I Scam Yous

I read a Nathaniel Popper piece in the NY Times today about celebrities endorsing ICOs. It made me want to throw up.

Readers know that I have been and continue to be excited about the emerging blockchain/crypto/token opportunity and I believe it represents the next big wave of innovation in the tech sector, upon which many important companies, products, and technologies will be built. I’ve been saying that since I started blogging about Bitcoin here on AVC in 2011.

I have also written a lot about our portfolio companies that are working in this sector and have even mentioned the tokens that they are issuing. But I have never and will never promote a token offering here at AVC. I believe that these are very risky investments that require a lot of diligence and patience. These are very similar to the kind of seed investments we make at USV. We know that that vast majority of them will not work out and we build a portfolio based on that understanding.

I have also written a lot about the need for diversification and that I expect this sector will come unglued at some point, like the Internet sector did in 2000/2001. If you read Carlota Perez, you will understand that most important technological revolutions have been fueled by rampant speculation that almost always comes undone right as the sector is moving from the installation phase to the deployment phase. That framework is almost certainly playing out again in crypto.

So this ugly speculative phase comes with the territory and always has. But that doesn’t mean I have to like it. I hate it. Most ICOs, like the ones mentioned in Nathaniel’s piece, are scams. And the celebrities and others who promote them on their social media channels in an effort to enrich themselves are behaving badly and possibly violating securities laws.

The worst of it, as Peter VanValkenburgh, the director of research at Coin Center, told Nathaniel is:

It’s undeniable that a celebrity endorsement brings a new audience into the world of crypto currencies. But I’m not certain that celebrity endorsements are doing a good job of bringing attention to the legitimate projects.

I am certain that celebrities are not doing a good job of bringing attention to the legitimate projects. A legitimate project has these characteristics:

  1. A relationship between the amount of money being raised and the complexity of the project.
  2. A very clear use case that requires the decentralization approach brought by blockchain technology.
  3. A reasonable valuation based on the size of the opportunity being pursued.
  4. A credible team.
  5. The technology has been built, at least to a point where it is demonstrable.

We have looked at hundreds of token offerings at USV and have only participated in one token offering to date. We do have five portfolio companies that either have done or will do token offerings so you can add them to the list of tokens we have exposure to. And USV is an investor in a number of token funds like Polychain which I blogged about yesterday. But the point I am trying to make is we have passed on most everything that is going on in this sector. We will keep looking for legitimate projects and we will certainly buy into token offerings. But we are being very careful and I would hope and expect that all of you are too.

When it comes to ICOs, understand that most are scams and that you must be careful to avoid them. As I said in that post I linked to above, the operative term when it comes to ICOs is “Buyer Beware.”


Comments (Archived):

    1. fredwilson

      deja vu!!!!

      1. Jeremy Robinson

        “I read a Nathaniel Popper piece in the NY Times today about celebrities endorsing ICOs. It made me want to throw up.” I LOVE your refreshing honesty, Fred! Like a cold shower in the AM that gets your attention. As the kids say, we love your keeping it real. Salud!

    2. Kirsten Lambertsen

      Oh gawd. I think I had some friends and family Flooz 😀 Or maybe it was Beenz.>The company announced its closure on August 26, 2001, perceived as an early indicator of the growing dot-com bubble bust.[3]o_O — the bubble had long been burst by then.

  1. Pranay Srinivasan

    There should ideally be an exchange or a clearinghouse or a “Yelp” or “eShares” for all ICOs to vet, investigate, legitimize and acknowledge ICO standards. Most are missing basic details.

    1. fredwilson

      CoinList certainly wants to be that

      1. Pranay Srinivasan

        Interestingly, “Legitimacy” cannot be decentralized.Slippery slope again

  2. pointsnfigures

    A lot of people are doing this because they see it as an easier way to raise money.

    1. fredwilson

      yes. very true. and that is and should be a wake up call to the SEC that they’ve got the screws turned on too tight in the traditional capital markets.

      1. Pointsandfigures

        Yupppp, agree-and that goes for other Finance agencies as well. Competition is good, and transparency is good.

      2. JLM

        .There are people who should never, ever be allowed to touch OPM. Ever.The SEC is in a tough situation — refusing folks who should be refused while trying to find the bright line.I dealt with the SEC for more than a decade and I can tell you stories about their follies and foibles, but I have to say that when I read all their actual cases, it makes the hair on the back of my neck stand up.There are some people who should never, ever be allowed to touch OPM. Ever.Perhaps capital markets have to be a little tight to enforce the laws.JLMwww.themusingsofthebigredca…

      3. onowahoo

        Agree 100% that the SEC needs to reexamine how they restrict individuals’ ability to invest. I think the ICO market is good for the future of investment management. It’s refreshing for such an easy way for individual retail investors to get access to the asset class similar to venture capital. It’s obviously a high risk asset class and nobody should have their entire portfolio comprised of it. However, I personally find the asymmetric returns and potential for outsized winners especially appealing.There’s obviously a lot of value that professional VCs bring to the table with regards to pattern recognition, risk management, mentoring, etc. Unless you’re a HNW individual you don’t have access to funds as LPs and you can’t even use Angel List to make direct investments. To that end, I don’t want the government telling me how I can make or lose known money. If I decide to have 75% of my assets in cryptos, it’s my decision.In a similar vein, why is it hard for retail investors to invest in vehicles that have performance fees instead or on top of management fees? Who are they protecting?

