Thread by @reganbozman

ICO's roaring back is wildly health for the space and sets this cycle up for a much stronger base of token holders

Let's dig into how we got here, where we go, and why it matters

1/ Some jumbled thoughts on the future of capital formation in crypto

2/ This story start in 2010 as @naval saw an opportunity to bring retail investors into venture capital and democratize the asset class

He launched @AngelList and by 2013 the platform had helped startups raise more than $200M

wired.com/story/follow-t…

3/ AngelList's original product was an email list (hence the name!) that connected startups with investors

This sounds silly and basic but Naval was already very influential in Silicon Valley and a ton of credible companies including Uber raised money through this email list

4/ AngelList hit an inflection point when it introduced Syndicates in 2014

Syndicates shifted AngelList from being a platform centric investor to a lead centric investor

Remember this distinction - we will come back to it later

5/ Equity crowdfunding never found PMF bc of adverse selection - why would a great startup that could raise money from VC's want to raise money from a platform of rando's?

Syndicates flipped this idea on its head and centered investing around a lead investor rather than AngelList itself

6/ Syndicates provided leverage to angel investors that had dealflow but not necessarily capital

As an example let's say that John Smith is an influential marketer that startup founders want to work with, but he's illiquid

7/ He wins $300K in allocation in a hot deal. He invests $1K, spins up a syndicate for the other $299K, boom

This startup gets to work with him
He sizes up his check
Retail investors get access

8/ Syndicates took off like wildfire and helped fund breakout companies like Pillback & Brex and 100's more

It also helped launch the careers of influential VC's like Semil Shah and Ed Roman and many many more

9/ Anyways...back to crypto

I moved to SF in 2016 to work on the ventures team at AngelList and we started to do a crypto deal here and there but it was never a focus

There are regulatory restrictions on venture funds doing much besides startup equity which made ICO's challenging

10/ However, Naval was a true believer before most and we ended up spinning out CoinList in 2017 to focus 100% on crypto

CoinList's mission was to build a seamless, compliant way for companies to conduct primary offerings for tokens

11/ Interestingly CoinList did not deal with the adverse selection problem that AngelList had and so was always platform centric

Whereas a fast growing seed-stage SaaS company had zero desire for 1000 retail backers, every crypto company wanted as many backers as possible

12/ CoinList had truly wild PMF on day one...the fact that our first customer ever was Filecoin's $200M raise says it all

We had a few more good sales in that cycle like Stacks but by Q2 2018 it was clear the music had stopped

13/ CoinList had over a year where we made $0 in revenue from token sales - it was bleak

Me @MikeZajko and fellow CoinLista's would head to Kell's on Friday afternoons and down 6 pints of guiness and question what the fuck we were doing with our lives

14/ But the market came back and by late 2019 teams wanted to launch tokens again

We helped launch ALGO, NEAR, SOL, and a few others soon thereafter

15/ The token sale product was largely the same - teams still wanted as wide of a base as token holders as possible

The biggest difference was that by this point most lawyers were telling teams to avoid the US entirely and so these were all Regs S sales that excluded US people

16/ CoinList had its ups and downs cycle but they have launched a bunch of tokens that made their users a lot of money

At the end of the day if you are in that business, that is the KPI

https://x.com/CoinList/status/1866539448831258933

17/ From 2022 onward the meta shifted away from token sales and towards airdrops

https://x.com/reganbozman/status/1786436464013881844

18/ Once OP and ARB skipped public token sales, most of the blue chip teams launching tokens took their lawyers' advice and did so too

Eigenlayer, ZKSync, Jito, Morpho, Magic Eden - none did ICO's

19/ This contributed to a challenging first ~9 months of this cycle

The market structure shifted most returns away from retail and towards venture capitalists

https://x.com/reganbozman/status/1786436464013881844

20/ Retail investors are in this business to make money and kneecapping token sales was a huge step backwards

https://x.com/reganbozman/status/1786436639390347731

21/ I spoke to dozens of founders last year about navigating token launch

Almost all of them understood the benefits of a public sale, and wanted to do it, but going against your lawyers' advice is tough

And so the market remained stagnant

22/ This all changed in Q4

Trump's election blew open the design space for launching a token

And Cobie launched @echodotxyz

And @mattyTokenomics launched @legiondotcc

ICO's have come roaring back

23/ I have huge respect for both of these teams but the core product of both sites is not new

Legion is an on-chain CoinList - it's platform centric

Echo is an on-chain AngelList - it's lead centric

24/ When CoinList launched in 2017 it was infeasible to build that business on-chain, but if I were re-building it today I would take that approach and custody 0 users assets

25/ One of the biggest challenges for CoinList is that running a centralized crypto company in the US is hugely expensive and if you are sub-scale on recurring revenue (eg trading fees), it is hard to be consistently profitable

26/ Legion is also probably able to run a faster and lighter diligence process than CoinList because its non-US based

This obviously can have negative effects down the line but it means they can scale a lot quicker

27/ Echo's core product is AngelList syndicates on-chain

Leads like @cmsholdings bring deals they are doing to Echo

They get free leverage
Projects expand their communities
Retail gets preferential access

28/ It's a fucking beautiful model and I wish I had come up with it

AngelList syndicates always hit a ceiling in normal venture because there is inevitably adverse selection when anything is public

Their core business is now mostly driven by funds rather than syndicates

29/ But this adverse selection (largely) does not exist in crypto because teams are not concerned about their metrics being public (they'll be on chain!) and they actively want a large community

Hats off to @cobie , truly a GOAT

30/ AngelList also has had to invest years in building out financial infrastructure to manage its business

The amount of software to manage cap tables, distributions, incoming wires, carried interest across 100's of funds and 10K's investors worldwide is wildly complex

31/ Blockchains solve this!

Echo is able to handle incoming funds, manage ledgers, and handle distributions all on chain

100x more efficient

32/ Now they do still have the same incentive problem that AngelList has which is that its free leverage for the deal leads

And there is still potentially some adverse selection in that wildly oversubscribed deals may not make it to Echo

33/ If you run a fund and you are only able to get allocation in a deal for the fund and not your Echo syndicate, you have a fiduciary duty to your investors to prioritize the fund

So theoretically any given lead's best deals may not make it to Echo

34/ But I'd argue this is a known risk and I would wager a basket of early-stage deals on the platform probably makes money

35/ I remain wildly bullish Echo and my assumption would be that by EOY 50%+ of credible crypto teams are raising some portion of their rounds on Echo

This is awesome for the space and brings us back to our roots

ps @cobie dm's open if we can invest :)