Raise and Rise: Funding Sources for Your Startup in the Era of Digital Transformation & Blockchain

Copyright © 2020 by Victoria Silchenko.

All rights reserved. No part of this publication may be reproduced, distributed or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. For permission requests, write to the publisher via the Contact page on victoriasilchenko.com.

The author is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in this book is provided as is with no guarantee of completeness, accuracy, timeliness, or of the results obtained from the use of this information. The information in this book is for educational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice.

World Funding Summit

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Copy editing and cover design by thewonderlady.com

Raise and Rise: Funding Sources for Your Startup in the Era of Digital Transformation & Blockchain Victoria Silchenko. – 1st ed.

ISBN 978-1-7350436-0-9 – eBook edition

ISBN 978-1-7350436-1-6 – paperback edition

Dedicated to my dear parents,

thank you for all your love and support!

"The highest activity a human being can attain is learning for

understanding, because to understand is to be free."

– Baruch Spinoza

CONTENTS

LET’S GET STARTED

Numerous questions tackled

Rise above

CHAPTER 1: TO A MINDFUL ENTREPRENEUR LOOKING FOR CAPITAL

Life is a pitch

Funding sources for all

It’s getting digital here

This is how we do it

For digital population – digital currency

A network effect is the most valuable property

All change

Startups are prone to copycats

Consumerism is now global

Always be raising

CHAPTER 2: HOW MODERN FINANCE REALLY WORKS

Warming up

A recap for the curious entrepreneur

A harbinger of the 2020 financial crisis

CHAPTER 3: DECODING VENTURE CAPITAL

How it all began

Risk-takers or…takers

The art of startup valuations in the intangible world

An unpopular history of Silicon Valley’s rise

Who ARE you people?

Venture capital is not bad, but it is dangerous

Who backs venture capital funds?

What VCs really want

Troubled asset class

Gigantic VCs – are they good?

What is in it for you

The secret life of corporate venture capital (CVC)

Sex and venture capital

Women-entrepreneurs, unite!

The curious case of Softbank Vision Fund

The curious case of Uber

The curious case of ShoeDazzle

CHAPTER 4: IN CROWDFUNDING WE TRUST

The Basics

Rewards-based crowdfunding

Should I choose Kickstarter or Indiegogo?

Are there any other rewards-based crowdfunding platforms to consider?

How to make it through the noise

Delivering on time, on price, and on quality

Intellectual property traps in crowdfunding

Debt-based crowdfunding

Royalty-based crowdfunding

Equity-based crowdfunding

Early exits and the secondary market for startups

CHAPTER 5: VENTURE FINANCING VIA ROYALTIES

An overlooked option

What do angel investors say?

Royalty-based financiers

How about royalty financing for startups?

Cases to get inspired by

CHAPTER 6: BLOCKCHAIN-BASED CROWDFUNDING FOR MODERN STARTUPS

What on earth are Initial Coin Offerings?

What are the most ICO-friendly jurisdictions?

A love–hate relationship

What to be concerned about with ICO

Top ICO stories

If it is so good in practice, how is it in theory?

Understanding blockchain-based crowdfunding

An existential dilemma: security or utility

Utility tokens

The curious case of Filecoin

ICOs, platform economy, and network effects

VCs are dead. Long live VCs

The SEC and its role in the ICO markets

ICOs are here to stay in some shape or form

CHAPTER 7: DETOUR TO MODERN MONEY CREATION

The magic of banking institutions

What is money?

Currency acting like money

The risky business of risky capital

The new old finance

The age of perfect capitalism or how to become a billionaire

RECAP TO A FELLOW ENTREPRENEUR

Capital moves to where the returns are the highest

Fundraising is not your business strategy

All that you are seeking is also seeking you

Public-private partnerships for Elon Musk and you

How to be a startup investor without an accredited status

Living with a purpose

POSTSCRIPT: FINANCIAL VIRUSES AND WHAT’S NEXT

The show must go on

Life, interrupted

Spread love, not hate

ABOUT THE AUTHOR

REFERENCES AND NOTES

FIGURES

Figure 1. Timeline of Tech Giant’s Billion-dollar Acquisitions (2000-2020)

