What does incubator mean for crypto startups?

Original: Cointelegraph , original author: Henry Linver

Source: Odaily Planet Daily Translator: Nin Yin Si Tang


As the 2017 bull market approached, a large number of new tokens, companies and products emerged. With so much interest from consumers and businesses, the industry is growing wildly. However, there are many projects, but the good and bad are mixed, resulting in many promising projects inevitably buried. Fortunately, some well-known cryptocurrency companies have become the industry "Bole", providing services to a few projects that they think are promising.

The companies that select and nurture these future projects are called incubators. Since mid-2018, many "lucky people" have successfully passed the development stage under the guidance of these companies. Although being selected by a well-known incubator will give a company a huge advantage over its competitors, it will not necessarily be 100% successful.

What is an incubator?

In the modern technology world, the number of start-ups is severely excessive. Now there is a blockchain solution, 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 companies, being selected by the incubator company is equivalent to being acquired by Google at an early stage.

Incubator companies look for companies with development potential and guide them through basic stages of development until they are strong enough to successfully launch independently. But incubator companies do not operate out of sympathy. The motivation for risky investments in these startups is usually to hold large stakes, which can translate into substantial returns if the selected company succeeds in the future.

Probably the most important resource provided by the incubator company for the project is financial capital. As we all know, start-ups lack cash. A large amount of capital injection, coupled with access to various financial partners and consultants, will often help companies grow rapidly. In addition to funding from the incubator company itself, being selected means that sometimes additional support can be obtained from government or university institutions.

Incubator companies often attract professionals with decades of venture capital background, people with a keen eye for investing in potential startups, and highly specialized experts in their fields. These experienced professionals often act as consultants to project leaders during the incubation phase.

Charles Phan, CTO of the Interdax trading platform, explained that although the incubators were born out of the crypto craze in 2017, they have grown into projects in 2019 that seek to guarantee quality and revenue in a very different market:

"In 2019, Launchpad began to gain attention, and the exchange introduced these platforms for the project to issue tokens, conduct marketing, and work hard to ensure the quality of the project. During the crypto bear market, Launchpad also provided the exchange with another source of revenue , And provide unique use cases for exchange platform coins (as IEO's financing currency). The team behind the cryptocurrency project will also benefit because their tokens will definitely go live on the exchange and get a lot of exposure. "

In an ideal situation, the incubator company would acquire the “Saitama” type companies to be polished and obtain a large amount of equity. Next, the selected startup will be established as a glorious and efficient incubator graduate, which will attract more investor interest and create profits for all stakeholders. But, as often happens in the cryptocurrency world, things don't always go according to plan.

Matic Storm

Matic is an Ethereum-based cryptocurrency payment network and was one of the first crypto projects to launch Binance Launchpad incubation platform. After its token MATIC plunged nearly 70% for a short time on December 10, the project party was questioned by price manipulation, which Matic officially denied.

On December 10th, the official team of Matic made a “Bill of Audit” on the blog at 8:30 in the morning, and they stated that: Allegations regarding the transfer of tokens in the Foundation account of the Matic team There is no basis at all, and the contract transfer amount is similar to that released by the Foundation, which is purely coincidental. They also said 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 chose to take a short night break to short, and this seemed to be a cooperative attack. He hinted that several large traders might have united, opened a large number of short positions on multiple futures exchanges, and sold a large number of tokens at the same time. However, he did not immediately provide a solution on how to respond to the current situation, only saying that the Matic team will continue to develop its fundamentals. Nailwal believes that this will make the project less vulnerable to similar attacks in the future. "In the long run, this is not terrible, it just hurts 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 said that the Matic team has nothing to do with this.

Note: Since launching Matic on April 25, Binance Launchpad has also launched Harmony, Elrond, WINk, Perlin, Band, and Kava. This month, Launchpad launched Troy again.

Coin360 data shows that Matic / BTC once hit a high of $ 0.042 on the day and then plunged to a low of $ 0.014. As of press time, CMC quotes indicate that Matic temporarily reported $ 0.0139, a 1.45% drop in 24 hours.

Well-known crypto incubator

Binance is not the only company hoping to gain equity by incubating promising startups. Since 2018, there have been more and more incubator companies aiming to nurture the next generation of companies to initial profitability.

Andreessen Horowitz

Andreessen Horowitz, a Silicon Valley-based venture capital company founded in 2009, is one of the most famous cryptocurrency incubators today. Although the company has a broad portfolio of investments in other areas such as healthcare, technology, energy, and fintech, it has announced that it will “actively invest” in cryptocurrencies, a announcement that has drawn attention during the “crypto winter”.

