Initial Coin Offering(ICO) has become a popular means to raise funds for startups. Last year, it has raised about $5 billion dollars in comparison to the traditional financing of 1 billion by blockchain companies.
Rapid growth of ICOs in 2017
In 2017, we saw a rapid growth in the capital raised through ICOs. Startup companies basically use this mode to raise funds online by issuing a new cryptocurrency. The boom in ICOs, that is mainly used by tech startups that develop applications for blockchain technology have made this fundraising instrument so popular.
There is a long tail of advance and innovative projects, primarily EOS, Tezos and Filecoin that has raised millions and billions in the year ICO was introduced. This capitalist money making system allows you to raise funds from multiple sources and in little time without sharing the ownership of the supposed company.
A great example is the ICO of Brave, a startup that was able to raise $35 million in less than a minute from approximately 130 investors.
In 2017, about 300 eth tokens were introduced and the majority of them were used for ICO. These tokens have a market cap of approximately $70 billion that makes about half of the market cap of eth. This might suggest that the boom that the market saw last year was in part due to ICO.
In response to this, a media source stated:
“In Q1’17, 19 ICOs closed for about $21M. Three quarters later, in Q4’17, over 500 ICOs closed for almost $3B. According to CB Insights, 2017 saw over 5x more capital deployed in ICOs than in equity financings to blockchain startups. Q4’17 alone saw that number jump to 7x.”
However, there have been rise in the traditional financing too, as stated here:
“While ICOs are far outpacing equity financing to blockchain-focused companies, venture deal activity rose to an all-time high in Q4’17, up 128% compared to the same quarter last year.”
There is going to be around 800 more ICOs this year and it would be interesting to see what trend continues this year. No doubt, all won’t be good, some definitely will be rising while others will be falling.
Future of ICOs amidst potential regulations
ICO is certainly developed as an innovation that has its benefits open to the masses. Moreover, it gives the average individuals the ability to take calculated risks, unlike the previous scenarios where a few handful of elites could do so.
The rise in popularity of ICOs has also attracted the attention of government authorities in numerous countries. The officials have started to intervene and address the concerns. However, it seems unlikely that ICOs will be prohibited by the government permanently. In fact, this intervention can be considered a recognition of ICOs as a fundraising instrument to be regulated instead of banned.
Sunil is a serial entrepreneur and has been working in blockchain and cryptocurrency space for 2 years now. Previously he co-founded Govt. of India supported startup InThinks and is currently Chief Editor at Coingape and CEO at SquadX, a fintech startup. He has published more than 100 articles on cryptocurrency and blockchain and has assisted a number of ICO’s in their success. He has co-designed blockchain development industrial training and has hosted many interviews in past. Follow him on Twitter at @sharmasunil8114 and reach out to him at sunil (at) coingape.com