        1. JLM

          .The US Securities and Exchange Commission exists to accomplish three things:1. Protecting investors;2. Maintaining fair, orderly, and efficient markets in securities; and,3. Facilitating the formation of capital to fund companies.This is done, primarily, by requiring full disclosure (upfront and while operating) of financial information pertinent to capital formation and operations, as well as the management of the enterprises which are engaged in operating the companies beneath the securities.Sometimes, the “protection” the SEC exerts is protecting investors from themselves which is done by dividing investors into two classes: accredited (folks who can afford to lose their bait) and non-accredited investors (folks who cannot afford to lose their bait).This may feel like the SEC telling you what you can do with your money, but they are moreso regulating the issuer/offereror telling them to whom they can appeal. Chicken v egg approach.As an asset class, anything even remotely related to venture capital is looking at failure rates in the 75% range. If an investment can fail 75% of the time, the US SEC suggests it is an asset class which is not suitable for unsophisticated investors/unaccredited investors and they see it as their mission to protect investors from themselves, their proclivities, and the issuer.There are a lot of crooks out there. There may be as many or more incompetents. And, there are a lot of people who should just not be in the business of running anything, particularly with OPM.They are protecting you from you.JLMwww.themusingsofthebigredca…

          1. sigmaalgebra

            Okay, a claim is that the situation of ICOs instead of VC for funding startups is because the VCs are severely constrained. My guess is that the VCs are so constrained not because of the SEC but because of the LPs. Some guy who is still learning how to shave walks down Sand Hill Road with a “foil deck”, and the SEC is telling the VCs what to do with this guy, what criteria to apply? Really?

          2. Adam Sher

            In your example, the VC is held accountable by the SEC for how it raises its own money from LPs, how it reports its operating/investment results to its LPs, and how it spends LP money.Raising Money: – Investor Eligibility: Document that you verify your investors are affluent. There are different wealth requirements depending on the size of your fund.- Solicitation: limited allowances. Claims about your past and projected performance are scrutinizedSpending Money:- start-up fees: how was this disclosed and what restrictions on start-up costs did you impose?- management fees: no real issue unless you are above market, then it’s about disclosures- investment fees: disclosures required. The SEC disallow some fees at which point the GP would refund the Mgmt Co or potentially have to offer LPs early redemption (this risk applies to any use of funds that may be inappropriate or improperly disclosed)- 3rd-party and related party costs: disclosures required – potentially ongoing disclosures required (e.g. you hire a spouse to perform consulting work)- investments: do you follow the criteria outlined in PPM and LPA (this could mean investing in a company headed by some teen with a foil deck). If you don’t, how did you disclose and approve such investment?How do LPs participate in the governance of a VC? Board representation. Now, an investment company isn’t required to have a board of directors. Investment Co may have an Advisory Board where the AB members have limited to no rights, or a Board of Directors with a lot of rights.

          3. sigmaalgebra

            Okay. Modulo the meaning of PPM, fine.But that is nearly all just legal boiler plate and nearly irrelevant to running a successful VC firm, that is, does not cover the difference between a successful VC and, say, Sequoia or, e.g., USV.My reading of the 100+ or so better known information technology VCs is that their investment criteria are (1) astoundingly similar and (2) very different from how projects are approved in R&D elsewhere, e.g., for US national security, for academic research, in engineering, etc.Or, the old story was that a VC could fund a sketch on the back of a napkin. Well, as far as I can tell, that essentially never happens now and, apparently, is uniformly forbidden. So, the guess is that the LPs have agreed on the investment criteria and no way want anything to do with napkins.Then what are those criteria? Exiting, new, disruptive, advanced technology, game changing? Not really, especially since those are all just adjectives less solid than cotton candy.Instead the main criteria are close to what has long been traditional in private equity and/or commercial banking: So, there is a principle, make a financial investment only in a financial asset or something close to a financial asset.So, the main word is “traction”: Invest money in a project with “traction” that is in terms of money or something that can be readily monetized. Then proprietary intellectual property, trade secrets, research results, running software, plans, etc. don’t count, are not permitted to count.For information technology projects for the future, this emphasis on “traction” stands to leave the equity funders with much less to do: Sure, if the project “team” has good “traction”, five co-founders, with all credit cards maxed out, and each wife pregnant, etc., then they may accept an equity check. Or at the beginning of the Web, a Web site needed an expensive box from Sun Microsystems, etc. and, thus, an equity check.But now there can be just a solo, sole founder where the capex and opex needed for good traction are minimal and where the burn rate is so low that even early traction gives the business plenty of pre-tax earnings for rapid organic growth, growth where cash is not a tight constraint.E.g., need more disk space? Okay, get a little Western Digital Passport, 3.5″ size, external, connected AND powered by USB, 2 TB for about $70. Then four of those puppies would give 8 TB. In comparison, at one time the main computer site of FedEx had, sit down for this, a huge, enormous, gigantic disk space of, can you believe, 7 TB.The world has changed. Can do a lot of computing with 8 TB and a 4 core processor.Upload data rate to the Internet? Okay, 20 Mbps is common. Can send a nice, simple Web page for 500,000 bits. Call that 1 Mb. So, that would be a peak rate of 20 pages a second. Say, average 24 x 7, half that, 10 pages a second. Have 4 ads per page and get paid $1 per 1000 ads displayed. Then get monthly revenue of10 * 4 * 3600 * 24 * 30 / 1000 = 103,680dollars. So, that’s the “traction”. So, now just why would sole, solo founder with a server farm of just one 4 core server and that traction need, want, or accept an equity check with the usual terms sheet terms?Sure, long a good example was the romantic matchmaking startup Plenty of Fish, long just one guy, two old Dell servers, ads all just from Google, and $10 million a year in revenue. Later he sold out for $500+ million.