Figure 2. The Top Reasons VC-Backed Startups Fail

Figure 3. Funding Sources Are Aligned with Startup LifeCycle Stages

Figure 4. Top 10 Most Active Family Offices with Direct Investments in Startups, 2020

Figure 5. We are Becoming a Digital Population (data as of 2020/Q1)

Figure 6. The World’s Most Powerful People, Forbes Ranking

Figure 7. What Happens in an Internet Minute, 2019

Figure 8. Top Social Media Networks by Number of Active Users as of April 2020

Figure 9. The Topmost Valuable Companies Are All in Tech

Figure 10. Everything is Derivative: Mapping the Financial Viruses on a Global Scale

Figure 11. VC objective: Grow the Equity Value of a Portfolio Company

Figure 12. Valuing Business Assets in a Service-Orientated Economy

Figure 13. Public Pension Funds are the Main Investors in Venture Capital Funds

Figure 14. Venture Capital Performance in the United States

Figure 15. The Majority of VC Funds Don’t Return a Principal

Figure 16. US VC Funds’ Cash Inflows and Returns of Capital to the LPs

Figure 17: VC Funding Funnel

Figure 18. Wording and Phrasing in Investment Pitches

Figure 19. Uber’s Investors by Type

Figure 20. What Type of Crowdfunding is the Best for You?

Figure 21. Value Creation’s Components of Intellectual Property

Figure 22. Who Rules the Cryptocurrency Market?

Figure 23: How Blockchain-Based Crowdfunding Works

Figure 24: A Surprising Fact: Who Leads the Global Offshore Markets?

Figure 25. Ten largest ICOs of All Time by Amount Raised

Figure 26. Structure of the Federal Reserve System

Figure 27. This is How We Do it: Different Forms of Money

Figure 28. Foreign Exchange Reserves by Currency

Figure 29. The Rise and Fall of the Dollar

Figure 30. In Data We Trust

Let’s get started

It is hard to be a flame when darkness rules…At its very core, choosing the path of an entrepreneur is the most liberating experience, the smartest approach to control our destinies, and an honorable route to serve humankind while making an impact and building wealth with our raw talents and skills. I love the intrinsic purity of this pathway and I hope you do too; otherwise you might be reading the wrong book.

Every so often, my posts on LinkedIn go viral, like the one you are about to read below. Some folks naturally didn’t like my post, but how can you manage to tell the truth without taking the risk of upsetting someone?

"Dear Founder,

Please stop telling me I am changing the world while sending me your pitch.

The last thing the world needs is another app or a website capitalizing on our spending habits. Even if you hire the Eastern European masters to put a blockchain on top of it, remember Amazon can do the same.

And it just swallowed Whole Foods, gluten-free. (Hello, Walmart, got a coin?)

I feel your pain so you can keep bombarding me with messages. But it won’t turn me into a-VC-by-birth Tim Draper or a Sequoia Capital with its $6 billion to play with (and counting).

So, let’s cut through the BS and admit you are merely trying to create a job for yourself.

And it is perfectly fine as this is why we are all here on LinkedIn, tokenizing ourselves into indispensable avatars.

What bothers me is you have zero revenue. And that’s not cool. Even for a crowdfunding campaign on Kickstarter or to be listed on AngelList.

VCs? They are moving to the late-stage-money department (I know, right?)

ICO? Please stop.

But do start focusing on your customers – aka your BEST investors.

BTW, you’ll be a magnet for VCs if you still want them. Recently, people spent over $1 million buying virtual cats on blockchain. Now CryptoKitties has landed $12 million from the iconic Andreessen Horowitz & Union Square Ventures. Do you know how much this will change the world?

Me neither.

Game on!

Love,

Victoria"

I don’t think being funny is a choice; most often it is a binding call for any rational human-being with a sense of humor and a sense of tragedy. Both senses have to rely on reality, which begs for our enlightenment: The world needs more people saving it from useless projects than people with useless projects promising to save the world.

And here it comes – my hypothetical conversation with you – a modern founder (or someone who dreams of becoming one) weighing up all the financing options out there while searching for answers to slightly more fundamental questions. Such as how you can make the most positive impact given your skill set and aspirations, how does modern finance really work, and can it actually work for you when your only product is your startup?

