By David Drake
The number of startups that seek to raise funds through initial coin offerings (ICOs) has quickly risen over the years. In the first five months of this year, 537 startups launched ICOs and managed to raise $13.7 billion to finance blockchain-based projects, according to the recently published global ICO report.
This milestone is particularly significant as the dollar amount raised this year is cumulatively more than the amount raised in preceding years. The ICO report attributes this milestone to improved focus on fundraising, investor relations, as well as best business and legal practices among companies.
Still, more startups are in the process of raising funds. They include Bitque, a social peer-to-peer platform for hedge trading and crypto exchange and IOU, a platform that seeks to revolutionize e-commerce. Others are URAllowance which facilitates parent-children interactions; AnthemGold, a blockchain-based precious metal trading platform, and Bank52, a system that enables collaboration, smart data and networking in the banking sector.
Nevertheless, there seems to be challenges in both the implementation and sustainability of tokens or coins created through ICO projects. Data availed by Coinopsy and Deadcoins shows that at least 1000 coins created through ICO projects are now dead. This points to an urgent need for an upturn in the success rate of ICO projects to sustain investor interest in the cryptocurrency industry.
But what is the real challenge with ICO project implementation? According to Yoli Chisholm, Chief Marketing Officer at RoleCoin, the hyping of non-existing projects could be one of the reasons why ICO projects are not kicking off as intended after successful ICO campaigns.
“What might be contributing to ICO failure is the initial hype that was around early ICO’s where companies that were essentially ‘white paper companies’, aka vaporware, with no real proven business behind what turns out to be an idea that remains undelivered months later. To the detriment of companies that have come out later some with more substance for example with RoleCoin we are a business with paying customers, real partnerships and a product that is live in the app store,” she says.
Another major reason is high speculation in the market and the lack of industry standards to guide ICO processes. In addition, low investor knowledge on the cryptocurrency industry could have contributed creation of scam coins that could not stand the test of time according to Maverick Barona, CTO at Playfold.
He says, “Speculation drove token values to the moon. When the market is unregulated, it’s fairly certain that not all of the rockets are going to make it. Lacking industry standards and knowledgeable investors, the inflated token value has collapsed scam coins and legitimate teams alike. The technology is still maturing and interest in long term growth is validated by clearer legal understanding. Project communication, consumer education and community involvement are the mark of a living and learning startup culture.”
A stable market is necessary for any business to thrive. This is lacking in the cryptocurrency market according to Reginald Ringgold, founder of BlockVest DEX and a founding member of the Blockchain Exchange Commission,
He says, “It’s ‘Hard Cap or Hard Slap’. A Hard Slap in the face when the reality sets in that your ICO is not reaching even its soft cap. Most ICO projects are not successful because of the lack of stability in the markets for digital assets, regulation of all financial markets is important. We must ensure that speculative investments such as tokens and coins whether utility or security are secured by sufficient equity.”
A Return to Basics
Startups that want to raise funds through ICOs should uphold the same principles as any other business. This, coupled with having clear solutions to problems that affect people, will improve the success rate of ICO projects, according to Jori Falkstedt, CEO at GlobalSpy.
He says, “In my opinion, for ICOs to succeed, there must be a clear problem that you can solve. The problem must be big enough so masses are ready to pay for it. You must have a clear solution to fix that problem and you must explain it so a 10 year kid can understand how you are solving it and why it could be difficult to others.”
Further, Falkstedt emphasizes the need for an experienced team to deliver on the ICO project. “You must also have a great team to process your coming growth and most importantly, be an entrepreneur yourself. A team that has good and successful history in leading companies will help. A ready product is a must have. Even if it is in the form of a simple version, it will help a lot to let investors understand what you are going to do,” he adds.
Agreeing with this, Alex Karasulu, founder and CTO of OptDyn, makers of Subutai Peer-to-Peer Cloud computing platform adds that rigorous vetting could help improve ICO project success.
He says, “ICOs are now rigorously vetted, need to demonstrate mature viable products, and have experienced and trusted leadership at the helm. Investors are no longer accepting theoretical ideas with nothing but vaporware to show for it. Furthermore, a feasible business plan is needed to bolster the product and the company behind it. The industry is going back to basic principles.”
On his part, Steve Dryall, the CEO of NIKO Coin, feels the rate of ICO project failure will reduce with time.
He says, “The failure rate of projects and ICOs will eventually fade as we see more investor protection created through both traditional and decentralized systems. Every new era has waves of ups and downs that can be riddled with questionable endeavours. We will likely see a very different world of cryptocurrencies and blockchain projects over the next 6-12 months. Those that are still viable after that time will likely be in it for the long term.”
Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.