Black Insurance ICO has ended with insufficient funds raised and the token buyers are getting back their money as I’m writing this. Below, we look back at the experience and where it has taken us, and provide some indication on where Black is heading to next.
Road to the ICO
My colleague, Black’s founder Risto has been an insurance entrepreneur for 20 years, and with every year, a conviction had been growing with him: insurance needs more than a band aid. The entire thing needs to be taken apart and put together in a new, better way.
With the maturing of the blockchain technology and the introduction of ICO-s as a revolutionary startup funding vehicle, he spotted an opportunity — why don’t we decentralize insurance by moving the entire fragmented insurance value chain to shared ledgers on blockchain?
In fall 2017, Black Foundation LLC was incorporated in Tallinn, Estonia, a seed investment collected from the founders and their friends towards a plan to build an entirely new type of insurance ecosystem.
And with the idea this ambitious — why don’t we tap into the crypto investor crowd instead of trying to convince the traditional investors? Thus we decided to conduct an ICO.
Black hired a team of 5 people to cover business, marketing and technology, and partnered with a team from the Tallinn University of Technology led by the world renowned blockchain scientist Prof Dr Alex Norta who is behind whitepapers that have raised more than $360 million.
When we budgeted the ICO, the market was hot and multi-million (and even multi-dozen-million) ICO-s were raised with marketing and team costs in a few thousands of dollars. Our cash reserve was of the same range.
We partnered with another Estonian startup Crowdcoinage and developed a proprietary tokensale platform together. Since funding insurance schemes through Security Token Offerings (STO-s) is a part of our business model, it made sense to build our own platform that we could use for both the ICO and the future STO-s. It’s good by the way, clean and with an exceptional UX. Get in touch with Crowdcoinage if you ever need one.
Once the business and technical plan started to come together, we discovered (actually quite surprisingly) that the insurance industry, even down to the most traditional firms, really like the approach. Insurance media took notice, emails and Linkedin invitations started to trickle in and interesting partnerships to form. We felt confident.
Not so fast!
However, on the funding front, things started to sour. We visited about a couple of dozen conferences in US, Asia, Middle East and Europe, and pitched Black to more than 120 funds. The crypto funds had become wary of ICO-s. The VC firms on the other hand didn’t want to have anything to do with ICO-s: “Nice plan, guys and gals, but please come back once you stop with this ICO nonsense.”
While the investor appetite started to cool down, the competition became more fierce with the number of ICO-s increasing. Successful ICO-s that we knew of went in with the marketing war chests of up to ten million, to raise only a couple of dozen millions. Our “some hundred thousands of dollars” cash reserve looked awfully tiny all of a sudden.
With increasing competition, the entire game turned more desperate and fierce with fraud and scams becoming a norm rather than an exception. Putting aside the countless small-time scams we were approached with regularly, there was a case where we won a $33K cash prize supplied by Blockchain Investors Consortium on the D10e Tokyo conference pitch contest, but we just never received it.
The Flop, the Turn and the River
To go with a poker analogy, most of the cards (“the flop”) were now on the table and it didn’t look good for us. But since our chips were already on the table, we decided to still try. ICO market could recover, and also our insurance industry cloud amount to something. We decreased the hard cap to $5 million and postponed the ICO from August to October.
The October 1st start of the public pre-sale dealt us with the second to last card — “the turn”. A few purchases trickled in but almost all from our friends. The marketing budget was extremely limited and since the marketing unit cost exceeded the purchase value anyway, there was not much we could do.
The start of the public sale on November 1st dealt us with the final card, “the river”. This decided the entire game and unfortunately we lost. Besides one token swap of $100K and the bonus tokens for our equity investors, we raised about $40K with the entire affair. For this amount, we can’t build the Black platform and launch the business.
It’s also not enough for listing on an exchange and more importantly, to support any token economics that would involve appreciation. It would be just another worthless sh*tcoin. Therefore we saw no other choice than announce the Black ICO dead.
What Does it Mean for the Stakeholders?
- Token buyers get back their crypto. We have already contacted everyone and received instructions from most.
- Bounty program participants and the rest of the team worked hard to make the Black ICO succeed but unfortunately we failed. I, too, have an agreement to receive BLCK tokens for compensation but I won’t even bother claiming them since I know for certain that they aren’t going to be worth anything, ever.
- Our seed investors lost a few hundred thousands on the ICO but the spirits are strong and they will continue supporting us.
- Black Insurance will push ahead.
What’s Next for Black?
Thus far, as many as 63 insurance brokers around the world have signed up to design, launch and sell insurance products on the Black platform. Together, these brokers sell a whopping 1 billion euros worth of insurance annually. Moreover, the wider insurance industry besides the brokers have quite unequivocally confirmed the feasibility of our model.
They share our vision that insurance must turn into a lean, cost-efficient, customer-friendly affair with the help of technology, similarly to how Uber has put taxies in a smartphone and Spotify has turned record shops redundant.
There’s a clear chance here to jump through this window of opportunity. We will make it happen.
The next immediate step is to raise an equity financing round, to then accomplish the following over the course of the next 12 months:
- Create the technical platform. We have some building blocks and know how to build the rest.
- Get an insurance license. We will acquire our own, or get to use one through a partnership.
- Launch the business and achieve the first revenue.