Why ICOs fail? Are they still worth?
The number of ICO’a has increased exponentially during the last year, nevertheless, not all of them have been successful. With the increase of the number of ICO’s in the market, the number of the failed ones has also increased. In order to achieve its goals a company planning to do an ICO has to do a lot of research.
Let’s go ahead and see which are the reasons for ICO failures? After performing analysis over 20 articles and research papers regarding the possible causes of the failure of ICO projects, the results were:
- Inadequate product Market. Is the main reason of an ICO failure, meaning that the product or services offered are not adding value in the market. Companies developing a blockchain-based project most of the times do not have a clear view about the industry or audience they are targeting.
- Marketing and Advertisement. ICOs fails because the investment made in marketing and branding is scarce or not sufficient. From the Whitepaper to website, to the selection of colors, logo visuals and fonts, everything will be questioned by clients, investors or users. Not only that, but some of the projects failed because they partnered up with the wrong ICO advisors that didn’t take enough care of the project.
- Security issues and scams. Either someone damages intentionally the project or a major coin theft or data breach happens destroying the reputation of a project. During thelast 2 years, the number of scams has increased and also worthless projects are being developed.
- Untrustworthy or nonexperienced team. To increase the reliability of a project the experience and overall profile of the founders or main team should be verified. Not only that, but also their ambition might make them not work enough on the business model to make it attractive for a larger pool of investors.
- Low entry barriers. ICO’s are launched without having a MVP and even the proof of concept. Although what they don’t take into account is the competition within a small tarket market where users and investors represent a little percentage of the entire investment market.
- Short-term investment. Founders fail to justfiy the long term value of the tokens and if it will increase over time. Most of the cryptocurrencies present short-term investments options without putting a lot of emphasis on what can happen in the future.
- Lack of audit & legislation. It is known that the majority of ICOs fail because they are launched by newcomers with limited knowledge of online marketing or do not apply basic rules for a consistent auditing, measurement and reporting to improve ICOs. Nevertheless, we can also add the absence of a clear regulatory scene that can cause legal problems for some projects.
- Cryptoeconomics. The founding team of a blockchain project is mainly formed by developers or people with a more technical background for whom the economic part is not as relevant as development. Token economic skeleton it is crucial to determine the success of a project, nevertheless it is not always clearly defined.
- Lack of utility. A blockchain-based project needs to prove a future utility. To maximize the utility of a token a company must define the features and purpose of the token issuance and analyze whether it is needed or not.
- Regional disparities. This happens when a project is too specific for a cryptocurrency use and it is limited to a geographical area. This type of projects it is very likely to fail since they are applicable just to a very limited market.
But, which are the factors that can predict the success of a project? According to Marketing Scienc & Inspiration research the following aspects define the ideal ICO:
1.A team with proven ability to execute.
2. Business viability check.
3. Technology check.
4. Efficient use of funds and business-based thresholds for minimum and maximum raise.
5. A defined legal framework.
6. Scam protection.
7. A transparent ICO process.
9. Controlled release of funds.
10. Delayed founder liquidity.
As a conclusion, ICOs can be useful, nevertheless there is a lot of hard-work behind them to be done in order to succeed.