With $10 Million Being the ICO Average Venture Capital is at a Crossroads

cryptocurrency investment

Initial Coin Offerings (ICOs) are similar to initial public offerings that the stock market world has come to know and love. ICOs are becoming really popular and for good reason, too. They have raised more than US$2 billion in only the past 2 quarters (2nd and 3rd) of 2017. Te sheer number of ICOs that took place in this time (212 in total according to TokenData and CoinSchedule) has put the average value of one ICO at around US$10 million.

How Have ICOs Performed in the Past?

If you look at this $10 million average figure and compare it to the value of angel or seed funding companies in the same time period (the last two quarters), the multiplication factor is nearly in double digits. Their performance in the initial quarter of 2017 was still pretty good, with just 18 ICOs happening and a total of US$77million being raised. This means that ICOs had been valued at just a little over US$4 million apiece.

Sentiments of New Blockchain Startups

Blockchain startups are losing their taste for conventional venture capital funding because it just doesn’t give them such a high return. They are more inclined to having ICOs for raising capital in the start. This is evident by the fact that the second quarter of 2017 showed a rise in venture capital funding but declined to a lowly US$73million by the end of the third quarter. ICO funding rose by US$1.3 billion in the same period, showing increased confidence of startups in ICO.

Investors Setting Aside the Warnings

Investors are ignoring repeated warnings by governments, banks and conventional investors about cryptocurrencies being a bubble. They’re still investing in cryptocurrencies like there’s no tomorrow. Maybe they think that traditional investors saying this are luddites and are not supportive of their logic behind cryptocurrencies. Whatever the case is, the numbers speak evidently for themselves.

Numbers Aren’t Lying

Cryptocurrencies have become valuable trading assets now, despite what the naysayers have to say. Bitcoin was less than just $1000 at the start of 2017, and now look at it. It has crossed the $6000 mark and is now hovering around US$5600. Ether is second in line to the bitcoin. It is the coin that powers blockchain technology Ethereum and is the basis of many of the ICOs. They have surpassed the bitcoin in terms of growth. The Ether that was at US$10 at the beginning of 2017, is now standing at US$300.

The Problem That VC Funding is Facing

There are no set rules to value an early stage startup for VCs — usually negotiations based on future projections is the best way that this can be done in the VC funding scenario. The mandates will not allow the VC firms to invest in companies only starting out without having a stake in them. This goes double for the unregulated blockchain arena, where red flags pop up at a moment’s notice.

The Startups tend to end up with too much funding or lose out on it by dilution of their equity with ICOs. Good ICOs are also risking over capitalization as speculation by investors could leave them really in the money or out of it. It’s simply too early to say what will happen.

 

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