The food chain of Blockchain — or 5 challenges for Blockchain startups

Blockchain Technology — THE new internet, THE new innovation disrupting the technology sector (and not only…). Especially since 2016 more and more smart people have been sensing the urge to take part in this cutting-edge, world-changing technology movement. This way numerous projects based on Blockchain Technology have started to emerge.

Recently my friend and co-founder of Neufund even published an article how Blockchain is much more than FinTech). But creating a successful “Blockchain project” requires more effort than one might think…

Back in September of last year I started working for Neufund, a Berlin-based startup building a blockchain-based and investor-directed platform which bridges the worlds of Blockchain and venture capital. Having witnessed how building a company of this dimension evolved into a project with a life of its own, I decided sharing the challenges — and the lessons I’ve learned in overcoming them. While it has by no means been a walk in the park, I have found the experience to be incredibly rewarding and inspiring on both a personal and professional level. I cannot imagine doing anything more genius than that ;)

Step 1: Incorporating: to DAO or not to DAO?

“There is nothing either good or bad, but thinking makes it so.”

William Shakespeare, Hamlet

Let’s start with something easy:

1. You have decided Blockchain technology is the future,
2. you have (kind of) understood how it works,
3. you have researched tons of “Blockchain projects”,
4. you have your own idea for a “Blockchain project”.

Since Blockchain technology is not only about the technology itself but all the more about the ideology behind it. You decide you want to understand where it comes from. Buzzwords like DECENTRALISATION, TRANSPARENCY, INDEPENDENCE, COMMUNITY and DEMOCRACY pop up. You start to understand that in order to get accepted by the Blockchain Movement you need to fit in, please the crowd.

You start amending your project idea in a way that corresponds to the ideological tendencies within the crypto community. After all, “sharing is caring”, right? — so you decide to open source the whole technology and work together with the community. The more you researched this complex new concept, the more you become convinced that the underlying ideas make sense, that trust in people is fatal, and that you need to shift power to the technology instead of corruptible) middlemen — you want to create “trustless trust”. So you come to the inevitable conclusion that making your project into a DAO (decentralized autonomous organisation); ruled by smart contracts that self-execute on the Ethereum Blockchain, is the logical next step. So far so good.

You start writing your code, you are onto something. But then you need help, you need to build a team, you need to finance your project and you need to promote your project. In short: you need to incorporate. You need to become a legal entity able to pay your employees and receive funds from your investors.

But wait! This means you have to actually cooperate with “the bad guys” — the government, the banks, the financial authorities — the centralised monsters ruling our world. There comes the reality check.

You look closer at what other “Blockchain projects” are doing…and yes indeed! They are also incorporated as foundations, companies or other legal entities. Something happened. There has been a compromise between the ideology and the reality. You don’t have to struggle anymore: just operate your project on the decentralised technology and your team and money on centralised infrastructure 😉 It is all fine…

Step 2: Understand me if you can — setting up the company

Once you have finally decided that incorporating actually allows you to legally earn on your innovative business idea and that working on a great vision does not mean you have to ignore the rules of the “real-world”, you need to say goodbye to your friends, to your hobbies and to your free time. The ride begins…

Similarly to a classical tech-startup you need a bank account to operate your company. So similarly to a classical tech-startup you call a bank and tell them you want to open an account, where you can store the money raised from your investors. So they ask you: “what do you do?” and similarly to a classical tech-startup you explain to them that you develop software and potentially will trade with virtual goods. So then again, they ask you — because now they want to show that they are not conservative at all and are up-to-date with all the tech-trends — “what kind of technology are you developing?”. And NOT-similarly to a classical tech-startup you say: “eeeehm, have you ever heard about Blockchain, or Bitcoin perhaps?” (hoping there is no harm in disclosing that your startup is on the forefront of innovation, creating the future technology which will become substantial for the world to develop) and then your naivety and innocence gets slapped across the face. Hard.“Oh no! We have strict risk policies against working with companies that have anything to do with cryptocurrencies! Sorry we can’t open an account for you. Bye!” — they say.

So, being as motivated as you are you look for alternative banks thinking that maybe this bank is just too conservative and has no clue about Blockchain. You look for banks that are either working on their own blockchain-related projects or support already known “Blockchain startups”. You ask for direct introductions to those banks and apply there. You might even get to the application process, being cooperative and providing all documents they ask you for and answering all kinds of questions they have. And then you get rejected anyways. Just because … well you never really get to know why.

