“We live in a digital world where all is available at the touch of a screen. Money has been simplified, changed subtly over time from tangible bills to numbers in cyberspace. Cash is no longer in a cloth bag; it’s numbers on a screen. Numbers that can be manipulated and modified. If you run out of numbers, you can just buy some more, right?”
Not my words, but those of the New Zealand comedian, Rhys Darby. And it’s not so much funny, as true. We live in a world of digital change, and one of those changes is how new businesses get kick started. Only a year and a half ago, the financial instrument of choice was the Initial Coin Offering, but now it’s reported as dead, or at least dying. Is that actually true? It’s difficult to crunch the numbers because as yet there is no industry which is specifically crypto-centric, only sectors. By one measure (www.listofico.com) there are currently 16 ‘soon’, maybe 18 ‘current’ ICOs, with 150 described as ‘over’, and 862 ‘ended’. Another source (cointelegraph.com) has the figures in for ICOs in 2017 as 717 completed, of which only 48 reached their Hard Cap. A year later and 138 projects out of 2,284 reached Hard Cap, while 438 made it to Soft Cap. So the Hard Cap success rate for ICOs last year was 6.04% – not exactly an outstanding result. If you then take into account the fact that despite reaching their Hard Cap, not all of those startups will have successfully launched, or are now actually trading, then it would be fair to wonder if ICOs really are the right instrument for fundraising.
Step forward Security Token Offerings, or STOs, which started to make their mark in 2018. Or did they? There are clearly many advantages to an STO, for both sides of the investment equation, but in fact the world hasn’t yet caught fire with this. In May 2018 there were a grand total of 3 STOs launched, a figure rising to 22 by October last year. So OK, something is happening, but it’s not yet a mass movement by any means. Part of the reason is that there are many more restrictions for the entrepreneur, including security exemptions and of course the mandatory requirements of KYC. It’s a building site, a work in progress.
Now there’s the new hybrid possibilities of Initial Exchange Offerings coming onstream, and many people are predicting that this will be the new new thing. More regulation, more protection for investors, and an easier route to reaching those investors for the entrepreneurs. What’s not to like? The fact is that while IEOs may offer a magic bullet for some, the model still doesn’t cover all the needs of the market, and according to a recent review (cryptopotato.com/ico-list), with 82 currently-listed ICOs in play, there are only a handful of IEOs to match. These include the OKEx crypto exchange which is set to launch its IEO ‘OK Jumpstart’ in the very near future. Andy Cheung, Head of Operations at Malta HQ-ed OKEx predicts bringing ‘Extra security to the funding process and helping developers reach more investors.’ He also said that the IEO model will especially help startups. Well yes, of course. Then there are also upcoming IEOs from Cryptobuyer, Matic Network, DUO Network, Ocean Protocol, and Evedo. Enough to demonstrate that something is going on, but not as yet a flood, and nowhere near the numbers for ICOs at their peak.
Another route to fundraising may well lie in a return to more traditional partnering or VC investment. One project which I am currently advisor to in Europe has dropped its original ICO planning, in favor of teaming up with a large-scale existing media partner, so clearly some of the older models of raising cash are still valid. However, when we look at the figures again, it’s perhaps worth noting that total VC investment in the USA is to date only two thirds in 2019 compared to 2000. So in actual dollar investment that source of funding has dramatically reduced, as other methods have enlarged.
What this all means is that fundraising in the cryptosphere is still in flux, as all the players seek to find the best methodology and instruments to help businesses get off the ground. As I quoted at the start of this post, “If you run out of numbers, you can just buy some more, right?” Well, no, but there is the sense that like any largescale building project, sometimes the plans have to be re-interpreted, no matter how great the architecture is. When that happens it’s down to the workers on the ground to figure out what adjustments have to be made, and I remain optimistic that we are steadily moving towards systems and approaches which will be effective in delivering the right degree of financial support to new, wealth-delivering businesses.
Learn more about fundraising in the second edition of my book: