Fundraising in a bear market
“Donors don’t give to institutions. They invest in ideas and people in whom they believe.” — G.T. Smith
In my previous blog post, I discussed partnerships and this time around I will discuss another area of our business which I am responsible for, (and is giving me sleepless nights) fundraising.
End of Initial Coin Offerings (ICO)?
Most people are aware of the current difficulties with raising money for blockchain projects. All you have to do is rewind 12 months and you will see that US$ 1,661,801,246 was raised by ICO and when compared to November 2018, a drop of 89% to US$ 179,388,071.[i]
Furthermore, ICO during the second half of 2018 raised less every month when compared to the same months in 2017, this trend is expected to continue during December once figures are available.
It is not all doom and gloom though, during January to July 2018, the funds raised by ICO exceeded the total raised in 2017 and there have been 1,224 ICO in 2018 compared to 876 in 2017. I should highlight though that over half of the amounts raised in 2018 were all in Q1.
By conducting a basic search, anyone can see that there are nearly 50 million unique Ethereum addresses[ii] which implies that adoption is increasing so why are ICO projects (generally ERC20 compatible) seeming to diminish?
Market conditions have naturally made potential investors nervous, Bitcoin was approximately US$13,000 at the end of 2017, compared to US$ 3,855 at the time of writing. This represents a decrease in price in excess of 70%.
What has changed for investors?
Investors in the crypto space are now smarter and appreciate the risks a lot more.
Basic questions being asked now are;
- Can this project be run without the use of blockchain?
- Does the middle man really get removed?
- Is there a new process which was not available before?
- Is there a current process being improved?
A substantial number of investors have been scammed by projects, some which never launched and some who failed to deliver what they promised within their whitepaper.
This is resulting in investors looking for more information in a VC type of way. A whitepaper and a team are no longer enough and a minimum viable product (“MVP”) is a must so a demonstration is available of what the final project is expected to look like.
Other information which should be considered as ‘standard’ would be items such as legal structure, go to market strategy, business model, traction on social media, revenue projections and expenses, competitive landscape, tokenomics and pitch deck.
Security Token Offering (“STO”) the next trend in 2019?
Investors are looking for traditional benefits, and this is making STO appealing.
For example, security tokens are actual financial securities, which are backed by something tangible like the assets, profits, or revenue of the company. This is not generally the case with ICO.
More companies are trying to adapt to the ever-changing landscape. Using Polymath as an example (and not investment advice), they are “a decentralised platform that allows the creation of security tokens. The Polymath ST-20 standard embeds regulatory requirements into the token themselves, restricting trading to verified participants only.”
This sounds more robust and appealing than an ICO and I found out recently at the Hong Kong Blockchain Summit that Polymath already has in excess of 50 securities created on their platform.
In the US, the SEC has warned that many ICO can be securities offerings. This means that the issuer must register their tokens as securities or seek an exemption.
Having considered all factors, some of which are mentioned above, we have decided at PlannerScape to not pursue an ICO or STO at this stage and instead continue conducting the private sale with opportunities to acquire equity. We are also assessing the merits of an Initial Exchange Offering (“IEO”).
More details on this decision can be found on the recent blog from our CEO, Wouter Van Der Schagt on ‘How PlannerScape adapts to changing environments’.
It is still possible for interested parties to participate in the private sale. Please contact us in case you are interested to learn more about the possibilities, including the referral incentives.