After all, let’s be perfectly honest here – we all want to keep moving higher and faster towards the top of Maslow’s pyramid to enjoy ourselves at that coveted level of self-actualization where you are not distracted by yet another sharp surge in rent. Ask any artist or an inventor – to capitalize on creativity is hard; yet one of the worst things to experience in life is to be intrinsically creative but not be able to unleash the creativity because you can’t afford it.

I have to warn you, though, this book is not for those who are looking for a manual on how to slay the dragon enabled by Tari Lopez’s get-rich-quickly themes or Tony Robbins’s feel-good-mantras. I applaud those super-talented guys for feeding sizable audiences with temporary optimism and for their ability to frequently occupy my YouTube feed, popping up here and there without my consent. Have you ever tried to block them out? Good luck with that.

You see, I am not interested in helping those desperate souls looking for shortcuts to improve their lifestyle. I am interested in helping people who actually aim to solve crucial problems – and those who frequently bother asking why rather than just how. There is an abundance of capital available in the marketplace; yet obtaining funding for your startup can be remarkably difficult. But why? I know there are a lot of good entrepreneurs out there who feel like failures following a widely-accepted logic: I can’t get funding, therefore I am a loser.

Of course, every founder has setbacks and issues. But you are not a loser just because venture capitalists (VCs) aren’t impressed with your endeavors. And I hope you agree with me once you have read my book. I am not saying that VCs are despicably evil (that would be investment bankers), but you would be better spending more time on building your business than building and polishing the pitch deck.

As we live in a digital world where the information circulates globally with a mouse click, they say writing today is a wonderful marketing tool; moreover, it gives us an illusion of power and control. Both statements must have been truthful as it perfectly explains how come we have so many bloggers spending hours working on their pieces or those innocent folks on Facebook who like to display their diaries for very public reviews and judgment.

I must say, in my wildest dreams I never even dared to write a book. After all, over the past few years I’ve been authoring numerous articles and can state, paraphrasing the American novelist Norman Mailer, every one of my articles has killed me a bit more. I bet anyone who has ever written research-driven pieces on rather controversial and complex issues can relate to that. And did I mention that English is my third language? Well, I have now.

So, did I want to write a book? Thanks, but no thanks.

Thus, the decision came from my heart and an overwhelming belief that I can turn your pain into power and take you from being misinformed – or partially informed – to the highest level of actually understanding the nature of the game you are getting into.

Numerous questions tackled

What happened is that at one point I came to realize that not a day goes by without me receiving a cold email or a carefully-crafted pitch-deck where a seemingly legitimate and sane human-being is asking me to write a check to back his venture or to be introduced to someone who will, preferably a Silicon Valley venture capitalist.

And then there are questions from my peers here in the United States and other countries across the globe, especially countries where I have held speaking tours and workshops.

How do I get investors for my startup if I don’t hang out in Silicon Valley? Should I pitch to venture capitalists if I’m building a non-tech venture, if I am over (insert your age here), or if I am a woman and – oh my – a blonde? What type of crowdfunding would make most sense for my venture? What do I do if I don’t want to give up my equity? Can I get funds via issuing my own cryptocurrency – is it legal in the US? How can I get on the blockchain wagon – do investors still love it? What is the best way to exit? Is IPO a dying model? What about ICOs? Is it true that now I can issue my own money? Why do we keep getting bubbles? Will venture capitalists still be around for me when the next bubble bursts?

If you are sincerely puzzled about any such topics, you are in good hands: I know the struggle too well as the field of entrepreneurial venture financing in particular has been my focus for almost two decades. Plus, I am an entrepreneur myself, feeling your pain on a regular basis. Today, the diversity of opinions and views is so grand that you might find the answers you’ve been searching for to be remarkably elusive or overwhelmingly biased.

So, I want you to slow down. Take a pause. Breathe deeply.

And start thinking – not from outside the box (p-l-e-a-s-e).

Just think.

There.

Is.

No.

Box.

You’d be surprised how far that gets you.

