Why ICOs run by established businesses are more likely to succeed ?

According to the Stratis Group research [1], 80% of ICOs run in 2017 were scams, which is close to the 90% rate of Start-Up failure rate. ICO projects are mainly performed by Startups, but as we noticed with the Kik or Telegram projects, established companies with a working product may also perform an ICO operation, also called “Reverse ICO”. We will see how these “Reverse ICOs” can mitigate the investor risk, improve the company services and benefit to the existing clients of the company that decided to tokenize its business.

Through ICO, a company can embrace Blockchain technology and gain international exposure

A “Reverse ICO” allows existing business to embrace Blockchain technology with a financing solution and gain an international exposure.

Let’s talk about Naga [2], a German fintech who successfully launched an IPO mid-2017. A few month after the completed IPO, they released an upcoming ICO announcement, boosting the stock-price up to 300% [3]. The ICO announcement of this German fintech made international investors curious about this relatively small regional company. This new way of raising capital allows small companies to rapidly acquire a worldwide exposure.

We can also mention Kik [4], a well developed messaging app that run an ICO. This existing business took a step forward by integrating Blockchain technology and could raise over $100m in 2017.

Finally, another example in 2014 at Harvard University [5], Nucleus Vision now gathers more than 40 team members developing IOT solutions powered by Blockchain technology for “brick and mortar” businesses. Developed in India and in the US, this established company has developed international exposure through their ICO process. In the first quarter of 2018, they managed to gather 5 Brand Jouses, 35 Brands, 2700 stores and expand their follower base across 200+ countries[7]. In the second quarter of 2018, they worked with Indian State governments and built a strategic discussion with Indian tech giants [8]. In just a semester, they gained international exposure and reinforced their regional impact on their historic business.

Investors can mitigate the risk through investing in ICOs led by established companies

As previously mentioned above, 80% of total ICOs conducted were identified as scams in 2017.

Investing in an ICO run by an existing business can act as a guarantee for investors, considering that the company has its reputation at stake and already available internal resources to support the product development. For example, Telegram that performed an ICO at the beginning of 2018 ($1.7bn raised) announced in September 2018 that their solution (TON) was 70% ready and the test launch was expected in the fall 2018, in line with the roadmap.

Also, investors can benefit from existing partnerships of the company running an ICO. For example, the OmiseGo ICO was backed by the company Omise that had already strong partnerships with McDonald’s or Alipay. The OmiseGo ICO project was well received by McDonald’s, that is working on introducing OmiseGo payment to improve customer’s experience [8].

Existing clients can benefit from blockchain-powered services

The use of the Blockchain technology inherently brings more innovation to an existing product. For instance, the creation of the Naga Coin brings new features to the existing social trading platform Naga such as a crypto-friendly debit card or a marketplace for gamers’ virtual goods [2].

By cutting the middleman, Blockchain technology also allows to be more cost effective which is an interesting feature for clients from established businesses. As an example, the project Tempo reduced remittance costs, while increasing payment speed & security through implementing Stellar blockchain crypto payments.

The reverse ICO may also help to spread the governance among users and clients of the company. In the Medium article [9] written by Trent McConaghy’s (Ocean Protocol’s founder), Trent imagines what the governance of Facebook may look like should a Facebook coin be introduced. Rewarding users to take part of the network could significantly change the business model of GAFA businesses. With the rise of discussions regarding online privacy and data ownership, tokenized reward model will be a way to solve problems to those questions while providing different income structures for the GAFA businesses. For example, users who wish to share data may be rewarded directly by announcers, and users who wish to pay through a Facebook coin for example will keep their data rights and have enhanced privacy.

ICOs run by established companies will become a norm. Indeed, they are more attractive to investors compared to highly risky blockchain projects led by start-ups, and companies have many advantages running an ICO if they want to tokenize their business (notably international exposure and blockchain-powered services)

However, if current services of the company do not necessarily need Blockchain, running an ICO would not be consistent. In that case, STOs (Security Token Offering) could be a good option for fundraising through financial innovation, and will be the subject of our next article.

[1] https://research.bloomberg.com/pub/res/d28giW28tf6G7T_Wr77aU0gDgFQ

[2] https://docsend.com/view/srsg4zw

[3] https://valueandopportunity.com/2017/11/17/the-naga-group-nagacoin-ico-double-pumping-the-cryptocraze/

[4] https://www.coindesk.com/chat-app-kik-launches-crypto-economy-kin-token-integration/

[5] https://docsend.com/view/sfdfg6p

[6] https://medium.com/@NucleusVision/nucleus-vision-is-going-global-645bd39347c7

[7] https://medium.com/@NucleusVision/nucleus-vision-partners-with-an-international-clothing-retailer-6c677345e70f

[8] https://cryptoglobalist.com/2018/07/20/mcdonalds-thai-and-omisego-omg-partner-to-introduce-omg-payments/

[9] https://medium.com/@trentmc0/tokenize-the-enterprise-23d51bafb536