Odaily Frontline | What does an incubator mean for crypto startups?
This article comes fromCointelegraph, original author: Henry Linver
Odaily translator: Nian Yin Si Tang
Odaily translator: Nian Yin Si Tang
The companies that pick and nurture these future projects are called incubators. Since mid-2018, many "lucky ones" have successfully passed the development stage under the guidance of these companies. While being picked by a prestigious incubator gives a company a huge advantage over its competitors, it doesn't guarantee 100% success.
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What is an incubator?
In the modern tech world, there is a massive glut of startups. Now there is a blockchain solution again, and most people don't even know it exists. But for many startups, being acquired by a larger company is the ultimate goal. For crypto-related projects, in addition to attracting the attention of venture capital firms, being selected by an incubator is equivalent to being acquired by Google at an early stage.
Incubator companies look for companies with growth potential and guide them through basic development stages until they are strong enough to successfully launch independently. But incubator companies do not operate out of sympathy. The motivation for taking risks in these startups is often to take large stakes that can translate into lucrative returns if the chosen company becomes successful later on.
Probably the most important resource an incubator company provides to a project is financial capital. Startups are notoriously short on cash. A substantial infusion of capital, coupled with access to a variety of financial partners and advisors, tends to help businesses grow quickly. In addition to funding from the incubator companies themselves, being selected means sometimes receiving additional support from government or university institutions.
Incubator companies usually attract professionals with decades of venture capital background, people with a keen eye for investing in promising start-ups, and highly specialized experts in their fields. These experienced professionals often serve as advisors to project leaders during the incubation phase.
Charles Phan, CTO of the Interdax trading platform, explained that while the incubator was born amidst the crypto mania of 2017, they have evolved in 2019 into projects seeking guaranteed quality and revenue in a very different market:
Ideally, incubator companies would acquire unpolished companies and take significant equity stakes. Next, the selected startup is launched as a sleek and efficient graduate of the incubator, thereby attracting more investor interest and generating profits for all stakeholders. But, as often happens in the cryptocurrency space, things don't always go according to plan.
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Matic crash
Matic, an Ethereum-based cryptocurrency payment network, was one of the first crypto projects to launch on Binance Launchpad. After its token MATIC plunged nearly 70% in a short period of time on December 10, the project party was questioned about price manipulation, which Matic officially denied.
On December 10th, the Matic official team made an "Audit Announcement" on the blog about the tokens being dumped and shipped at 8:30 in the morning. There is no basis at all. The amount transferred out of the contract is similar to the amount released by the foundation, which is purely coincidental. They also stated that the tokens released by the Matic Foundation have all entered the Staking mortgage and have not flowed into the market.
Matic co-founder and COO Sandeep Nailwal also said that someone specifically picked the night break to short, and this seems to be a coordinated attack. He hinted that several large traders may have joined forces to establish large short positions on multiple futures exchanges while simultaneously selling large amounts of tokens. However, he did not immediately give a solution on how to deal with the current situation, only saying that the Matic team will continue to develop its fundamentals. Nailwal believes this will make the project less vulnerable to similar attacks in the future. "It's not terrible in the long run, it's just potentially hurting a lot of people in the community in the short term. Our main goal is to protect the community and provide the best information so they can make their own decisions."
Binance CEO Changpeng Zhao also stated that the Matic team has nothing to do with this matter.
According to Coin360 data, Matic/BTC once hit a high of $0.042 that day, and then plummeted all the way to a low of $0.014. As of press time, CMC quotes show that Matic is temporarily trading at $0.0139, a 24-hour drop of 1.45%.
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Binance isn’t the only company looking to incubate promising startups for equity. Since 2018, more and more incubators have emerged that aim to cultivate the next generation of enterprises to initial profitability.
Andreessen Horowitz
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Founded in 2009, Andreessen Horowitz is a Silicon Valley-based venture capital firm that is one of the most prominent cryptocurrency incubators today. While the firm has a broad portfolio in healthcare, tech, energy and fintech, among other sectors, it announced it would be “actively investing” in cryptocurrencies, an announcement that has raised eyebrows during the “crypto winter.”
Most recently, A16z, together with venture capital firm Polychain Capital, invested $25 million in cryptocurrency payments startup Celo. According to Celo's announcement, the two investors invested $15 million and $10 million, respectively. Andreessen Horowitz currently has more than 20 crypto-related projects in its portfolio, including exchange giant Coinbase and Facebook's Libra project.
Coinbase Ventures
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Coinbase is a crypto wallet provider and one of the largest cryptocurrency exchanges in the world. The company launched its own investment arm, Coinbase Ventures, in 2018.
Earlier this year, Coinbase Ventures invested in US-based blockchain company Near, which raised more than $12 million in Series A funding. Coinbase Ventures also participated in the Celo investment alongside A16z.
Y Combinator
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The firm recently participated in a $4.2 million funding round for TRM, a provider of digital currency compliance and risk management services. TRM, which was incubated by Y Combinato, reportedly serves major banks and brokerage firms around the world. Y Combinator included some cryptocurrency companies on its pick list, including SFOX and Coinbase.
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expert opinion
Andrew Adcock, CEO of crowdfunding platform Crowd For Angels, believes that crypto incubators play an important role in creating a healthy business environment:
“First, they can impart experience and knowledge, ensuring entrepreneurs have the information they need. Second, they provide a critical network of investors, service providers and stakeholders to help build and scale businesses. Finally, they It can also provide a significant source of early-stage funding ahead of a larger funding round. Likewise, businesses entering an incubator can be seen as 'championed', thereby providing a good foundation for potential future growth."
While incubators have a significant impact on the success of a given business, Adcock explained that the immaturity of the cryptocurrency industry adds uncertainty to the incubation process:
“A key flaw facing crypto incubators is the immaturity of the industry, technology, and public perception. This state of ‘influx’ creates uncertainty and brings rapid change, and both entrepreneurs and incubators must adapt simultaneously. That said, the industry as a whole has shown tremendous ability to change and deliver."
In addition to the developmental nature of cryptocurrencies hindering the work of incubators, Jared Polites, a partner at LaunchTeam, an accelerator and management consulting firm that works with crypto companies, said that in order to obtain help and funding, entrepreneurs have to impose restrictions on incubators. Make a compromise:
“If you want funding from an incubator, there may be a stipulation that the company is built on a specific protocol that the incubator is interested in promoting. And abandoned the original strategy and ended up working in a completely different foundation."
“One of the problems with Launchpad is that it attracts some of the people who are most likely to buy an IEO token simply because they know it’s going to be traded on a major exchange. It’s not that different from the speculative frenzy that ICOs trigger, The latter tends to encourage myopia - investors only care about price, not actual development."
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Is ownership separated from responsibility?
Given Matic's slump, many commentators feel that the incubators haven't done enough research on the companies they're pitching beyond short-term profits. However, Adcock told Cointelegraph that he does not believe the companies behind the incubator are guilty unless they are proven to have operated in a fraudulent or illegal manner. Adcock added that examples of incubator efforts not paying off can actually be used to learn lessons to avoid making the same mistakes again:
“For an entrepreneur who chooses to ignore the advice and guidance of the incubator, it is not the fault of the incubator. However, this does not mean that the incubator can stay out of it, on the contrary, it can be used as a learning opportunity to see how they can be better Communicate with entrepreneurs more effectively and establish a more transparent relationship.”
As with all investments, incubator companies are making educated estimates that the projects they undertake will ultimately be profitable. Inevitably, this doesn't always work. Citing data from CryptoRank, Phan said that only a handful of projects have achieved a return on investment so far.