In our everything-is-googleable world, information is not enough. We often mistake information for knowledge, hence knowledge is becoming a commodity and, in a way, a gratuitous agreement. No wonder most of us know a lot but understand very little, if anything at all. You read something, like you would eat fast food, while passing by via a digital driveway; you conclude it is seemingly good, you swallow it, and you feel you are full (of knowledge).

Now – how can you turn the acquired knowledge into possibilities? Most likely you won’t. Why? It is thinking consistently that helps you move towards a good understanding, which is the foundation for making the most sensible decisions.

Every time I receive yet another pitch from a hopeful founder trying to find investors, I get a familiar sinking feeling that he/she is throwing a lot of darts at the wrong targets in the hope that one will stick and alter their status quo. That is based on this mantra: It is a numbers game, so you have got to keep knocking on the investors’ doors and one day, one door will finally open.

Well, boundless optimism is what keeps us self-starters alive, but there is a thin line between being an optimist and being delusional. Let me remind you of that proverbial definition of madness (often attributed to Einstein): when you do the same thing over and over again and expect a different result.

The wisdom of the entrepreneurial life is to see where exactly is the very point where you have to move on already to different options instead of trying the same thing just one more time – again. Knocking on doors is good but are you even on the right street?

In this context, let me remind you that brains operate in two ways: in the subconscious, aka default, mode – when we do things without really thinking – and in a conscious way, when you know who you are, you know what you are doing, and why you are doing it. Science tells us that 95% of our thinking is subconscious and only 5% is based on our conscious awareness.

The good news is that we can work on a more favorable ratio and we all have a choice – to repeat everyday familiar steps or to develop a new understanding, which in turn will help with making better decisions and conscious choices. Unless you want to be stuck in a default mode, you are actually capable of changing your way of operating in the world.

As my thinking goes, once you understand the genetic concept and makeup of the venture funding landscape, the existing and emerging funding models, the incentives of the main actors, and where financial capital likes to go, you’ll be capable of matching your own story with the most appropriate funding options instead of asking for capital from some very wrong people.

The world cries out for impactful ideas and ventures and alas, most such ideas are not viable for the majority of financiers focusing on an investment return, rather than social impact, which aligns with the well-being of individuals and families. Ironically, that is a sign of rational behavior on their part. But you know this, right?

Then why go begging for their approval when there are plenty of other financing options you can move forward with? How about building brand loyalty via stock ownership, for example? How about learning about crowdfunding? And why keep ignoring the fact that at the end of the day the number one investor is your paying customer, aka someone who is willing to pay for your products and services? In other words – you are solving a real pain and you charge money for it. Hence, knowing how to build a business is far more important than knowing how to build a pitch deck.

Full disclosure time: you are hearing this from someone who has been designing pitch decks and financial models for a living. I know. I told you I speak from my heart.

Rise above

Yes, capital is the oxygen in the life of a startup. But then again, acquiring capital is not the purpose of your startup, just as breathing oxygen is not the purpose of human life. It is becoming almost too comical how we chase investors while running around like we are in a game of musical chairs.

What is NOT funny is that we naturally keep crashing into each other, taking out the chairs depending on what our biological and cultural bias is and picking our fights accordingly – female founders against male, black founders versus white, immigrant founders as opposed to natives – you get the idea.

Quoting the19th century British philosopher John Stuart Mill, He who knows only his own side of the case knows little of that. Sadly enough, while we all keep segregating ourselves in those little tribes passionately claiming our moral rights and neglected privileges to capital access, we overlook the fact that the real divide is between two sides only.

Those of us who have the desire and mental ability to build and innovate are all collectively on the one side (#EntrepreneurshipUnites) or, as it is called in finance, the "sell-side. And then there is the buy-side"– the folks who have some spare capital to invest. How did they get extra capital in the first place? Good question – fair question. I bet you’ll be enlightened once you are through this book and particularly through its chapters on finance and money creation.

At this point, there has been a solid number of people talking about the disproportional power of the financial sector and I feel I can write a whole separate book on financialization of our economy. And that is very unfortunate as I am starting to feel that we, the actual creators and builders, are becoming numb to the status-quo.

