Entrepreneurs in Croatia are facing a lot of problems, but probably the most devastating one is the unavailability of quick and inexpensive capital.
There are multiple reasons why capital is unavailable:
- Bad loan conditions – the cause is the oligopoly in the banking sector (Mustafa & Toci, 2017);
- Unavailability of private capital – the cause is mistrust in the judiciary system;
- Lack of willingness to invest in labor and property – the cause are constraints in corporate law;
- Inaccessibility of the capital market – caused by the laws and rules of HANFA and the Zagreb Stock Exchange;
- Funding unavailability from other EU countries – caused by mistrust in the judiciary system.
Probably there are other reasons, but according to my experience, these are the most important ones. To change the bad loan conditions, the oligopoly in the banking sector should be broken, and this is unlikely to happen so quickly. In order to change the other four reasons, it would be necessary to change the Croatian laws, the functioning of HANFA and the Zagreb Stock Exchange, and perhaps even the establishment of other competitive stock exchanges. What is the chance to realize any of these scenarios? In my opinion, they are highly likely to be realized- if you can wait another 30 years to see the results.
In the past, if you wanted to fund your business venture right away, you had only two options available:
- financing with extremely unfavorable conditions (interest, collateral, spending control), and
- financing with extremely favorable conditions (this requires a certain political or market power).
The new funding option
However, in 2017 a third option appeared which had not existed before. Unfortunately, unlike companies in our neighboring country Slovenia, Croatian companies haven’t been very successful. This third option is called the sale of tokens or ICOs. The ICO is an abbreviation for Initial Coin Offering, an allusion to Initial Public Offering, the process in which a particular company is listed on the stock exchange for the first time. Selling tokens are most often done via Ethereum platform that uses blockchain technology and allows anyone who has cryptocurrency to buy the desired amount of tokens. Tokens can have different purposes, but most often it is a certain type of ownership in a business venture. During 2017, there was a blast of this type of funding globally, and over $6 billion has been collected in several thousand projects.
How does the sale of tokens work? Entrepreneurs who want to fund their business ventures in this way make a token on the Ethereum platform, and then they sell it on the open market. To buy a token, it is enough to own one of the cryptocurrencies (Bitcoin, Ether et al.), and the transaction itself is usually done in a matter of minutes. With the money collected, entrepreneurs finance their business ventures, and in the event of profit realization, the value of the profit can be transferred to the token owners. The most common way is to convert profits into cryptocurrency and direct payout to the token owners proportionally to their shares. It is also possible to buy back tokens from the market (so-called buy-backs), thus keeping the token owners in a position to increase their asset value as well as the stake.
So far, Slovenian companies have collected over $100 million in this way. I will particularly point out: Iryo, a company that is on the right track to raise $15 million; Hive Project, that raised $8 million in September 2017; and Viewly, that has just completed a sale of tokens in which it raised over $8 million.
The advantages of ICO
Why is this kind of investment so much sought after? The most important reason is that these tokens are much easier to sell at any time. There are a number of crypto token stock exchanges that allow you to list these tokens. Even the only Croatian crypto token stock exchange, Bitkonan, recently announced that it will soon be supporting Ethereum and its tokens. It is expected that investment in tokens in 2018 will see multiple increases over 2017 results. In addition to the rapid liquidity, in this case, capital has no limits. Depending on your marketing efforts, it is equally easy for you to get an investment from investors from the United States, Japan, South Africa and Croatia. The first successful Croatian ICO was completed by the startup Digital Assets Powerplay in September 2017, when it raised about $2.6 million.
So, how can you use this technology and get the capital for your entrepreneurial venture? To begin with, a quality entrepreneurial project is needed. Funding alone is not a guarantee of success, and investors know it. That is why it is necessary to develop a good business venture that will attract the investors’ trust. Companies that are already doing business successfully, and making profits are surely in an advantage. The second thing that matters is smart contracts which are developed by developers and written on Ethereum platform. Smart contracts for ICO, DAO, and token are the basis, and depending on the project there may be a need for others. Thereafter, it is necessary to ensure the legal structure and rules of investor verification (the so-called KYC & AML) and start marketing.
Where to learn about this?
If you want to get a detailed insight into this process, you can easily get information on the internet, but also through direct contact with people who have already done it. The best opportunity to learn about it is to participate in one of the events that will gather experts on these issues, projects that have already passed this procedure, and developers and entrepreneurs who want to do the same. You can get all that at BlockSplit conference happening in Split from 27 – 28 April 2018!