After that, as a crypto-company you are also naturally interested in the crypto-market and you want to actively hold some of your funds in cryptocurrencies. This proves to be “exciting” on many levels:

• For once, you need to establish a corporate account on a crypto-exchange where you can exchange your fiat currencies into cryptocurrencies. In my experience it takes 3 months to open one, involving the work of several people, 100+ emails, having contacts and sending weird selfies as KYC requirements.
• After you finally manage to have crypto-assets you need to store them somewhere safe. So you decide to acquire one of those hardware wallets like Ledger Nanos S and put your money on it. This is quite easy but you end up with a set of backup codes which CANNOT get into wrong hands and are SUPER important if you want to have your money secure. After all it is the money of your investors… So you decide you want to store them at a notary, because you already have bad experience with banks. You go to the notary, explain to them what you want to do and you end up giving a workshop on Blockchain Technology to the whole notary office team.
• Finally you want to be legal and pay taxes and be open about your financials with the tax authorities, so you — again — train your accountant to understand that keeping money in a crypto-wallet is just the same as keeping it in the bank account. If that goes side-ways…well, just pray it doesn’t.
• A last interesting aspect of setting up your “Blockchain startup” is trademarks. Once you’ve established a company, you have established a brand, you have designed a logo, and you defined your crypto-token’s name and logo. Now you want to register it so nobody can use it but you. And again: you have to go through the whole process of squeezing your innovative technology services and goods into the existing technology services and goods descriptions regulated by the law.

How do you register your token? What is it in the light of the regulations provided by say the European Union Intellectual Property Office? Don’t ask me, I don’t know yet…it’s work in progress 😉

Step 3: Blockchain Technology: trendy but friendly?

“It has become appallingly obvious that our technology has exceeded our humanity.”

Albert Einstein

New, exciting, innovative. Has so much potential. Wows with its solutions. And yet not to be forgotten: immature. Blockchain technology is still in its beginnings.

During the hype and craze over the past years it has improved significantly. However, building substantial frameworks on top of the two biggest blockchains Bitcoin and Ethereum is still a challenge. I can only speak from Neufund’s experience, but this challenge has been visible in the industry quite prominently recently.

I asked our CTO and Co-founder at Neufund, Marcin Rudolf, what the biggest technical challenges are that he and his team encounter in building Neufund’s investment platform on the Ethereum Blockchain. He clearly stated two things: there is an obvious issue with transaction and storage scalability as well as a lack of usability standards available for all users, not only Blockchain Devs.

A great example of the first is our recently launched ESOP smart contract, which is running the first ever Employee Incentive Program on Blockchain: Marcin ran out of code lines in the smart contract! It had to be revised and shortened to maintain its functionalities.

Considering that this dry-run project is supposed to prove that tokenising startup equity is possible in a legal way, I am still wondering how creating a whole platform for tokenising startup equity will be possible. New solutions and tweaks to the smart contract technology will be needed.

Considering the second challenge you cannot run out of examples: hard to operate wallets, lack of security of online wallets, no standardised usage of hardware wallets, etc… But also while developing dapps (decentralised applications) or setting up frameworks, our developers had to propose improvements while creating IPFS nodes or working with the Web3 provider engine.

Crucial for me to point out is that I am not here to criticise the technology. I am not the tech-expert one might want to read on this topic. More importantly, it is essential to me to show that innovative technologies are exciting to work with but under the hype there is always “the real-life”. This needs to be considered while planning and operating any blockchain-based project.

Step 4: C‘mon, just LAUNCH it already.

How do I launch my “Blockchain company”? Do I pitch to VCs? Do I need support from the crypto-community? Do I address classical tech press? Do I operate just a Facebook fan-page or Reddit channel, or maybe do I need to release a couple of small tech-related contributions to fit into the picture? How do I talk about my company when nobody understands what I am doing? Do I educate them? Well… you need all of that. Some way or another, at least.

Launching a “Blockchain company” means you

• turn your pitches for classical investors into tutorials about Blockchain,
• you provide the tech press with tangible projects which bridge the gap between the worlds of Blockchain and tech startup scene,
• you speak at all the most prestigious tech, finance AND Blockchain conferences,
• organise your own meetups around the world, AND
• talk actively to the crypto-community through their natural channels such as Reddit, Github, Gitter, and other crypto-news sites and groups.

