My question is pertaining to the ICO crowdsale.
We are seeing the rise of many ICOs this year, and also upcoming are many more ICOs.
What is your take on ICOs? Do you recommend us to consider acquiring ICOs?
If yes, what do you actually look for in deciding to buy those ICOs?
Excellent, great question.
So, how many people here have heard of ICOs, initial coin offerings?
OK, what these are are the ability to raise money for startup functions
for companies that are trying to raise capital in order to build applications.
Traditional means of raising capital, organic, angel investors, venture capital, bank loans,
Daddy's credit card, Mommy's credit card, you know, all of those various systems.
I've used some of those, including parent's credit card, to raise money for my businesses.
You know, those are fairly limited.
And once you start getting into larger amounts, it gets more and more difficult because you get restricted by a lot of rules.
So if you want to raise money by venture capital it has to be,
usually you're limited to which countries you can go to. Venture capital is mostly in the west coast of the United States.
There aren't that many of those around.
So, what ICOs did is they gave companies the opportunity to instead offer a digital coin for someone to buy,
and that then gives them something in return. Maybe it gives them access to an application. Maybe it gives them a discount on a future use.
Maybe it gives them dividends or returns on investment or whatever.
And the idea being that now you can open up these investments to everyone in the world.
Anybody who has a digital currency can take that digital currency, use it to buy one of these digital coins,
fund this new company, this new venture, and then if this new company is successful, participate somehow in the success
And if it's not successful, lose all their money.
What do I look for in an investment? The exact same things that I look for in an investment in any other realm.
I'm looking for a product. I'm looking for an established track record in business or at least a well-running, robust prototpye with some early users.
I'm looking at an addressable market. Does this application they're proposing to build have actual uses out there?
I'm looking very importantly at timing.
As an investor, I look at things and I say, OK, yes, one day what you're thinking of doing will be successful
but before that day happens, more people have to have digital currencies
or more people have to have smartphones or other things need to happen, so it's not yet the right time.
Great idea, wrong time. So you need a market, you need an idea, and it has to be the right time,
you have to have a team, that team has to work well together and be focused on execution.
And all of these things have to come together for that company to be successful,
and then... they have a ten percent chance of surviving the first five years
That's the truth of startups.
If you have a real market, a real product, a great team, a plan and some funding,
about ten percent chance you're gonna make it through five years as a startup. Ninety percent you're gonna fail.
That's the real world. So now we see these ICOs.
Do they have an app? Not really, but they have a white paper.
Do they have a plan? Kind of, not sure.
Is the timing right? Usually not.
Do they have a team? Three dudes. Never done a business before. Kind of got together, started an ICO.
Let's give 'em a hundred million dollars. What could possibly go wrong? (Laughter)
(Applause)
I haven't invested in any of the current ICOs.
Unless you consider bitcoin and ethereum itself.
And those I did, after I read the white paper, after I downloaded the software, run the software,
looked at the code, understood the problem, see what they were solving, looked at the team,
I said, Yeah, this could work. I'm still expecting that I might lose both of those investments.
But I haven't invested in any ICOs, and the reason I haven't invested in the ICOS,
Cause I haven't seen that particular combination. And if I do, I might.
Although because I'm an American, they'll probably not allow me to
in order to protect themselves from the wrath of the SEC.
Here's the thing. You've got to make this fundamental distinction.
The idea of ICOs is radical, disruptive, revolutionary, will have an enormous impact,
and it will eventually become a multi-hundred billion dollar market
that will allow companies around the world to fundraise
for incredible projects and create many giant successful companies.
It is revolutionizing venture capital and early stage investment
and it will completely transform those two industries.
Any of the current ICOs actually doing that? No, not really.
Keep those two ideas separate.
There's nothing wrong with the idea of ICOs. The idea of ICOs is solid.
Not quite yet right on timing. I think it's gonna take a few years before we see mature models come out of that.
And 99.9 percent of all the ICOs right now will fail.
Maybe one or two will succeed.
If you like playing those kinds of numbers, good luck to you. That's above my risk tolerance.
But being an investor, you have to know your own risk tolerance, right?
Maybe you want to put five dollars into a hundred ICOs for a five hundred dollar total investment,
assuming that four hundred and ninety-nine will fail, but that one will turn your five dollars into a lot more.
I wouldn't take that bet. I wouldn't take that bet. Do you have casinos in Malaysia?
Blackjack's a much more fair game. (Laughter)
So, I really wouldn't. But, that doesn't mean that nobody should.
Most of them are scams. You need to be very careful.
Many of them are absolutely blatant Ponzis. And that applies for many of the blockchains and many of the investment opportunities.
Southeast Asia is absolutely full of people pushing pyramid schemes and Ponzis. You have to be very careful.
As you may have noticed, I have not suggested to anyone to go invest in bitcoin
because I don't think that's a good idea if you don't understand it.
Learn about the technology, experience it, get an education in it. Yes, this is not an investment plan.
[Questioner] I've watched with a small group of other investors with a lot of enthusiasm over the last couple months
this ICO craze that you talked about.
As with probably the other 25 percent of people in the room who put their hand up at the time
we'll lose 90 percent of what we put into it.
