Science started with a $10 m fund four years ago. What happened with that fund?
The initial funding was used to found or fund a great group of companies, including Dollar Shave Club, DogVacay, and HelloSociety, among many others. Each of those three were acquired – most notably Dollar Shave Club for $1 billion cash by Unilever. The success of our initial portfolio companies allowed us to raise $30m additional from Hearst.
What is Science Blockchain? How will it work?
Science Blockchain is, as the name implies, our blockchain focused incubator. It will found or fund businesses that are blockchain enabled or related only. It will work similarly to our current incubator – the Science team will both incubate and accelerate new businesses, meaning that we will either found and grow them ourselves, bringing in outstanding management teams to run them after we have them off the ground, or we will partner with entrepreneurs who are seeking our help to grow their businesses bigger, faster and hopefully more successfully than they can do on their own. The primary difference is that we are funding Science Blockchain through its own ICO. We did this for a couple of reasons. First, we wanted to actually go through the process ourselves, walk the walk, so we could truly understand the process firsthand. We believe that this will allow us to better advise and assist our portfolio companies as they go through their own process. Second, we wanted a broad base of token holders for the SCI token. Because SCI token holders will receive our portfolio company tokens when and if each of them conducts its own ICO, hopefully it will give our portfolio companies a large group of token holders with a vested interest in their success.
Speaking of our token structure, I think it is unique and it is something I’m really proud of and excited about. Science Blockchain intends to own both equity and tokens of our portfolio companies. This means SCI token holders will potentially benefit from two value streams. As I mentioned, they’ll receive portfolio company tokens at no additional cost, because we’ll automatically distribute 70% of whatever the incubator holds on a pro-rata basis to each SCI holder. We’ll use the remaining 30% to refresh the incubator -creating a potentially perpetual vehicle to continue to create new companies. The second value stream is from the equity we hold – just like in our traditional incubators. When there is an acquisition of one of our companies, we’ll use 70% of the proceeds to repurchase SCI tokens on the open market. So investors will only sell if the market price is attractive to them. We think this will have a positive impact on price, and will mean that over time there is an ever-shrinking supply of SCI tokens. This will mean each token holder receives a proportionately greater number of future portfolio tokens.
What sort of companies do you plan to fund? Who should pitch you?
We believe blockchain is a foundational technology – that it has the ability to change the way both business and society function. For that reason, we’re looking to found or fund businesses that are trying to solve large problems, doing so with a blockchain related solution that makes sense, and will make a big difference to massive numbers of people. Entrepreneurs with a vision that matches our goals, should reach out to us so we can start the process of getting to know them, because we generally get to know our company management teams well before we go into business together. We look at ourselves as co-founders, who are committing to a long journey with each portfolio company, and we want to make sure it is a good fit on both sides first. Because we don’t run classes or cohorts, and instead view ourselves as inception to acquisition partners, we’re very selective about the individuals we partner with. Fortunately, we’ve been able to partner with some amazing entrepreneurs – Michael Dubin, Aaron Hirschhorn, and Kyla Brennan, Dave among them.
You are doing a token sale. How is it going? What surprised you?
The token sale is going a bit slower than we’d hoped, but generally pretty well. We’ve raised more than $11M so far, which should be adequate to execute our plan. An ICO is a 4-6 month process, so when we started this past spring, the market was very different than it is now. I think we’ve seen some market fatigue, as well as the lockup of substantial amounts of liquidity in some monster deals. But what really surprised us was the reluctance of most traditional investors (VCs and LPs) to jump into the space, as well as the reluctance of many crypto whales to complete the KYC/AML/accreditation certification process. Since we are a security offered under Reg D in the US, US investors have to comply with significant regulatory requirements. We didn’t realize that this might be a hurdle that some investors would not be able to comply with. I think the market is rapidly moving towards one dominated by securities token offerings, but it isn’t really ready for them quite yet.
How would you characterize the regulatory climate in the US with respect to coin and token offerings?
Fundamentally characterized by uncertainty. At Science, we welcome thoughtful regulation, because we think that will give a clearer path for companies seeking to take advantage of the amazing potential of the ICO mechanism. And the SEC has started down this path, along with several other US regulatory bodies. But we aren’t to the point yet where there is very clear guidance, especially from Treasury, on how to conduct ICOs and account for their proceeds. I think it is likely to come rapidly – which is great, as that will make it easier for real institutional money to flow into the space, especially with respect to securities tokens, which already exist in a more well defined arena.
What do you think will happen in the Blockchain economy over the next year?
I’m extraordinarily bullish. Otherwise we wouldn’t be creating Science Blockchain. I think there will certainly be ups and downs – as Bitcoin has shown over the last 8 years – but in the long term, I think blockchain will fundamentally transform society, and the companies that build great solutions to positively impact the lives of millions or billions of people will become the giants of the next century.
We look forward to checking in and seeing what companies you create, and wish Science Blockchain great success.