          4. Adam Sher

            Some of the difference between a successful VC firm and an unsuccessful one is luck.Napkins may be enough if your fund is a seed stage one and the person with a napkin is a founder with multiple previous exits. The focus on a VC or PE fund determines the level of company that needs to exist.As you rightly pointed out, it’s fuzzy, so the impetus is on the GP to ensure the funds are used according to the proforma use of funds. Beyond that, there’s not much else for the LPs to hold the GP to.

          5. sigmaalgebra

            > As you rightly pointed out, it’s fuzzy, so the impetus is on the GP to ensure the funds are used according to the proforma use of funds.Again, my guess is that a VC GP and an LP agree on the investment criteria. In this agreement, usually the main criterion is traction. Other criteria are: (1) no solo founders, (2) information technology, (3) market big enough for a $1+ billion exit.

        2. jason wright

          The Great SEC Finwall. The privileged on one side, the peasantry on the other.

      4. sigmaalgebra

        In the VC world, the tight “screws” are from the LPs, not the SEC, right?

      5. Felix Kam

        I rater see the current craze as a wake up call: the parental control approach to exposing the public to financial risk is wrong, and we need to move toward education. https://fkam1337.wordpress….

      6. Adam Sher

        Title III will create more access for retail investors but it doesn’t solve the problem of investor laziness. The SEC cannot do anything about that.Forcing companies to register with the SEC and jump through expensive bureaucratic hoops is the easiest way to implement a minimum standard of care. This hurts small companies (small from a use of capital) and locks out retail investors (excepting Title III eligible opportunities).The SEC has a problem where the agency is pretty large (i.e. funding is there), but they cannot compete for talent with banks and investment companies (underfunded with respect to individual pay), and their whistleblower program is ineffective. Harry Markopolos’ book, No One Would Listen, sadly describes the short-comings of the SEC. With that said, if investors cared about underwriting opportunities, the scale of an individual scam would decrease. It’s easier for the SEC to enforce its rules against smaller scams (and companies).If you a small company but looking to raise capital in a way that disqualifies you from certain exemptions then you are the ideal target for the SEC enforcement. You are not big enough to afford a fight, and SEC action will have real consequences.

    2. jason wright

      Too easy a way. That’s the problem.

  3. Tom Labus

    Maybe these guys will wind up doing something good with the 30 million but maybe they all get new cars and condos too.Who were the “investors”? How many? What do they think will happen? What was the average investment?This is pretty crazy stuff.

    1. JLM

      .Come on, Tommy, what could go wrong?You give a lot of money to folks who don’t have any, who have never executed on a matter of public trust, who are working on a cutting edge, unproven bit of technical wizardry, who have nobody looking over their shoulder, have no adult underwriting, and who have never done anything like this before in their lives — WTF could possibly go wrong?The only difference between this and a hold up is the gun. They are both criminals, but the hold up guy lets you in on the secret up front.JLMwww.themusingsofthebigredca…

      1. Tom Labus

        Hold on now, I agree with you 100% on this one. But these guys get no invitation to jobs and opportunity in the main economy. So I do admire their hustle until they screw everybody.

        1. JLM

          .Not sure I agree with the notion “these guys get no invitation to jobs and opportunity in the main economy.”What does that have to do with them scamming people?They, hopefully, have some programming or other tech skills.Nobody is entitled to anything any more.JLMwww.themusingsofthebigredca…

          1. Tom Labus

            Maybe they hire some guys who can pull this off. Scam not pre determined.

          2. Girish Mehta

            Hanlon’s Razor. Don’t attribute to malice that which can be adequately explained by stupidity.The thing is – Stupidity will ruin financial lives just as well as malice will.

          3. Tom Labus

            But these people tossed 30 mil at them. Jeeze. A calculated risk or a con.

          4. jason wright

            But no ONE did. It’s fractional investing. There is no consciousness policing what a founder does.

          5. jason wright

            Occam’s razor. The simple explanation is greed.

          6. Girish Mehta

            Yes. And the subtext to that greed is envy. That ‘greed-o-meter’ would read quite differently if crypto price charts read differently over the past 12 months.I think Buffett and Munger are onto a profound truth here. Its simple, and not simplistic. https://uploads.disquscdn.c

          7. jason wright

            Envy driving criticism?

          8. Girish Mehta

            Envy drives Greed.Greed then drives Stupidity.p.s. Separately – Yes, envy also certainly drives criticism. Wasn’t what I was referring to there.

        2. LE

          So I do admire their hustle until they screw everybody.Let me take the other side of this and defend the scammers!Screw? I think that depends on what the definition of ‘screw’ is.If someone is abusing the trust of their 80 year old widowed aunt and taking all or nearly all of her money that is screwing.But if someone is taking a little bit of money from a whole bunch of people that are hoping to get rich then perhaps that is providing entertainment and hope. I am not sure how this is so different than a lottery (sponsored by the state) or casino gambling or sports betting. It only becomes a problem when someone spends more money than they can afford to lose. The fact that something is formally approved and has actual oversight does not make it defacto smart in any way.It may also have educational value. Someone young puts money into this and learns from the experience after they lose that money. So it’s a canary in their common sense coal mine.Also you are right that there is something to be admired about their hustle. What I have often seen happen is traditional rule followers think they should have a lock because they were the first ones to stake a claim in a new business. And anyone that follows is looked down upon. And if those people have more guts and take chances that the rule followers don’t then they are trashed to no end as bad and non-legit. Some of that comes out of jealousy for not being the type of person to take the chances necessary to achieve the golden ring. But here’s the thing. It’s not like the traditional people don’t cheat and bend the rules. They just don’t do it as much and aren’t as much pigs. (Look at the things that big corporations or big investment banks do because it’s cloaked in lawyers and good marketing and lobbying it someone doesn’t seem as bad as it is).