The brain-damaging fairy tales coming from venture capitalists (VCs) about startups with an A-Team and a great product have got to go. VCs like to invest in tech and companies that can ride on network effects. 42% of VC-backed start-ups admit that they failed because there was not a market need, 75% of VC-backed companies don’t even return a principal to investors.¹ The big bulk of companies are making it – albeit temporarily, of course – just because they had timely access to capital.

So. Very. Simple.

Any idiot can build a company (and acquire competition) with unlimited access to capital or, quoting a daring thinker of the Renaissance, Giordano Bruno, with luck on your side, you can do without brains. But hey – you don’t need VC bucks to get started in most industries!

Obviously, despising the finance fauna, and those who are thriving in it, will not help either and I keep reminding myself this regularly. We cannot change anything until we accept it, as Carl Jung, the founder of analytical psychology, wrote, adding that condemnation does not liberate, it oppresses. I agree. After all, we are coming of age when more wealth than ever in the history of humanity is being created by the new generation of tech founders that are now actively investing in the new generation of startups. Can you envision a new television game show: Who Doesn’t Want to be a Billionaire? Me neither.

Thus, my goal is pragmatic, and at the same time, fairly noble.

I want to empower you with the most relevant and updated knowledge covering some of the most puzzling questions on sources of capital. But there is more to it. I want you to recognize how finance works and how modern money is actually created. Taking a moment to holistically look at the modern system of finance and asking some existential questions is what opens your mind. Understanding the milestones and a distinct set of metrics at every stage of a startup is crucial but choosing the financing tools and business models based on what feels right for you, as an individual and a good human-being, makes you unstoppable.

Hence, you can RISE ABOVE the state of perpetual chaos and biased crap; this is when moving towards your startup greatness becomes the fun part. Dr. David R. Hawkins, an internationally renowned author, scientist, and pioneer in the field of consciousness research, has developed a scale for the levels of human consciousness that demonstrates how we all move up – or don’t – to a higher consciousness, allowing harmony within our bodies and nature.²

This genius, whom I’ve admired for years, has revealed that emotions trapped in our bodies resonate at the frequency of those emotions, and that there is a crucial point (200 on his scale) where everything that calibrates below this point makes your body unhealthy and signifies the absence of truth; but everything above 200, makes your body energized and signifies the presence of truth. Having a frequency of 500 or above implies a pure genuine love, aka as a state of awareness, a source of creativity and a way of seeing yourself in every other human. We change the world not by what we say or do but as a consequence of what we have become, declares Dr. Hawkins.

Why am I bringing up his work here? The more I spoke with entrepreneurs, the more I realized that in addition to good companies and meaningful products, the world needs more people who are genuinely happy and emotionally fit.

Or, quoting Richard Branson (@richardbranson), whom I was lucky to chat with last year here in Los Angeles, A business has to be involving, it has to be fun, and it has to exercise your creative instincts.

I am not stating that every startup deserves to succeed or shall get funding without any effort. I am saying that the pitching arena should start to move towards the reversed scene, where natural selection in a Darwinian fashion will be applicable to investors pitching themselves on how they can help and contribute besides the money.

Until it happens, our modern world of startups can best be described exactly as it was by Jennifer Lopez’s character in her hit 2019 movie Hustlers, when she said, We are all living in a gigantic strip club where you got people tossing the money…and people doing the dance.

Now – can you show me your ID? Okay, I am joking, but when it comes to startup investing, clearly we are having a generational disbalance here. Only 6% of angel investors in the United States are under 30 years old; the median age of people enjoying an accredited investor status³ which allows them to invest in startups as well as in hedge funds, venture capital funds and private equity (PE) funds, ranges between 60 and 64 years old.⁴ Overall, due to the current income restrictions for an accredited investor status, 90% of US households are completely shut out of private stock ownership.⁵

Have you ever wondered why millennials like to invest in crypto? You might have just gotten an answer with the figure above, which also can be supported by one more piece of the data: almost half of millennial traders have reported they trust digital currency exchanges more than stock market exchanges.⁶ As one of my younger friends here in Los Angeles told me, They call us a lost generation but we are not stupid. The stock market exists for accredited investors to cash out. We are not in that club, so we created our own. Go Bitcoin!

