Valuing cryptocurrencies is quite difficult. There are numerous articles demonstrating how token valuations are coming up short. Tokens don’t follow traditional valuation metrics such as discounted cash flows or net asset value.
The startup world faced the same problem in pricing seed stage startups. For those companies we looked at the team, the status of the product, the presence of IP, customers and revenue traction (if any), and valued it based on how much of each was already built into the startup.
It was a “funny money” valuation because as the startup grew and eventually shifted from the startup valuation metric to a traditional discounted cash flow metric, the valuation would usually drop by 30%. The drop was due to the fact that we were moving from a value of the business prospects to a stricter value of the cash flow.
In tokenomics, we are trying to price the token in an ICO according to the value it will provide. Here again, discounted cash flows and hard asset valuation techniques do not apply. We have to again look at the values built into the business or in the case of an ICO – the digital eco-system you are building. If there is a strong team behind it with a great track record, that token will be valued higher. Team, product, users and intellectual property are the core four to consider.
For ICOs, I propose a fifth component- the value of an ecosystem that digitally integrates all the components. A digital ecosystem built around a core platform or set of standards will provide more value than a disparate group of companies who have a loose association and few if any data linkages.
Digitally integrated ecosystems merit a higher valuation than non-digital ecosystems. Gartner defines these new systems as one of strong interoperability. Companies which share information through integrated data networks will be able to move faster and provide better service than two separate companies that have to manually share information through APIs. ICOs through their tokens will have not only the valuation of a company but also of an integrated digital ecosystem.
Hall T. Martin is the founder of TEN Capital and a builder of entrepreneur ecosystems by startup funding through angel networks, funding portals, syndicates, and more. Connect with him about fundraising, business growth, and emerging technologies.
If you are interested in tracking a startup, you can sign up for TEN Capital’s Monitoring service which tracks key startups and provides information about their revenue, earnings, and other key financial information. The first 3 companies are free for 6 months.
Signing up as an investor with TEN is easy and free. Visit our Investor Page and sign up now!
If you have any questions, please contact us at info@tencapital.group.