  4. Frank W. Miller

    The reason is because common human nature is not like you. Most people are not going to be looking at these things as the beginning of something new that has great potential to have significant changes in the structure of our financial world. I can see what it is that you hope will happen but most others will not and most will certainly not be pursuing that.When we had our cryptocurrency club meeting the other day, the students had brought in a speaker. I’m just an advisor so I sit in the back and listen and don’t say anything. The speaker was interesting and he “knew” what he was talking about but it was shallow. He sounded like Mayweather. He had just started a company and was getting ready to do a token offering and it was all very exciting. I kept my mouth shut and didn’t say anything to dampen the students but I couldn’t help thinking that what was about to happen had many similarities to this story. The speaker had no interest in the important structural issues associated with the Internet, he was just kind of a slick used car or stock broker type trying to sell something.I don’t know how this is addressed. With all the hype and smoke surrounding these things, its difficult for me to see how. I do believe there is one thing technically that could be done to perhaps address this problem. The value of tokens should be fixed, like a currency. Then the tokens behave like currency and you accumulate wealth by accumulating tokens rather than watching their value increase. The false scarcity of proof of whatever would have to be replaced with something to manage the supply of tokens, but I see that as a technical challenge. You already know about my feelings on governance, something needs to be built in. I don’t see anything like these in the CrCu space and it might be interesting to see the dynamics that people have surrounding such a structure. If there’s a startup out there looking at a structure like this, perhaps you should seed them?

    1. fredwilson

      there are some interesting things happening with governance. the most interesting approaches are built natively into the technology. like DAOs, done right

      1. Frank W. Miller

        Kewl, what about the fixed value idea? I’ve never seen a CC that has that.

        1. Matt A. Myers

          There aren’t popular CCs with fixed value because they’re not juicy enough to attract VC and participation from others. It’s why a fixed price CC needs to be government/state created and mandated.

      2. Frank W. Miller

        As I’ve mentioned before, my belief is that some of the design decisions that went into things like Bitcoin and survive in other assets are the fundamental problem yielding the predictable human behaviour we’re seeing. Its my belief that to address theses consequences, it’s necessary to revisit the design of these currencies. The fundamental problem in my mind is that they behave like assets rather than currencies. Here’s a bit of crystalization of thoughts over the last few months on this. What I suggest is that someone should put together something like this:What are the characteristics of cryptocurrency vs. a cryptoasset?1. Each unit has a fixed value. Value is gained by accumulating more units.2. The value of each unit is tied to another currency, e.g. one unit is worth $13. Value is entered into the blockchain by translating other things of value into these units, e.g. buy and selling dollars to covert from/to crypto units.4. While the blockchain is immutable, a mechanism for recovery should be available, probably by subsequently approved modifying transactions. The governance for such recovery should be composed of BOTH the participants in the blockchain and a central authority that has a supervisory role but cannot participate in the actual currency itself, i.e. it can possess no units.Each of these mechanisms needs to be hard coded into the blockchain and there should be not other features, e.g. programming languages like ETH.Might be interesting to code up something like this…

  5. William Mougayar

    Yup. #2 is a key fundamental point that many ICOs skimp over lightly. Why a token and why the blockchain are really important questions.Plus, #3 is so difficult to judge remotely, since most of these teams are global and “investors” go by how well the website is dressed up and how well the marketing is done.

  6. William Mougayar

    And to punctuate this post, this was my Inbox from this morning: 15 ICOs closing in 36 hours. https://uploads.disquscdn.c

    1. fredwilson

      awesome and scary at the same time

    2. JLM

      .When enough people piss into the punch bowl, it ruins it for everyone.This is going to be ugly on an ape.JLMwww.themusingsofthebigredca…

    3. PhilipSugar

      I have good judgement from experience. I gained my experience through bad judgement.We are now at the idiots phase. You and Fred were innovators. Then came the imitators, now we have the idiots.Happens about every decade or so. I’ve seen it three times, I hope to see it three more.People think, look at what the innovators have done! Then imitators come in and do get some wins and people think? Awesome! Then come the idiots.People who follow should know I am not a Fanboy. But people think what Fred does is easy. It is not. It takes years and years of intelligence, work, inquisitiveness, and some luck to achieve.The idiots think they can do this is in a day not decades.

      1. William Mougayar

        Well put. The imitators are def circling. Slapping “Token” on everything loosely.https://twitter.com/wmougay

      2. Lawrence Brass

        Beware smart idiots! 🙂

        1. William Mougayar

          Indeed, the smart idiots can lead you to a bigger ditch than the regular idiots…and faster.

          1. PhilipSugar

            What “smart” idiots do is they have the ability and background to convince other people to go along with their idiocy which they actually believe in because usually they have no common sense and convince themselves what they are doing is ok and are somewhat pathological in that they know how to make themselves money and don’t care about anybody else.I had two fraternity brothers at the very top of the CDO crisis. They were roommates when I lived in NY. The both were in iBanking during the Resolution Trust issues (Savings and Loan crisis) Fifteen years later I sold my house at the peak of the market. I called them up and said I don’t get this? The new buyer’s loan is never going to be paid off and went through the details and that it was going to be sold. They said Phil we put these things in a big collateralized debt structure and sell off tranches, it’s ok.Ok? You gave somebody a loan that has no chance of getting paid off, you are selling it to somebody that is going to get killed as they take the writedown, take the mortgage not being paid, and killing the value of the neighborhood, also killing their liquidation value.But hey that 10% origination fee gets split up, and you make your commission which puts the whole thing further underwater, but you wash your hands and make money.Sorry Iceland who were trusting because of their society, you get thrown into chaos.

