Blockchain ICO Funding Pulls Ahead Of Venture Capital With Impressive Funding

  • 29 June 2017
  • Disruptor Daily

This will likely surprise some people to know, but initial coin offerings (ICOs) are beginning to eke out a path as the preferred way for blockchain entrepreneurs to gain funding. As of this moment, ICO funding has surpassed that of venture capital (VC) to raise much-needed money for startups.

During the first half of 2017, entrepreneurs raised over $325 million from ICOs. On the other hand, VC funding added up to about $295 million in the same time span. However, if you look back at 2016, ICOs accounted for less than half of the many million invested in blockchain startups during the time.

What Makes ICOs Special

If you have a grasp on what crowdfunding is, ICOs have a tremendous amount in common with them. Rather than having tiers of rewards like crowdfunding websites, investors receive tokens related to the service or product they were funding. Those tokens can then be traded out the digital currency, such as Bitcoin.

The company who is underlying these currencies, Blockchain, is becoming more firmly entrenched in financial institutions, as it offers a way to enable quicker processing while also cutting some of the costs. That is one of the reasons that investors are happy to jump into investing blockchain based startups.

Anna Sunnarborg, research analyst at Coindesk, explained that valuations might seem unsustainable, citing Gnosis, which was an ethereum based startup that tripled in token value from the initial price. “When considering the investment, you'd realize that Gnosis would need a $1.5 billion market cap to net you a return of 5x.”

There was also a case when DEO, another ethereum app, raised over $150 million through ICO offerings. A hacker went on to target the money, taking about $50 soon after the sale, which ended up leading to changes being required to avoid similar problems in the future. So is this change a good thing or one that will turn out to be bad? It’s anyone’s guess.

Pros And Cons

ICOs offer founders access to a large world pool of investors, rather than those in their local town, state, or even country. In addition, investors can receive quick and easy liquidity by utilizing this channel of funding.

Per Sunnarbor, “Investors have seen some extremely large returns in short time periods.” She explains that where are few regulations at this time when investing into ICOs. Some industry groups have made broad guidelines here and there, but most times, the limits are up to the company and investors. An example is when one company might accept funds from any country, while another may only take funds from investors in the United States.

However, on the other side of the coin, these business transactions are new. There aren’t a ton of cases out there that involve blockchain, so many are wary about how things will pan out in the long run. There’s no way to answer that, but it’s clear people have latched onto this investment type, so we’ll be watching to see where things go.

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