ICO Zombies Are Coming

As we all know, more and more startups are raising funds via the ICO mechanism. Quite a lot of them do it pretty successfully, I’d say much more than in a traditional startup world with VCs and angel investors who are definitely pickier.

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We are all aware that most of these ICO startups (their business models) will fail. But what will happen to them afterward?

In a “traditional” world, when a company runs out of money it either goes bankrupt or it gets acquired by some other company (for talent or patents). But in the crypto world things can take a surprising new path.

A path of a zombie startup

Imagine a startup that did a successful ICO. After, they expand their team, start building their great decentralized idea and launch the first version (let’s ignore the fact that most probably won’t come even this far).

There’s a lot of excitement in their little bagholder community and people start trying out the product. Token price is mooning and lambos are cruising.

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But soon the hype is gone and the “active users” KPI is in a steep downward trend. People go back to their old, faster, cheaper, more stable and featureful centralized solutions.

The startup tries as hard as they can: they add new features, they lower the fees, put a lot of money into marketing etc. But the results are mixed. They get some new active users but all in all, they don’t generate enough stable monthly revenue to break even — let alone to be a multi-billion unicorn company they always dreamed of.

Luckily, they still have most of their ICO funds

You see, they didn’t convert all of their BTC and ETH into fiat, except for smaller chunks each month to cover the payroll.

In the meantime, Ether and Bitcoin valuations are steadily rising which basically means they burn less and less (they have to sell less crypto to cover expenses). So even though the company has very little revenue from its core business, it can still exist for decades because of the funds from their ICO.

They become a zombie ICO company

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It’s hard to say what to think about this kind of companies. On one hand, they employ people which generally is a good thing (lower unemployment). But on the other hand, there’s an opportunity cost because these employees could be doing something more meaningful.

Also, what if (or when) at some point the founders figure out that their ICO idea is shit and will never work, but because they didn’t run out of the ICO money yet, they just keep the charade going and proclaim at each New Year’s Eve that the upcoming year is THE year. At least from a moral standpoint, they should shut down the company and return money to token holders. But what about all the employees with families and children… It’s a tough call.

Don’t confuse zombie ICO startups with zombie tokens as explained in this article. But zombie startups will most likely also have zombie tokens, so there is some common ground.

Let me know what you think in the comments below. If you liked the article please hodl the clap button ;)