    4. JamesHRH

      If USV looks @ 100+ and pulls the trigger on 1……and someone looks att 1 and invests…..it’s just capital returning to its rightful owner.C’est la vie.

  7. srolle

    hey,we launched a community due diligence playform at ConcourseQ.io.if there’s an ICO that is economically relevant, someone will have probably researched it.any feedback would be appreciated!

  8. Mac

    #4 gets my attention. An unknowing public, not skilled in the basic due diligence usd by VC firms like USV, when evaluating founder/market fit, (in any space) are easily duped by startups like Centra.

  9. Vendita Auto

    Simply the democratic yellow brick road it will be a small financial lesson learned by small percentage. it is not dead people in a school due to automatic weapons it is not “the big short” it is not the legal supply of opiates or tobacco That is crazy and makes me want to throw up. “(aka How To Survive A Crash)” you did what you could.

  10. JLM

    .Fred’s comments seem to argue for some central underwriting and due diligence force to ensure there is a minimal level of adult supervision over those who would ask the public to give them money and trust them.This is, of course, the function of the US Securities and Exchange Commission which has evolved since 1933.An “underwriter” puts itself in the place of the ultimate purchaser of securities and — subject to the law, rules, regulations of the SEC — provides an opinion as to the nature of the risks associated with any offering of securities.You have to ask why this role would ever be diminished or defeated. It is there for a purpose.Of course, I, personally, never make any important decisions in life without checking to see where Matt Damon is on the subject.JLMwww.themusingsofthebigredca…

    1. Lawrence Brass

      Would you invest in an ICO endorsed by Matt Damon?

      1. JLM

        .Knowing that I adore diversity — even amongst my celebrity opinions — I never make a final move until I check where Cher is on a given opportunity. If she is out of the country, I can go with Oprah. But, it has to be a “one name” celeb. Why I never rely on Barbara Streisand.JLMwww.themusingsofthebigredca…

        1. sigmaalgebra

          Ah, you left out Woopie and Rosie!

        2. Artificial Intelligence

          I will buy anything that Cher sing to.

    2. JamesHRH

      Internet is Minimal Commercial Connection – producer / intermediary / user.Blockchain is communal. Party 1 / Mining Community that carries no responsibility to either party / Party 2.When in history has the Blockchain model been used? Never.Steep climb.And not even Matt Damon’s support is much of a boost!

    3. sigmaalgebra

      I can think of a LOT of celebrities I’d MUCH rather “consult” than Matt Damon, even if I knew who the heck he was. Just right off, say, Jennifer Lawrence? Julia Roberts? Scarlett Johansson?”Honey, that Chanti wasn’t half bad. Now for some of this Italian rum cake with some Asti Spumanti?Of COURSE I respect your mind! What was it you were saying about bit coin? P versus NP and bit coin mining? Quantum computers for the mining? Hermitian operators in Hilbert space? The suggestion of worm holes to explain Einstein-Podolsky-Rosen entanglement, “spooky action at a distance”, much faster than the speed of light? The Markowitz quadratic optimization and the trade-off of risk versus return?Ah, the girl I knew when I was 14-15 was MUCH prettier than any of those Hollywood women, no joke.

  11. Rob Underwood

    You mean I shouldn’t take the financial advice of a soccer star whose primary claim to fame is biting players on the opposing team nor that of a fading reality star with no tangible skills or talents?

    1. JLM

      .Soccer player — yes.Reality star — maybe.JLMwww.themusingsofthebigredca…

    2. LE

      take the financial advice of a soccer starThis isn’t nearly as bad as when a celebrity mouths off about anything that isn’t their specialty. (Politics is what I am thinking about…)

  12. creative group

    CONTRIBUTORS:Caveat Emptor! (places the onus on the buyer to perform due diligence before making a purchase)Falls on deaf ears.We reached out to several unknowingly solicited celebrities paid to endorse unvetted boiler rooms to warn them.Wealth and how one initially acquired it doesn’t translate into financial sophistication or financial literacy.

    1. jason wright

      Yes. US gov treats its citizens like little children. Nanny state culture.

  13. Michael B. Aronson

    Which of your companies have announced offerings?

    1. fredwilson

      Protocol Labs/Filecoin and Kik/Kin have completed public sales Blockstack/Stack and YouNow/Props have announced plansAnd Numerai simply did an issuance of Numeraire with no offering

      1. jason wright

        NMR doesn’t appear to be NATIVE to what Numerai is about, and the whole process is darkly opaque.

      2. Michael B. Aronson

        Thanks fred, blockstack looks very interesting as an old developer, too bad they are all princeton guys!

  14. JaredMermey

    One out of a few hundred might align with your standard investment to reviewed companies ratio, no?

  15. onowahoo

    I know you say you hate the “ugly speculative stage,” but this is often a very important part of a developing technology. Much of the Internet’s broadband infrastructure that we still use today was built during the speculative stage where tech IPOs were often returning 2x on day one. This is the stage that companies and governments are comfortable to making large capital investments.Example: Google has reigned in it’s fiber network build out because it was too expensive and not profitable. It is very hard to make those large capital investments in developed markets once they are developed.

    1. JLM

      .Well, and the fact that their competitors had an existing network and were crushing them. Google Fiber announced in ATX and to this day really hasn’t been a player while there are 7 other credible sources for 1gig service.JLMwww.themusingsofthebigredca…

  16. Manuel Zeiler

    What’s the one ICO that USV participated in ?