Managing to coordinate, plan and execute all of that demands that at once your developers become PR agents and your biz dev team members mutate into researchers. The technology, regulations, ideologies and even cryptocurrency market cap change daily. Try to stay up-to-date and lead the market, keeping it interested in your newest innovation. Exciting but challenging.

I wish you all the luck, because you’ll need it.

Step 5: Finding Neverland— The perfect squad

So far I’ve named four adventures of building a “Blockchain startup”. But thinking about them makes you wonder WHO can conquer all those adventures? Who are the people behind it to ensure the success of the startup?

And yet again, there is a misconception when answering: all you need is Blockchain Developers and a community to test your project.

Easier said than done.

Finding a Blockchain Developer is a challenge in itself, as Kim Nash summed up in her Wall Street Journal Article “The Blockchain Expert: In Search of Tech’s Near-Mythical Beast. The endangered giant panda is more plentiful”. But finding the right people to operate a whole blockchain-based project is an even more difficult and pretty exhausting experience.

Let me show it to you based on Neufund’s team. We are based in the best tech-startup hub ever — Berlin. Yet, to build a solid company we hired developers from all over the world: Netherlands, Poland, Libya, and Palestine. I am of course leaving out the whole process of getting these employees to Berlin (cooperations with governmental institutions and NGOs as well as the knowledge about visa requirements and work permits are a must here). Most of them then still need to be trained to become Blockchain Developers, because it is nearly impossible to hire anyone with the exact experience you’re looking for in this particular technology field.

The way to go seems to be to hire brilliant and adaptable people who can learn and incorporate their newly won skills in their work instantly and continuously.

Furthermore, having a technology ready doesn’t mean anything without having a product to present. This is something most “Blockchain startups” don’t view as important, but our experience showed that having a UX-proof, transparent product is crucial. Hence hiring a Product and UX Designer. But have you ever heard of a Blockchain UX Designer? Me neither.

So you go and look for some genius creature who would be able to understand the tech and turn it into something usable for EVERYONE, and by that besides geeks, I mean: Lawyers, VC partners, bankers… and grandmas who never have heard about Blockchain before. Also, how do you pitch a product that has no benchmarks? You need to show it, otherwise people wave at you and go home. Easy as that.

This also goes for the rest of the team. You need a biz-dev team: in this case people who understand the technology, are able to talk about it, educate, and simultaneously spot business deals. These are people who will know blockchain-related regulations, who can talk to banks, who can pitch at nerdy meetups and conferences but also understand how Wall Street and Reddit works. Sounds impossible? Indeed.

Hiring renaissance people with knowledge in EVERYTHING is …well… fascinating at least. We work closely with one of the best law firms in Germany — Lacore Rechtsanwälte — and still were in need of hiring a law and regulatory expert to manage regulations-related partnerships at Neufund.

Furthermore, since PR in the case of “Blockchain startups” is not as easy and classical as one might think, we decided to hire a Blockchain Reporter. Now, that sounds pretty straight-forward but even actually having to define what kind of person this should be, what his/her responsibilities will be, and how to name the job position itself was challenging enough.

Last but not least, for the company to operate you need a solid back-office. Often people underestimate the administration departments, especially in projects like these. But having good people who are fast and flexible thinkers being able to coordinate budgets in various (crypto-)currencies, establishing company structures, and being able to hire people from anywhere in the world is essential. And these are only a few challenges they will have to face.

Obviously, I am leaving out the need of vision-driven, experienced, and skilled founders, which goes without saying. Hi Zoe Adamovicz, hi Marcin Rudolf, hi Remco Bloemen! 😉

…And they lived happily ever after

As you can see from this long and exhausting post I have put together, it is very exciting in the world of Blockchain startups. Yes, no quotation marks anymore: the amount of Blockchain startups on the market is growing rapidly. Even my manicurist in Warsaw or the guy selling me my mobile phone contract at Vodafone in Berlin have heard about Blockchain from their customers or are using it themselves. It is a new trend and an exciting time where new guidelines in corporate, governmental, and technological ecosystems are being established… and I am really happy to be a part of that.

Agnieszka Sarnecka is the Business Operations Manager at Neufund, a community-owned fundraising platform bridging the worlds of equity investments and blockchain.

To learn more, check out Neufund’s ICBM page or the whitepaper for a deep dive. Questions? Ask us anything on Twitter and Telegram!