It’s Time for the Current VC Model to Change

Shocking as it may sound, the venture capital industry is built on the idea that it doesn’t really matter if most of the companies they fund lose money or go belly-up. Could this be because they often turn hot air into fabulous profits and cash out before the balloon bursts?

Even when that is not the intended “play,” venture capitalists typically prioritize growth over business fundamentals or helping the community, despite generating negative externalities not only for other companies but also for the financial markets. At least that’s how it’s been until now.

The new tech in town, built on public blockchains, is forcing VCs to rethink how they do business. Blockchain technology truly revolutionizes, democratizes and globalizes financial transactions and is changing the way startups are funded. Blockchain-based currencies and applications gave birth to the initial coin offering, which allows for a new model — a marriage of open source and community funding — that will better serve users, companies and society at large.

VCs prioritize metrics and growth

Securing venture capital from well-respected investors lends tremendous credibility to any project, and startups are drawn to it like moths to a flame. Founders understand the competitive advantage that such a placement affords them in terms of publicity, contacts, facilities, etc. They concentrate on viral user adoption metrics and hyper growth because VCs encourage and reward them for doing so. Yet, this is the very thing that can lead a company astray. As they strive to deliver on those metrics, they may get blindsided, overlooking problems in their company’s culture and business models.

For example, Uber has spent billions of dollars on subsidies to disrupt the taxi industry and attract customers while paying their drivers less and less. Then they did an initial public offering in 2019, selling shares to retail investors who could not participate in the hyper growth. The main reason for the IPO was…

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