  17. sigmaalgebra

    I read a Nathaniel Popper piece in the NY Times today about celebrities endorsing ICOs. It made me want to throw up. Of COURSE it did. You expected something else? Long ago I concluded that the NYT, especially the Sunday NYT, was designed to be something to throw up into! Conveniently it also provides some really good reasons to throw up!Here are some of the NYT’s top, center, upchuck crown jewels: CO2 from humans causing dangerous global warming, based on nothing but ignorant anxiety back to Medieval superstitions and religions, flogged like a rented mule (@JLM) for years. After they got the memo based on the actual temperature record in degrees C, they changed their scam to evil, sinful humans causing dangerous climate change while never being clear on just what changes in the climate or why or how one would tell that the climate had changed significantly (might be a cute statistical hypothesis test). Trump on a commercial airplane flight reached across the arm rest and grabbed some women intimately — centered, above the fold but debunked within about 24 hours.Now we have the formerly revered, highly self-esteemed, shrinking and on the way out of business NYT flogging ICO scams.Well, ICO scams are likely much less expensive than the trillions it would cost the US to let the NYT shut down most of our energy and transportation industries, for just two parts of our economy.So, the NYT has found another scam to push? We should expect something else?Sadly, as on the Web the NYT is useless for wrapping dead fish heads, as something to throw up into the NYT can’t compete with Charmin, Bounty, or anything from the rag bag of shirts and sheets washed until they are full of holes!First mistake with the NYT — paying any attention at all to the NYT.I don’t, gave up years ago, and haven’t since then: If a link at Drudge Report takes me to the NYT, it’s an instant close the page. Similarly at Hacker News, curiously with a lot of links to NYT stuff.NYT scams, lies, trying to communicate anxiety diseases, trying to be a dangerous, addiction, Hillary/DNC Goebbels style propaganda — those I don’t need, want, or will accept.Recipe to fix a lot of the NYT? For their routine stories, have them return to severe versions of common high school term paper writing standards, especially in STEM fields. For anything else, require severe expert peer review as new, correct, and significant. Then a lot of English literature and other humanities majors won’t make the cut.Save the upchuck! Avoid the NYT!I know; I know; I know; in the liberal tribe that is NYC, the NYT is the catechism!Readers know that I have been and continue to be excited about the emerging blockchain/crypto/token opportunity and I believe it represents the next big wave of innovation in the tech sector, upon which many important companies, products, and technologies will be built. Maybe. I can’t prove that wrong. But I have at best only thin ice to stand on to argue that it’s true. So, maybe there will be some applications to digital contracts? Digital signing more generally?I’m not seeing the big, “must have” need. Of course for a business such a need is a nice advantage but is not necessary for good financial success. Being another Google is not the only way to make a lot of money.But for the first-cut, obvious application to money transfer, I have to believe that temptation of using it for money laundering and other criminal activity will kill it. E.g., IIRC Viet Nam just outlawed crypto usage or some such.On Perez, I recall reading at AVC some about her thinking, but I didn’t come away with anything as simple and clear asIf you read Carlota Perez, you will understand that most important technological revolutions have been fueled by rampant speculation that almost always comes undone right as the sector is moving from the installation phase to the deployment phase. I can’t support that claim, and I don’t believe that history provides simple empirical support.Let’s look at the empirical, historical part:Computing? Nope, it’s still with us. Being able to automate data manipulation — sure, a biggie that won’t go away.Heck, just the word whacking, get rid of the typewriters, even the ones with “correction ribbons”, was a heck of an important contribution to the economy. E.g., while in grad school, for a while I took a part time job in applied math and computing and there also ran a little computing operation. We got a daisy wheel printer with carbon ribbons, had a good text editor and a very simple version of the classic Runoff text formatter, and some of our most important office productivity went through the roof and into orbit: The last big report to our main customer was so full of correction fluid that they returned it! But with the printer, editor, Runoff, etc., the secretaries went after the new tools like hungry sharks after little seal pups, taught themselves, and did great. The reports to the customers looked much better in content (more internal revisions) and typing (letter perfect).More generally, just word whacking alone was long important enough to represent big fractions of the revenue of IBM, DEC, Microsoft, Intel, Xerox, etc.Then there was the work of electronic spreadsheets — another pillar of Microsoft, Intel, etc.Then there was the work of business graphics — another pillar. So, there were X-Y graphs, bar charts, pie charts, organization charts, project flow charts, etc.Then there was fancy word whacking for flashy ad copy, with help for color separations, etc.Then there was architectural drawing.And there were engineering calculations of wide variety.Each of these applications were rock solid “must have” solutions in the economy and not subject to the Perez coming undone.Then add in the Internet, HTTP/HTML/CSS and the Web, just for electronic versions of first contact sales brochures, and again a pillar not about to go away.Bump up the download data rate, get some good Web browsers and some microprocessors with 3.0 GHz clocks, take a lot of really good pictures of products, and, presto, bingo, level a lot of retail shopping space and put Bezos into orbit. Also shoot in the gut much of old media — NYT and the MSM, movies, music, etc.In all of this, to supply the transistors, big bucks and terrific science and engineering have raced quickly from 1 micron line widths down to 40, 28, 14, 10 nm or some such with 3 nm on the way into production. Not small. Not going the way of the hula hoop, poodle skirts, or purple, Mohawk haircuts. Not a bubble about to burst.And now there’s more: There’s, right, information. Yup, tough to have too much information. So, generate more information. For that, need data, but that’s flowing like wide, deep oceans.Then, there’s more: Getting and processing that information.What information? About nearly everything there is to be done in nearly all of human activities.Sorry Ms. Perez, yes, there are bubbles and they do burst, but they are just a side effect of the biggest and most important, and rock solid, steps forward in civilization.Or, try to do without your computer, the Internet, your favorite Web browser, Google/Bing, YouTube, Trump on Twitter, Facebook, etc. A major fraction of the most important US national news is just Trump on Twitter. Actually I nearly do without Facebook, but some hundreds of millions of other people apparently would rather lose a hand than Facebook. Notice the traffic at Drudge Report or Breitbart and IIRC neither has ever been published on paper.