Now at the same time...
[Andreas] 99.9 percent is what I said, but OK. You're an optimist. (Laughter)
[Questioner] Hopefully a slightly better part of the investment community.
No, but my point is, most of this community doesn't have any kind of financial education.
Most people who are putting money in, often referred to as Mrs. Wanatabe,
are coming in and they just see this craze going and they're pumping money into it.
Now, in the current financial system as we have it, people are educated to go into that system,
they then get regulatory rights to invest their money in that system,
and by that level of regulation imposed upon them,
they are protected as people...
[Andreas] They are told they're protected.
[Questioner] ...incorrectly putting money into a system, and losing maybe, as you said earlier, their children's wealth.
So, in the current system as it is, how do you propose, without some kind of regulatory governance,
to protect the individual investor from putting money into an ICO,
which realistically, if you do crunch the numbers, are raising five to six times their actual valuation?
And how do you protect those people who don't know how to (inaudible)?
So this is a really important question,
and the underlying problem is that in the regulated system, investors are not protected.
They're excluded, in many cases.
But even the ones who are not excluded are not protected.
They're given the illusion of protection.
So when all three of the rating and regulatory agencies took the absolute pile of shit that was coming out of AIG,
credit default swaps and CDO, which combined a pile of junk bonds
into a two or three triple A rated, and they stamped that triple A,
and they sold that to investors, and those investors lost a million homes to foreclosures
and almost a trillion dollars off their savings,
right after that, thousands of those regulators and financial advisors went to jail.
And the system protected consumers, right?
Not a single one of them went to jail. Nothing changed.
None of the rules. None of the education. None of the investment plans. Nothing happened.
The investors weren't protected. Nope, wait.
One went to jail. Bernie Madoff. Cause he made the biggest mistake of all.
He stole from rich people. Unacceptable. (Laughter) Unacceptable. (Applause)
But, the middle class in America, the million homeowners who got foreclosed illegally? Fuck 'em! That's what happened.
And now, we're looking at it ten years later.
And absolutely nothing has changed.
You don't protect investors by giving the power to someone else to decide whether they can be investors and what they should be investing in.
Because when you do that, it doesn't protect the investors.
But it does give enormous power to that one agency, one institution to create the illusion of safety
And then take all of the sheep to the slaughter in one big disaster.
Which, by the way, ten years later, we're now overdue for. It's coming, again.
And nothing has changed except for the fact that now it's in the automobile loans, student loans, real estate, bond market and equities
simultaneously and it's four trillion dollars larger, and there's no room in any central bank to stop it.
Oops. So the idea that consumers or investors were protected is a myth.
It's an illusion. When things go bad at a systemic risk, no one gets bailed out.
And the reason no one gets bailed out is because there isn't enough money in the world to bail people out.
If you tell them, Don't worry, this has the stamp of approval, what do people do?
They don't worry, they don't ask questions, they fail to educate themselves.
So you can do two things. You can either protect investors, or you can educate investors.
And the only way to educate investors is to stop protecting investors!
Because the protection is denying the education, and guess what the best education is?
Losing money. (Laughter)
So, the reason investors are sophisticated in the United States more so than they are here
is not because they're protected better.
It's because they have invested, made poor choices, lost money, learned, invested better,
made poor choices, lost money, learned a bit more, repeat, repeat, repeat until they become sophisticated investors.
Now, the trick is to educate them first in the most basic form of education which is
Do not invest too much too fast.
So that then they can survive the first lesson, the first loss, enough for them to take that and get to the second loss, and the third loss,
so by the fifth one maybe they make a gain. That's how markets work.
The illusion of safety. Failure is not an option. We can all win. There's no risk. It's all upside. This is a guaranteed investment.
All of those words are lies, and any time you hear them, take your money and run away.
The best way you can educate investors is to allow them to make mistakes and not pretend that you can pick winners and losers,
will protect them from making educated decisions about risk.
We've created this environment where we tell people, Don't worry, these experts have done all the work for you.
But guess what happens when it all collapses? They're not going to jail, you're not getting your money back,
and you learned nothing.
So yes, people are gonna lose money into ICOs.
I hope they've learned lesson number one, Don't invest too much.
And that way, they can learn.
Two years from now, when there's another round of ICOs, they'll go, what do you have?
A white paper? And no team, and no investment or startup experience, and you haven't yet hired any developers
and you have three slides in your presentation. Mm, no.
Yeah? How do you learn that?
You learn that because the first three things you invested in blew up in your face and you made no money.
So, this is a fundamental problem we have, which we've created this illusion of safety
and the illusion of safety itself is toxic because it prevents people from learning.
Every parent in this room knows that. How do you teach the child not to touch the stove?
(Laughter)
You let them touch the stove. Hopefully when it's not scorching hot, just once. And they learn.
Really fast. (Laughter)
Right? Cause there's nothing you can say that will express the level of Ouch that happens until they really feel it.
Lessons in life are only learned one way: by making mistakes.
And if you try to prevent investors from making mistakes, they don't learn.
And then, the person responsible for preventing the mistakes gains all this power.
And then they abuse it. And then they get burned.