If you want to understand the limitation of things, desire them, writes Lao Tzu in his Tao Te Ching. The truth is, most entrepreneurs who chase capital do not actually need funding, they need mentors – and they need their assistance on a daily basis.

Now, are you an entrepreneur with a startup or the owner of a small business? While the difference is subjective, let me define the two. The owner of a typical small business focuses on local markets or existing market niches and aims for a steady moderate growth (think brick and mortar businesses like restaurants, local stores, dry cleaners, etc.)

On the other hand, modern entrepreneurs, aka startup founders, are perceived as folks launching innovation-driven ventures that can create not only new products but also entirely new markets while driving revenue at a fast pace. In other words, if you are a startup founder, to be your own boss is not enough – you are expected to take over the world. In this book I am focusing primarily on startups that could be defined as innovation-driven ventures.

Wait – where are you going? Okay, let me clarify things here before you run away thinking you don’t have a pioneering technology or that groundbreaking billion-dollar idea anyway.

First of all, how about starting to make some small steps looking at what problem you can solve that hasn’t been solved yet? Resolving real problems is the type of innovation we need!

In fact, if you seek inspiration from the notorious Uber’s magic, for example, look at how it utilized an existing product with existing technology and delivered it to existing markets. Yet, its business model is hard to copy – and that’s the magic trick. As the old saying from Silicon Valley goes, if you can’t creatively turn $1 into $10, why do you expect to be able to turn $1 million into $10 million?⁷

By the way, don’t underestimate the fact that even something as unsexy as a specific mix of your products or perhaps the opposite (a very narrow focus on a very narrow market niche) can achieve the same trick. This brings to mind the curious case of Diapers.com which was an online platform for baby products that got into a price war with Amazon. The latter ultimately acquired Diaper’s parent Quidsi, Inc. for $545 million.⁸

Now – what is a startup? My favorite definition of a startup is the one by Steve Blank, often called the Godfather of Silicon Valley: A startup is a temporary organization used to search for a repeatable and scalable business model.⁹ Yes. We need capital to be able to test our business model in a series of minimum viable products (MVPs), to afford to fail, to be able to quickly get up and pivot with a readjusted business model or even a completely new product or service.

The death of startups – or not

The United States has always been perceived as the world’s frontrunner in building an entrepreneurial business environment and it’s no wonder why. There is almost something contagious in the air here when you suddenly start to think of that market need no one has addressed yet, realizing that to be sane in a world of madmen is in itself madness, to quote Jean-Jacques Rousseau. In the past decade, around 400,000 new businesses have been launched every year, which can be translated as the daily arrival of over 1,000 startups. Yes, according to the data, about 20% of them go under in the very first year¹⁰ but hey – it is always better to try than not! You can register your business, open a corporate bank account, and even apply for an SBA loan (more on that later) in less than a week.¹¹

The sad fact is that for the past few years, the grassland of startups has been overromanticized, bringing a striking gap between perception and reality. What we have now is that the actual number of new companies as a percentage of all firms has fallen by nearly half since the late seventies.¹²

Anyone who is paying attention can spot the fact that entrepreneurship is slowly vanishing, freeing up space for mega-employers in our platform-orientated economy, where success is defined by the presence of network effects and timely access to capital that can fund the never-ending acquisition process. The process which current antitrust laws have failed to prevent completely.¹³

According to CB Insights, over the past 30 years the five dominant tech platforms (nicknamed FAMGA) – Facebook, Amazon, Microsoft, Google, and Apple – have made 770 acquisitions in total.¹⁴

Case in point – Amazon. Its mega-acquisitions include Whole Foods ($13.7B), Ring ($1.2B), Zappos ($1.2B) and PillPack ($1B). For the past few years nearly half of online purchases in the United States have been conducted on Amazon,¹⁵ and more than half of US households have an Amazon Prime account,¹⁶ which exceeds the number of American households using telephone landlines.¹⁷ Amazon is not just delivering – it is now moving in with us. By the way, telephone service, as well as gas, electricity and water are all considered public utilities, aka businesses that supply an everyday necessity to the public at large and typically operate under a special governmental watch.¹⁸

