The ICO bubble has burst and many investors are picking up the wreckage. But have people forgotten the projects that raised money? Where are they now? The narrative expounded by mainstream media was that most ICOs were scams. Indeed, there were some ICOs that were truly scams (e.g. Magos).
While I don’t believe most ICOs were scams, there were many low quality projects that were raising millions of dollars. Many of these projects were doomed to fail for a few reasons including: low quality teams, unrealistic business models and technology challenges. One year after the market peak in January 2017 it is worth looking at how one project that raised money is doing: Nau.
Nau billed itself as a platform that linked customers and retailers together via digital coupons. A retailer that wanted to attract more customers could put an offer on the platform that a customer could redeem for a discount. Nau said it would charge a 5% fee of the value of each redeemed voucher. Nau started its ICO in Oct 2017 and raised $13 million by December 2017.
I first looked at Nau when I reviewed their ICO in late 2017. I identified a number of problems with the ICO and business model and believed that there was not a compelling value proposition for investors. The token that investors would be buying would be the same as the token received by users who use vouchers. How would the token increase in value and give investors a return? It is not clear from the project materials.
Beyond problems with the token, there were fundamental issues with Nau’s overall business strategy. According to Nau’s investor documentation, they planned to open offices in five countries (Colombia, Philippines, Germany, Russia and Ukraine) immediately after the completion of the ICO. I would expect a startup would first choose to focus their efforts in a single location in order to reduce costs and refine the product. Immediately setting up offices in five countries was a red flag for me.
As of January 2019, the project is no longer active. The main website Nau.io no longer works and goes to a blank page. The last activity from the project team on the Telegram page took place at the end of December 2019. Volume for the NAU token on the Yobit and Coinmarket exchanges is close to zero. The final post from the Twitter account was in October 2018. There has not been any activity since then. Finally, the CEO’s LinkedIn profile indicates that he no longer works at Nau as of January 2018. Nau is clearly a dead project.
Why has Nau died? It is not entirely clear, but I can make a guess. They ran out of money. Nau raised most of its funds in Ether, which peaked at over $1400 in January 2018. One year later, the price is hovering at just over $100. If Nau raised $13 million in December 2018 (when ETH was still over $1000) and they did not sell enough ETH when the price was high, that $13 million could look closer to $1 million today. Combined with extremely high travel costs due to all those trips to far-flung offices and we have a recipe for failure.
Lessons from Nau’s Failure
Nau is a cautionary tale for investors in startups. Most startups end up failing, and not because they are mismanaged or have a terrible idea. It is simply hard to get a new business off the ground and make a profit. ICOs gave retain investors the ability to invest in startups easily for the first time, and most retail investors did not have the experience or knowledge to identify winning projects from losers.
Once way to do this is to ride on the coattails of professional investors. When investing in early stage companies, it is good to see if there is Venture Capital support prior to making an investment. As far as I can tell, Nau did not have support from any professional VCs. VCs are professionals and can vet companies at the angel investment phase. Most retail investors do not have the experience or knowledge needed to invest in the earliest stage companies. However, by looking at who else has invested, a retail investor stands a better shot of investing in a successful company.