    1. Steve_Dodd

      So you are saying the NYT article mentioned by Fred that calls out these scams (along with those supporting them) and identifies some of the underlying (seriously questionable) things happening as a way to warn consumers is a bad thing? Huh….

      1. sigmaalgebra

        You may have me here. I was seeing that Fred was about to do an upchuck, and I do that every time I even think of the NYT.So, maybe Fred’s reaction was not from the NYT trying to push a scam — as they long did with global warming and climate change, promoting/protecting Hillary, nearly everything they wrote about Trump — but to a scam by others the NYT was exposing.Maybe this time, if only by accident, the NYT did something responsible. Given their track record, super tough to believe, but maybe.Maybe as their last story just before they, or Con Ed, turn out the lights they will write some meaningful, significant, correct, responsible writing.I don’t want to call it journalism because I’m not sure there has ever been any journalism that was such writing. E.g., the situation on journalism is an old story as in Jefferson’shttp://press-pubs.uchicago….It’s got to be the case that if a reporter wrote something good, then any editor would drop it in the circular file and plan to fire the reporter.Long ago I gave the NYT at least hundreds of chances, and they got a perfect score, 0.00% worth reading (except when they published an EXACT transcript), with most scams, e.g., propaganda, in some sense.No more chances, NYT: Rent out your building. Sell it off to pay your loans. Turn out the lights. Close down. Go away. That will be a far better thing than you have ever done.E.g., if I want to know what Trump said, then I’ll go to Twitter (he’s one of the only three people I follow there) or watch the full, exact, unedited, totally honest (what a concept for the newsies) video on, say, C-SPAN or YouTube. Same for Mattis, Tillerson, etc. I don’t stream the video but just download the whole thing, with Download Helper, as usually an MP4 and then watch it with the media player VLC. For the really good, important content, I keep the MP4 and/or the exact transcript. In comparison, the NYT is at best dilution and pollution of the content, usually deliberately toxic.To me, the NYT is no closer to being honest than what Goebbels put out — and the two are close, “Tell a lie often enough and people will believe it.” And the NYT got lot of people to believe their global warming scam, and that did a lot of damage, including to a lot of really bad off poor people in Africa. Bloody, dirty, sick-o, upchuck business.Here at AVC I often include links to somewhat related music at YouTube. For the death of the NYT, I can’t think of any appropriate music. Likely the most striking and dramatic music of death is Wagner’s death of Siegfried, except in that drama Siegfried was supposed to be a hero whose death was lamented. To me, the NYT is no hero. Maybe I should give a link to the R. Strauss Ein Heldenleben where the hero defeats the enemy — super triumph music appropriate for the end of the NYT.

        1. Steve_Dodd

          Which is why it is so important to understand the depth and Internet of articles rather than just responding to headlines.

  18. jason wright

    It’s a wild scene. The human condition amplified to the max.I believe some founders discover things about themselves that they were not in touch with at the outset, and I’m being generous of spirit when I say that.We give them this power and they invariably abuse it. The temptation proves too great. The consequences apparently too little. It’s a wonderful environment for testing character. Out of it will come a few good men and women we know we can rely upon for the future, but at some cost for the reputation of web innovation.It’s becoming unpleasant.

  19. Ami Ben David

    Fred, love your posts, but this one contains some very conflicting messages:- The space is the next big wave of innovation – agreed- You’re seeing hundreds of companies in the field – good for you.- 6 companies in our portfolio will be tokenized – not bad- We hate celebrity endorsements – agreed.- Buyer Beware – Fair enough, totally agreed.But then you add, “Most are scams” – which is almost the exact opposite, it means don’t touch this space at any cost, but from everything you said before, top VCs (and their few lucky investors) will benefit hugely, because it’s the next wave of innovation. When the Amazon of the space will emerge, you’ll want to be in it right?I’m working on a regulated ICO, and I tour the conferences and see a ton of ICOs. Yes, most are pretty bad, some are crazy ambitious, but I wonder what you define as a “scammer” in this context? because I have seen a few scammers there, but nowhere near “most” – and I’ve also met some incredible people working hard in this space, that don’t deserve to be painted with this broad stroke.

    1. fredwilson

      I’m just saying what I think

  20. JLM

    .I make the following prediction:As the crypto market continues to get frothier and frothier, there will be a flight to “recognizable quality” by which I mean the shaking hand will begin to hit the “enter” button on BITCOIN.This has nothing to do with the merits of bitcoin, but the proclivity of investors who are disappointed in any particular token when they, otherwise, like the overall space.This happens all the time in the energy business.This will drive bitcoin to absurdly high levels. How long they last is another topic altogether.The more crap crypto currency ICOs, the more blood in the streets, the more bitcoin will flourish.This is a trade, not an investment strategy.JLMwww.themusingsofthebigredca…

    1. jason wright

      That is my prediction.I also expect the New York Agreement to unravel.

    2. fredwilson

      already happening and has been for the past month or so

      1. JLM

        .There has been movement, but not a “flight to quality” type movement. It is a trickle now, but it will become Niagara Falls.JLMwww.themusingsofthebigredca…

      2. JeffWaldman

        You don’t think all this Bitcoin rise in that time has been almost entirely motivate by the various forks and the expectation of potential free money? My assumption was that it was being bought up in anticipation of the hard forks.It seems like this ICO flourish and eventual collapse might bring the whole crypto scene down for a while. I’m curious to know if you’re still investing as you have been, with what seems like a significant dip on the horizon.

