Management & legal

How to take care when partnering with a blockchain startup

ico initial coin offering abstract

There’s a natural inclination for enterprises to steer clear of ICO’d companies. For 95% of those startups, that’s the right judgment. But there are a few gems that you don’t want to miss, and partnering with them could significantly accelerate your company’s blockchain adoption.

The difficulty is assessing the good ones. There’s a lot of apparently questionable activity. The bad news is when you delve deeper it can get worse. Two areas to scrutinize are the partners and the utility token itself.

The obvious

When assessing a startup partner, you’ll look at the technology, team, partners, funding, and whether they have working live use cases. Currently, there aren’t many proven deployments.

Appraising the team is easy if there are industry veterans on board who play a significant role. But if you look at many of the big tech companies in the US and China, their founders did not have excellent credentials apart from Amazon’s Jeff Bezos and Steve Jobs in his Apple second coming.

Analysing the technology is not always straightforward, partly because most of the best technologists with experience in this space are working for the startups not enterprises. And many of the technologies work brilliantly in lab environments but not so well at scale in the real world.


One way to assess the tech side is to look at the research. Academic papers are based on peer reviews, so this provides an independent third party verification of the technology.

Or does it?

ICO’d startups have deep pockets. Sometimes to accelerate their own research, they fund academic research. In a small number of cases, this financial influence could bias the academic papers. Here I’m not referring to any particular company or university, and the issue is not a new one.

What is unprecedented is the combination of startups with deep pockets, limited oversight (ICO v venture capital) and the need to move like a rocket to justify their insane valuations.

This is not intended to imply that every ICO’d company that funds university research is bad.

The tokens

The obvious thing to look for is that founders don’t have tokens that vest quickly. The flipside is later vesting can also create a conflict of interest, in that a highly valued token will earn the founders more money, but a utility token is for payments rather than being a store of value.

Utility tokens suffer from very different desires by two parties: investors who want a high price versus users who wish for a stable price.

The optimal situation is to align the founder’s incentives with the business’s performance. The problem is the distraction of crypto economics.


In any new sector suppliers want to create a profile, so they often provide discounted or free work to gain credible case studies. Many of the major enterprise service providers do this, especially when it comes to blockchain.

If it’s ok for the big boys, what’s wrong with a young startup doing it too? They need the validation even more. The problem is with the mechanics of how this might work.

A theoretical example: Young ICO company has held back tokens to be sold to customers to use its platform. They partner with a fast moving, high profile medium sized company which gives them a bit of kudos. As an incentive they let the new partner use their blockchain platform for free by giving them tokens.

If you don’t give it more thought this doesn’t seem much different to what the enterprise service providers do.

The problem is those tokens have value in the marketplace. And can be sold. So is it giving them free work or is it something else? This assumes the tokens go to the company, certainly not to the partner’s team.


If you’re considering working with an ICO’d company ask them:

  • for a list of Universities to whom they’ve provided research funding and which papers they’ve published which relate to the company.
  • which case studies received discounted platform access or tokens, and whether those tokens carried any restrictions. E.g., could only be used to buy platform services and could not be sold in the market.
  • whether they’ve had a big four audit of their token distributions, both initial and subsequent.

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