Why some ICOs are failing their early believers…
From the gold rush days of 2017, to the more subdued releases of 2018, everyone and their mother-in-law are enthusiastic about ICOs. The bumper growth in Bitcoin and other cryptocurrencies has fueled the growth of ICOs and the massive amount of funding which is being pushed into them. There are predictions from market experts stating that 99% of all ICOs may fail. Also, articles like the one from Forbes, state that about 50% of Bitcoin fueled ICOs from 2017 have collapsed .
With the industry going the Wild-Wild-West way, it’s hard to attribute realistic numbers and predict trends, as the answers are always in grey, rather than black and white.
While the numbers and the credibility of the thought which creates them, stays ambiguous, DSHG Sonic looks at some of the ICO projects we have worked on, or advised to, and delves into the possible reasons of the foreseen failure of the ICOs. Also, our background as a startup founder also helps us compare and contrast between a Venture Capital backed startup and an ICO backed company, based on our own experience.
1) Marketer vs. a Viral Growth Hacker
A lot of the ICOs went in with a view of viral growth of their community within a short span of time and get the maximum bang for their bucks(token sales), which is a good ploy, when you want to be a mile wide and an inch deep, as you are looking for maximum exposure.
The above worked fine until the stage of the token sale, but post that stage there was a need to get back to the basic marketing practices which ensure continued communication with the investors. A lot of ICOs faltered and continue to falter at this step. There is always a need to keep the core community engaged to ensure their continuous interest in the product development phase, which they ignored. For a Venture Capital backed startup, the Board ensures that marketing and communication is as much a priority as product development. This is what was missing at times with the ICOs.
2) Unrealistic Objectives and Budget Allocation
As we all know, most of the times, preparing cost sheets for startup funding is as good as pulling numbers out of thin air. That being said, there are startups where cost sheets have loaded details of budget and allocation, and most Angel Investors and Venture Capitalists authorize the checks and balances to keep deviation at a minimal, from what was forecasted or predicted. This doesn’t make the data right (in case of a deviation) but ensures that the founders are more responsible for conducting the processes around monthly or quarterly reviews.
ICOs, unlike the above, have much less rigor around reviewing numbers for cost and budget, post the token sale stage. Also, almost zero oversight from the Board members, each of them typically participating in 6–9 ICOs, results in the lack of checks and balances. After months into the product development phase, it is often noticed that the organizations are way off the predicted financials. At this stage it’s practically impossible to go back and then begins the slow spiral death of the envisioned product due to scope reduction or unplanned phasing of product releases.
3) Real World Applications
Another primary reason for the ICOs failing has to do with the real world application of what comes out of the ICO product development phase. Some of the assumptions made around the real world use of the product to be created, are sketchy at the best and at times hilariously unrealistic, especially for the serious amount of money raised. Also most ICOs today are selling tokens, solely for the purpose of raising funds, rather than actually making a fundamental shift of the underlying solution, due to the use of the Blockchain technology.
Other risks has been around startups ending up issuing Securities instead of Utility tokens unknowingly, and becoming a victim of the SEC’s wrath (as done in the recent days) for blatantly flouting the rules around offering Securities. This has also pushed some of the ICOs to go only for private sales to accredited investors. Even then the rigor has not been as strict as what a startup would face if they had approached the same problem with a non-ICO or a non-Blockchain based solution. This rising tide now is lifting all boats, but a high tide will always be followed by a low one.
4) Basic Blocking and Tackling
As most folks who have run companies may realize, there is more to running one than just tackling the product development and marketing functionalities This includes planning, strategizing, managing operations, legal, HR and all the other mundane functions. In a startup which has investor money, these functions are considered equally important, as they help preserve the maturity of the company, which in turn helps attract the next round of investment.
A lot of ICOs have forgotten the basics of these simple blocking and tackling functions, which has resulted in the organizations having a skewed maturity within these areas. Many ICOs even lack Website updates, explainer videos, PR, conference attendance information etc. Also, when budget becomes a constraint these non-critical pieces get further pushed under the rug, resulting in an organization which seems unable to make it all work. If we look at most of the ICOs, there are very few teams who can run and organize these areas in a well-rounded fashion.
5) ROI and Road-map
Most ICOs oversimplify the road-map on their websites or in the initial documentation which showcases the token sale dates, pre-ICO sale dates and post-ICO sale dates. This is all fine and dandy, but only for a short term.
Very few ICOs have the details around the post product launch, customer acquisition milestones and scalable growth milestones. These are all considered as problems to be tackled later on, once the ICO money bar is met. This skews short term thinking within the founding team and doesn’t augur well towards a long-term ROI based vision for the company.
We feel that besides the real-world application issue discussed above, most of the other issues can be handled easily as long as these ICOs look at themselves to be in the game for a longer run (7+ years), rather than operating on a get-rich-quick scheme resulting in an early wind-down.
DSHG Sonic is a new age consulting agency helping startups and ICOs create and execute a coherent strategy across product, sales and marketing. We help companies by playing the role of a part time COO and help the founders completely focus on the core product building activities, by ensuring that the company operations run smoothly. Please feel free to get in touch with us at email@example.com for any further information. You can find more about us at www.dshgsonic.com