In fact, in the history of humanity, corporations alone never had so much money to play with: there are billions of unspent cash resting on their balance sheets. By the end of 2019, Microsoft had $136.6 billion in cash reserves, Google’s Alphabet scored $121.2 billion, Apple gained $100.6 billion, Facebook reported $52.3 billion, and Amazon got $47.3 billion.¹⁹ Altogether, this is almost half a trillion dollars. Quite an impressive sum even if you compare it with the federal government of the US which collected $3.5 trillion in total revenue in 2019.²⁰

The 2019 Bloomberg Innovation Index, which ranked over 200 countries by several metrics, including funding invested in research and development, has included a list where the top three innovative economies are South Korea, Germany, and Finland; the United States ranks as number eight, right after Singapore and Sweden.²¹

In our new economy, where tech-behemoths rule, reality is being virtualized and where everything is set to have a paired digital twin,²² how do we encourage new founders to become those exact human dynamos capable of making meaningful innovations instead of creating useless apps and digital toys or, worse, a creepy technology that does nothing more besides intruding and controlling our lives as human beings? What do we need to get back to the noble idea of entrepreneurial capitalism with crazy go-getting minds such as the likes of Henry Ford, Walt Disney, Nikola Tesla (an immigrant from Serbia) or Andrew Carnegie (an immigrant from Scotland)?

Simply put, we need plenty of risk capital that would go to the real economy and real startups solving real problems. You see, if we are living in an environment when small businesses – the real engines of the economy and job creators – are dying faster than they are being born, you start to wonder what’s wrong with a financing system that is meant to deliver the oxygen for new ventures.

Do you hear me, derivatives’ traders? By the end of 2019, those guys scored $559 trillion²³ – which would be equal to almost seven times the world total GDP that same year. What can go wrong? Hell is empty, all the devils are here, – this Shakespeare quote should be emblazoned across buildings on Wall Street.

But I am not offering you a collection of rants about how the ideal system in the ideal society should work or which god you should choose to serve so you feel valuable and your life is meaningful. Instead of cursing the darkness – which is extremely tempting of course – let me light a candle for you in the form of this book, empowering you with some knowledge and insights so that it’s you who will decide which side to play on.

I believe that any meaningful change requires initiating the kind of conversations that make people uncomfortable. I believe in asking questions – and searching for the truth. I have questions and would rather have questions that can’t be answered than answers that can’t be questioned, paraphrasing Richard Feynman, a quantum physicist and Nobel prize winner who lived here in Los Angeles.

That’s why I like a young representative of the next generation of entrepreneurs named Vitalik Buterin, a co-founder of Ethereum, who keeps asking very publicly whether for example, the crypto community had actually earned the appraisals it was frequently getting. I hope at some point Vitalik will be canonized and his occasional talks will be put in a sacred book for future generations to study and appreciate the financial history of the world.

His inconvenient questions can also be easily addressed to the gang of venture capitalists, the guys on Wall Street and just anyone thriving in the modern finance industry – all those folks with advanced mathematical skills but no ability to write poems. As Robin Williams’s character in Dead Poets Society, John Keating, said We don’t read and write poetry because it’s cute. We read and write poetry because we are members of the human race. And the human race is filled with passion.

In all seriousness – what is really happening – and I have plenty of brain-damaging data to prove it – is that finance has become a tool for getting money FROM productive businesses instead of getting money INTO them. If anyone pays attention to the current stock market, you might reflect on the fact that margin debt is at a record high, and stock market capitalization is at 176% of the US GDP.²⁴ If you don’t like my message, please offer a better one – I am starving for some positive news. For full disclosure – my message is sponsored by no one – I am a typical loner, trusting my own awareness. I blame my education and my upbringing - thank you, Mom and Dad! My major product placement here is a set of facts and cases, connecting the dots and giving you a high-resolution picture of a fundraising world and the world of finance overall.

As an avid reader myself, I believe reading a book is similar to entering a relationship – it demands commitment. Saying that, please bear with me and help me to help you as all that you may learn from this one single book should have been covered in five. With my rather uncommon mix of an academic background and plenty of street smart experience gained primarily here in the United States, I have tried to address the most painful questions and without too much blah-blah to make up this one volume.

