It has not yet been characterized as a Ponzi scheme. Many foreign media reports are relatively positive, such as Business Weekly and the Wall Street Journal. People are generally optimistic. Overall, the US SEC does not seem to be under such great pressure to immediately strengthen supervision of ICOs.

The Chinese government's current attitude towards ICO is similar to its attitude towards Bitcoin a few years ago, which is relatively negative. From the perspective of foreign exchange, this type of innovation will increase the potential difficulty of RMB exchange rate management.

There are many projects in China that have launched ICOs, which are just packaging unrelated products and claiming to be related to blockchain, in order to raise funds for the sake of raising funds. In fact, the value of tokens should ultimately be based on blockchain technology.

All Weather Technology: Why do US regulators have such an attitude?

Qiu Zhun: Because ICO has not become a product for mass investment, and the government does not want to kill an innovative product in the cradle, this is a great test of the wisdom of the regulators, who cannot kill new things with one blow, but must keep them in a reasonable position.

From the perspective of the project, if the government has not yet started supervision, then the founders need to exercise self-regulation. The self-regulation of ICO projects in the United States is better than that in China, with a relatively clear bottom line and a high degree of self-discipline. Many large financial companies in the United States have participated in many blockchain projects in the past few years. Currently, there are more reliable ICO projects, and the regulatory pressure from the US government is relatively small.

For a long time, many geeks in the United States have been doing innovations related to blockchain, but blockchain has not yet found a good application, so ICO is a good phenomenon and a relatively realistic application. However, the situation in China is relatively chaotic, and many initiators are still at the stage of profit-making. Some projects are just hype, so the need for domestic supervision is more urgent.

All Weather Technology: In the United States, how can we ensure that the funds raised from ICOs are actually used for business?

Qiu Zhun: In this regard, there is currently no regulatory agency in the United States, and it relies largely on self-discipline. This is a high-risk thing, so ICO investors should judge the pros and cons of the project itself and the integrity of the founder.

All Weather Technology: Some Chinese investors plan to invest in ICO projects overseas. What do you think?

Qiu Zhun: In the future, Chinese funds will go abroad because Bitcoin is decentralized and is actually difficult to regulate. However, domestic investors need to have overseas channels, such as understanding local social media and having channels to participate.

All Weather Technology: Some people believe that ICO will subvert VC in the next few years. What do you think?

Qiu Zhun: ICO itself will subvert VC, because in the future, blockchain projects can raise funds by themselves, which is a decentralized behavior. VC is just the opposite of blockchain, which is very centralized. I am in Silicon Valley, and basically projects from all over the world, including many technology company founders in Europe, Israel, and China, will come to Silicon Valley to seek financing. Silicon Valley is a representative of a center.

But ICO will not replace VC. At least one thing is that VC will provide services such as post-investment management, which will provide added value. Moreover, most projects are not suitable for financing through ICO. Strictly speaking, ICO is not simply a new financing method, but a new business model with accompanying financing methods.

All Weather Technology: Will VC institutions invest in ICOs in the future?

Qiu Zhun: Currently, most VCs in Silicon Valley have not directly participated, but blockchain has always been an investment direction, just like AI recently. VCs invest in blockchain, but they do not really participate in ICO projects on a large scale. Only individual investors working in institutions participate. Many projects that so-called VC institutions participate in are newly launched tokens of blockchain projects that have been invested in before.

All Weather Technology: What do you think of the current valuation of ICO projects?

Qiu Zhun: For traditional blockchain projects, VCs have returned to reality and will not invest blindly. In recent years, it has been difficult to raise funds for blockchain projects because no real applications have been found.

VCs need to rely on a lot of experience and due diligence to look at projects. This process is very complicated, and ICO investors may not really have experience. Many times, they act on impulse and it is difficult for them to do due diligence and explore the value of the project itself. If the operating data and value of a blockchain company have not actually increased, and it could not raise money before, but now it has received a lot of funds from the ICO market, this looks like a financing bubble.

All Weather Technology: Will this bubble burst?

Qiu Zhun: ICO is just a financing method and cannot increase value out of thin air. However, there is a popular saying in Silicon Valley: as long as the bubble does not burst, it is prosperity. But if the bubble bursts, everything will return to the original valuation level, or even lower.

But it cannot be said that ICO is a wrong valuation model.

Back to the Internet bubble in 2000, when Internet model innovation emerged, all companies were not profitable. Without income, companies needed to rely on financing to survive. Many companies were valued at tens of billions or even hundreds of billions of dollars, but had no income or profit. Many people thought that these phenomena broke the economic laws of classical economic theory. But in the end, the bubble passed and these companies returned to normal valuations.

Of course, there are indeed some high-quality Internet companies that have changed the laws of economics and broken the previous valuation model. ICO also has similar possibilities.

All Weather Technology: What do you think of the bubble?

Qiu Zhun: Bubbles have two sides. If the bubbles are squeezed out, many companies will be undervalued. First, some of the bubbles we think may never burst. Second, after the bubble bursts, will it return to its original value? This is not certain.

So it is difficult to apply past experience to current innovations.