Andreessen Horowitz's first foray into the cryptocurrency space started with a $ 300 million "all-weather" investment fund. The company reports that the fund will execute over time no matter how volatile the crypto market is. The fund is also known as A16z.

Recently, A16z and venture capital firm Polychain Capital jointly invested $ 25 million in crypto payment startup Celo. According to Celo's announcement, these 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

Coinbase is a crypto wallet provider and one of the world's largest cryptocurrency exchanges. The company established its own investment unit, Coinbase Ventures, in 2018.

Although the cryptocurrency market is declining as 2019 comes to an end, Coinbase Ventures is still actively investing in this space. Earlier this month, the company participated in a $ 4 million funding round led by Uncork Capital for cryptocurrency research startup Messari. In addition, the company recently participated in Opensea.io's seed funding round, which began in November last year.

Earlier this year, Coinbase Ventures invested in a US-based blockchain company Near, which raised more than $ 12 million in its first round of funding. Coinbase Ventures has also participated in Celo investments with A16z.

Y Combinator

Y Combinator is a US-based accelerator that also invests in cryptocurrency companies. After a competitive application process, Y Combinator makes small investments in some companies twice a year. As we all know, funding is not the most critical part of its incubation process. Y Combinator states on its website that many applicants do not even need funding at all. The company says it also helps startups, including helping them develop their own ideas, and helping founders deal with investors and acquirers.

The company recently participated in a $ 4.2 million funding round for digital currency compliance and risk management service provider TRM. TRM was incubated by Y Combinato, which is said to serve major banks and brokerage companies around the world. Y Combinator has included a number of cryptocurrency companies on its preferred list, including SFOX and Coinbase.

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 to ensure entrepreneurs get the information they need. Second, they provide a critical network for investors, service providers, and stakeholders to help build and expand their business. Finally, they It can also provide an important source of early financing before a larger funding round. Similarly, companies entering the incubator can be considered 'advocated', laying a good foundation for potential future developments. "

Although the incubator has a significant impact on the success of specific companies, Adcock explained that the immature nature of the cryptocurrency industry adds uncertainty to the incubation process:

"A key flaw facing crypto incubators is the immaturity of industry, technology, and public perception. This 'influx' state creates uncertainty and brings rapid change, and both entrepreneurs and incubators must adapt at the same time. That said, the entire industry has shown tremendous change and delivery capabilities. "

In addition to the development characteristics of cryptocurrencies that hinder the work of incubator companies, Jared Polites, a partner of LaunchTeam, an accelerator and management consulting company that works with crypto companies, said that in order to get help and funding, entrepreneurs have to place restrictive conditions on incubator companies Make a compromise:

"If you want to get funding from an incubator, you may have to comply with a rule that the company is built on a specific protocol that the incubator is interested in promoting. This could create a situation where the founder is chasing money / resource He abandoned the original strategy and ended up working in a completely different foundation. "

Interdax's Phan states that with their solid position in the cryptocurrency world, incubator companies that choose to launch new products sometimes rely on reputation initially in the early stages of their trading life, rather than focusing on building their long-term profitability:

"One problem with Launchpad is that it will attract some of the people who are most likely to buy IEO tokens simply because they know that the tokens will be traded on mainstream exchanges. This is not much different from the speculative frenzy triggered by ICOs, The latter often encourages myopia-investors only care about prices, not actual development. "

Is ownership and responsibility separated?

Given Matic's current plunge, many commentators believe that incubator companies have not done enough research on the companies they have promoted, other than short-term profits. However, Adcock told Cointelegraph that he did not consider the companies behind the incubators to be guilty unless they were proven to operate fraudulently or illegally. Adcock adds that examples of incubator efforts that have not paid off can actually be used to learn lessons to avoid making the same mistake again:

"It is not the incubator's fault for an entrepreneur who chooses to ignore the advice and guidance of the incubator. However, this does not mean that the incubator can stay out of the way. Instead, it can be used as a learning opportunity to see how they are better. To communicate with entrepreneurs and build more transparent relationships. "

Like all investments, incubator companies are making educated estimates that their projects will ultimately be profitable. Inevitably, this does not always work. Phan cited data from CryptoRank that so far, very few projects have achieved a return on investment.

For Polites, it is especially difficult to predict when a cryptocurrency project will be profitable. He believes that cryptocurrency is still a very young industry, and many companies are unlikely to be profitable in the short term after undergoing development in the incubator: "Like education, crypto adoption remains the biggest problem in this field."

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