There is more than one way to burn a book. And the world is full of people running about with lit matches, stated Ray Bradbury, one of the most celebrated writers of our time. Well, this is where our digital universe becomes handy, isn’t it?

The world is changed by our example, not our opinion or a constant stream of rants on social media – that’s my own mantra. Beyond the painfully obvious fact that too many of us are busy with counting Facebook likes, imagine how many problems humanity is currently facing would be resolved if each of us started to make small daily decisions based on that sense of rightness that we human beings are wired with.

I know I am a dreamer but I am not the only one. With all my heart, I hope that by sharing my wealth of knowledge and insights, I can unite all good people out there who, like myself, strive for truth and still believe in a life of wisdom, compassion, and progress.

Enjoy my book. Or write your own. It is an enlightening experience, I promise.

For now – onward through the darkness, my friend!

Chapter 1

To a Mindful Entrepreneur Looking for Capital

"Learn how to see. Realize that everything connects to everything else." – Leonardo DaVinci

Life is a pitch

Are you asking what exactly sparked my desire to write this book? You mean, besides the fact that ignoring the enduring proliferation of nonsense in the business of startup funding and big money has become unbearable?

Here comes the punchline: You live in an era where raising funding has turned out to be the most important skill of all.

Wait – what? – you might be asking.

I am not joking. If you want to level up your startup, moving forward from your self-funded lifestyle business to a growth-minded business, which typically requires a lot of hires and a global growth strategy – you have got to be able to raise capital.

So, where do you look? You see, for the last two centuries, the primary backers of startups were banks, but they kind of checked out a long time ago and you’ll understand why through this book. The majority of investments today are made in exchange for a portion of ownership in the company with expectations for a sizeable return comparative with other investment options. Hence, your heart-breaking stories of working hard or desire to make the difference are frankly irrelevant unless such worthy traits of yours will lead to a nice ROI (return on investment).

Of course, this is not meant to discourage you, just to give you a reality check while you are still wearing your rose-tinted glasses and let me put on mine too for a moment. There are admirable people who are compelled to live moving forwards, attempting to understand what came over human existence, believing they can actually improve it. Genuinely good and multilayered people. Strangely enough, I can sense such folks within the first five seconds of our chat, secretly calling them mindful entrepreneurs or, putting it simply, my kind of people: the founders, the creators, and the innovators who are somehow looking for deeper truths and more meaningful ways to live.

They are a rather rare breed, but as I am fortunate to live in California and its most multifaced city Los Angeles, where creativity is in the air, I hardly know anyone who isn’t working on their book, screenplay or – but of course – their dream startup that is absolutely set to be the next Uber and a new unicorn. We even have our own Silicon Beach, housing hundreds of startups, having figured that Silicon Valley is hmm...getting old. Who cares where you are located these days anyway? We live in times of an abundance of options, thanks to the Internet that has made the world one big dazzling marketplace with multinational supply chains. According to one assessment, a simple cup of coffee involves 29 firms across 18 countries.²⁵

In a digital universe, everything is virtually possible, and you might be just a click away from greatness.

Now, let me take off my rose-tinted glasses and cut to the chase – an idealistic view of modern entrepreneurship is far more fragile than we believe. If you still have some illusions, the best way to get rid of them is trying to build a solid business from scratch. That’s when you will quickly discover there is nothing easy about it.

For now, let me ask you a pretty straightforward question – how would you define entrepreneurship in one simple world?

The answer is – SALE.

And how would you define entrepreneurship in two simple words?

No Sale.

You see what I mean? Ouch, but of course, you are talking about Transformation and Novelty and possibly Change. That’s very romantic of you, and I was quite romantic too before choosing an entrepreneurial path instead of an academic one, so p-l-e-a-s-e, don’t give me this scholarly bullcrap. They say, wisdom is the daughter of experience so now I’ve got a whole family here.

Wait, are you saying Innovation? Sure – and what is innovation? Have you ever thought, for example, why the search for innovation around the world has been most often seen throughout the history of military and wars? It is because the government is an investor that can actually afford to lose in the long term and often the only customer that can pay for it. By the way, without government support, there would be no Silicon Valley (read my next chapter).

And this leads us to another point: innovation is the invention one can