Startups in the sector are increasingly supporting ICOs over VC funding
ICOs are at the source of a lot of noise and discussion in the blockchain and cryptocurrency industry. The Blockchain Conference by Beyond Blocks, held earlier this month in Bangkok brought to light the large debate on the topic. The Conference was home to a lot of conversation on the topics of cryptocurrencies, ICOs, and blockchain between startup founders, investors, and the participating and interested audience. One of the factors that became quite clear is that startups in the sector are increasingly supporting ICOs over VC funding.
The Growth of ICOs
2017 was the year in which ICOs raised $2 billion in blockchain investment and established them as a coveted fundraising method. In April 2017, ICOs had accounted for $250 million in funding. By June, funds raised through ICOs had surpassed $550 million, which was more than that raised through VC funding. In fact, companies that could not raise funds through traditional VCs raised between $2 million and $10 million through ICOs, and that too within a fraction of the time.
But what caused this phenomenal rise in the popularity and implementation of ICOs?
The Appeal of ICOs
One of the motivators of the growth of ICO as a funding method is the highly competitive nature of VC funding. In a disruptive technology like blockchain and cryptocurrency, you witness numerous startups being established every day. They’re all fighting for a piece of the same investment pie. The search for a more effective means of fundraising was a matter of simple evolution — ICOs were the next step. Approximately 75 new ICOs are launched globally every day, but this is a very tiny number when compared to the 500,000 startups looking for VC funding on any given day.
ICOs have also really opened up the investment market for startups. Earlier, startups relied on VC funding, which was most often more about larger investments for longer terms. ICOs allow retail investors to be part of a growing sector that would otherwise have been inaccessible to them. Individuals who are interested in the disruptive technology of cryptocurrencies, blockchain, and Bitcoin amongst others can now partake in their growth by investing in ICOs. Another cause for the increased size of the investor pool is that ICOs offer the benefit of easier and greater liquidity. ICOs allow investors to get a return on their investment quickly and to ride the wave of success of the startup. This is a pivotal factor that positively influences investment decision in a sector that has such diverse opinions.
At its crux, the preparation for an ICO does not vary greatly from that of a VC pitch. ICOs are preceded by whitepapers that share details about the product, its application, the founding team, and more. In other words, startups provide VCs with similar details in a pitching deck when it comes to traditional funding. When you look at this from an investor’s perspective, you see that the decision making process isn’t affected adversely or too much either. Whether it’s VC funding or ICOs, the startup is showing you the same information that you want — the offering and the caliber of the team building the business. On the other hand, from a startups viewpoint, you’re not deviating too much from a known and trusted practice when it comes to building a pitch deck. You just have to prepare what it is that you want your investors to believe in, and how to show it to them.
Additionally, with an ICO, startups get to pitch this information internationally, without having to travel halfway across the world or country to meet investors. As long as they pre-plan well enough and put their whitepaper and ICO information out there a couple of months before the launch of the ICO, startups will be able to engage all names in investment, big and small. It’s no surprise then that ICOs are becoming so popular with startups in cryptocurrency and blockchain. Yet, the challenges involved have led to many startups voicing hesitation in the method.
Read the rest of the article here and discover more about the challenges in ICOs and how these can be overcome to increase the appeal and success of ICOs as a fundraising method.
(This article originally appeared on Forbes, penned by Oddup CEO, James Giancotti. Read more of his Forbes contributions here.)