This Startup Raised $30 Million in 30 Seconds

I’m going to tell you something that will blow your mind. If it doesn’t blow your mind, it should.

Yesterday, a company called Brave raised $30 million in 30 seconds.*

For most companies, raising money requires months of rejection and frustration. Company founders meet with dozens of venture capitalists, bankers, and investors, who all ask tough questions and negotiate on tough terms.

One of my friends went through this process years ago. I’ll never forget the day he came back from one of these meetings with a VC firm and shouted, “Next time why don’t I just DROP MY PANTS AND BEND OVER THE TABLE?!”

For the lucky few entrepreneurs who do find investors, most initial funding rounds are on the order of $5 million, which is enough to get a company started, but not enough for the founders to buy a yacht made of caviar.

If you have more modest ambitions, you can go through a crowdfunding platform like Kickstarter, but that’s no walk in the park, either. You have to market your idea, deliver T-shirts to early investors, then make the product on a small amount of money. (Most Kickstarter campaigns raise less than $10K.)

With all this in mind, it’s pretty incredible that Brave raised $30 million in 30 seconds. Here’s how they did it.

The Initial Coin Offering

Brave took advantage of a new idea called an Initial Coin Offering, or ICO. Imagine it as a kind of cross between a Kickstarter campaign and an Initial Public Offering of stock. But to be clear, it’s neither of those things.

You are surely familiar with bitcoin, a kind of digital currency. You may also know that there are many competing types of digital currency, which we’ll call “altcoins.” Like bitcoin, you can buy these altcoins, wait for them to appreciate in value (or not), then sell them at a profit (or loss).

In that sense, trading altcoins is like buying and holding a stock that you hope will increase in value. In fact, the whole altcoin market is something like the stock market, though it is so new that it is completely unregulated. It’s the Wild West.

Or maybe it’s like the Gold Rush, because the altcoin market is exploding. Anyone with a development team and a business idea can create and launch their own altcoin in an Initial Coin Offering. And this is how Brave sold out all their altcoins in just 30 seconds: the demand to buy them was insane.

To be clear: an altcoin is not a stock, because you don’t own a piece of the company. It’s not a Kickstarter campaign, because you don’t get an autographed DVD. It is something like a piece of the business idea. If the idea takes off, presumably the price of the altcoin goes up, and so does your “investment.”

Partially because “ICO” sounds so much like “IPO,” and partially because they can be bought and sold in markets, I believe investors (or speculators) are thinking of these like stocks, and they are pouring a ridiculous amount of money into them, regardless of the idea.

So let’s look at Brave’s idea, and see why folks think it is worth $30 million.

The $30 Million Idea

Brave is an existing company with an interesting product: a web browser that is very efficient at blocking ads. Because there are no ads, everything loads faster. (You can try it out here.)

Problem is, the internet runs on ads. So the Brave browser has a clever feature: it allows you to fund a “content account” with bitcoin. Imagine that you put $10 of bitcoin into your account each month. Brave tracks which websites you visit most, and pays out that $10 to those publishers each month.

For example, let’s say you spend 50% of your time visiting The New York Times, 40% visiting CNN, and 10% visiting Bitcoin Market Journal. Brave will pay out $5.00 to the Times, $4.00 to CNN, and $1.00 to BMJ. Users can help fund content sites, but without having to “pay” for content: it happens automatically.

This all happens today. The innovation was to create a new altcoin called the “Brave Attention Token” (BAT) which is a new type of digital currency (like bitcoin) that Brave hopes will be traded between advertisers, publishers, and web users.

Advertisers would buy BAT on the open market, and use it to “pay” the publisher for their ads. The publisher would then “pay” a portion of the BAT to the user for visiting the site and viewing ads, like a loyalty reward card. All this transfer of BAT would happen within the Brave browser, automatically.

If this sounds confusing, it is. Yet people were going cuckoo for Cocoa Puffs to get into the ICO. Do they know something we don’t?

Will It Work?

Brave is right: the current advertising model on the internet is broken. You can’t go to a news site without your hard drive churning because of all the bloated ads that it’s trying to load. Everyone’s using ad blockers, which just makes the problem worse.

Brave also has an experienced team: the company is led by Brendan Eich, the creator of JavaScript, which is the Web programming language that you’re using right now. They’ve got a large development team that’s actually created a working web browser.

But if I were a potential investor, I’d be asking tough questions like:

  • You’re paying users to view ads? Users hate ads. Why will paying them help?
  • They have to switch browsers to do it? Most of us are pretty loyal to our current browser (especially on mobile).
  • Your payment comes in the form of a virtual currency? Most people still don’t know what a virtual currency is.
  • Advertisers have to use this currency? Advertisers just want the largest, most efficient ad buys, which they buy in bulk, not site by site.
  • Where are your financials? How many advertisers, publishers, and users do you need to get on this platform to make the model work?

As far-fetched as the idea may seem, Brave now has $30 million to figure it out. Any company goes through many changes in strategy as it evolves. What Brave ends up producing will likely look very different from what they’re proposing.

This is why most professional investors look closely at the team: their track record, their ethics and integrity. They know that the business will change as it gets built.

So, who knows? Maybe it will be the best $30 million these investors have ever spent. And maybe they’ll lose every penny. At this point, that’s the nature of ICOs.

How to Evaluate ICOs

Since new ICOs are launching every week, what is needed is some way of evaluating them beforehand, in the same way that companies like Morningstar evaluate stocks. This might include:

Idea: Does the idea solve some basic problem? Does the solution require a new virtual currency? Has the team created a working prototype, or is this still a blue-sky idea?

Market Analysis: Who is the target customer? What other companies solve this problem today? Why is this solution better?

Strategy and Implementation: What’s the marketing plan, sales plan, and technology plan for getting this idea to market?

Team: What is their track record? How big is the team? Do they have the right mindset (ethics, integrity, passion)? Are the founders communicating openly?

Altcoin: How does the altcoin work? What do you get as an investor? Is there a cap to the offering? Will they generate more altcoins in the future, diluting the supply? Why does the idea require altcoins at all?

Code Analysis: If they have code to review, what do their peer developers say about the code? How active is their project?

Financials: Are there current financials to review? Do we have a projected Profit and Loss, sales forecasts, or break-even analysis?

If this sounds like a business plan, it is. If you’re investing in a new business, you deserve to see the business plan. So far, most ICOs get away with a “white paper,” which is a technical description of the altcoin — but true success will require careful attention to all these issues.

There is a tidal wave of money flowing into this space, and everybody’s out on their surfboards, trying to catch the wave. At our new site Bitcoin Market Journal, we’re making sure investors understand what they’re investing in. That’s the bravest offering of all.

* Brave actually raised $35 million in 24 seconds.

Author of Mind Hacking ( CEO of Media Shower ( Making things better.