        1. fredwilson

          i am not sure this fork will play out like prior forksthis fork is about settling something that has been nagging at BTC for years it is not really about “free money”

          1. jason wright

            isn’t it about Blockstream trying to steal bitcoin away?

  21. Steven Nargizian

    All the crypto currencies have no basis of value. Allowing imitation to flourish. Perhaps the biggest weakness of the block chain model.

  22. lunarmobiscuit

    Fred, can you explain in a follow up post what would make for a good ICO? I understand what they are and how they work, but given the tokens are purchased with crypto, I don’t understand why anyone would pre-purchase a token before a service existed, before the very moment they needed to use the service.The best analogy from the dollar world I can relate tokens to is the gift card. I have a Starbucks card, which can be considered coffeecoins, but I only have that as it was a gift card handed to me. Otherwise my cred card provides the same service and is far more useful as a digital wallet. I don’t carry Costcocoins or Comcastcoins or Verizoncoins to pay for those services. I just pay them all with the same credit card, then settle that account up monthly with dollars.Are tokens instead supposed to be airline miles? Loyalty points but convertible back to ether and from there back to USD? If so, why again would anyone buy them early, before we have any idea the cost of the service in those tokens? And if crypto tokens are airline miles, why have we yet to see an airline switch their miles to tokens and raise $bbb with an ICO?Or is there no analogy to make of these tokens? They clearly must be more than ether or bitcoin, otherwise no one would be buying them. What that actual value is seems to be lost in the news of the billions being raised on promises and celebrity.

    1. fredwilson

      i thought i did at the end of this post

      1. lunarmobiscuit

        Rereading what you wrote, those words describe a RegD offering. Most of the ICOs are claiming not to be securities, but instead a pre-purchase of a service.What I’m trying to get clarity on is why any such service needs its own token. Except for the ability to raise hundreds of millions of dollars of non-dilutive funding (which is a hell of an “except”), why wouldn’t Filecoin just accept ether (and bitcoin) has payment for their service. And pay their nodes in ether? What is the benefit to the customers to have to buy tokens?Were you living in NYC when the subway ran on tokens? Did you ever find yourself in a rush, headed down the stairs to a station only to discover you didn’t have a token in your pocket? The pain of that was chosen to offset the pain of having exact change.Across the Hudson there were tokens for the Garden State Parkway back in the 70’s and 80’s. But they were rarely seen as the toll was 25¢, and a quarter was more convenient than dealing with tokens.Similarly, a few arcades back in the 80’s used tokens for video games. Which didn’t make the experience better for customers as games were still 25¢ per play back then, and quarters are more convenient.So… back to crypto tokens. We have convenient ether and bitcoin. Why on earth does any customer want a token?

  23. OurielOhayon

    one thing to remember though. Many even money they never “had”. They just gained lots of crypto wealth because invested early in BTC or ETH. They already covered by far their initial investments and made a hefty profit. So even if 99% of those are going away they did not “lose” any money. It still feels bad. but it s not the same as losing your life economies…

  24. jdb26354

    Setting aside celebrity hype in investment sales, consider some aspects of the other side of the coin.Using the language of legitimacy seems colloquial and off base here. If a company is doing something illegal (that is important … not traffic tickets), the better forum for addressing it is an analysis applying the laws and regulations, not a purported investment analysis. The post contains no such legal analysis.As an investor in public company stocks, I could say a similar thing about screening—I see hundreds every year, and invest in at most a handful. It doesn’t mean that the stocks I don’t buy are scams. There is a limit to my domain expertise and time to do due diligence, for stocks as for any class of investments. This limit applies to all investors.Writing about a portfolio company that is using a token in its business is arguably promoting the company. Distinguishing such promotion from promotion of a token offering itself seems a fine distinction, especially as there are often more tokens to sell for capital raising even after the ICO.On the ICO investment checklist, the usual suspects for the most part, number 2 does stand out as specifically applicable to blockchain-based projects—a “use case that requires the decentralization approach.” The very existence of non-blockchain enterprises doing many of the services that ICOs are looking to do indicates that almost NO use case REQUIRES decentralization. Take the heralded Filecoin—it is a decentralized file storage network where miners earn tokens by providing storage to clients, who in turn spend tokens hiring miners to store or distribute data. Is there no way to organize a service for file storage on computers with the capacity to spare without decentralization? I doubt it. However, Filecoin probably qualifies as a useful application of blockchain technology.

  25. Mike Janzen

    @fredwilson:disqus What was that singular “one token offering” you refer to above?

  26. Andrew Lee

    I run a curated ICO and crypto newsletter https://iconewsroom.com/ it’s really well researched, get everything you need to know in 5 mins or less 🙂

  27. David Cohen

    it amazes me that someone actually needed to write these down. but, you did have to. thanks.

  28. jason wright

    how appropriate is the Carlota Perez installation, then CRASH, then deployment sequence to crypto? is there something that little bit different about the intrinsic characteristics of crypto and the tech when compared to canals, railways, and the rest? as a unit of value some tokens mimic capital in a way that a canal boat and its cargo does not.

  29. Stephane

    I sCam yOus = ICO 🙂

  30. jason wright


  31. JLM

    .In the context of Fred’s post, he was referring to ICOs/tokens.In the context of the US SEC, it is whatever the Hell they say it is.JLMwww.themusingsofthebigredca…