Who really should be doing ICOs?

A closer look at which industries receive VC funding VS ICO funding

The number one use case for blockchain technology has arguably been the concept of the Initial Coin Offering (ICO). Before the ICO stormed the scene nearly all startups looking to scale would have to raise funds through established funding models such as through VC’s.

Then along came a Blockchain called Ethereum and a thing called ERC20 tokens. Basically anyone with coding expertise could come along and create these tokens on the Ethereum network. Along with the timing and the hype surrounding cryptocurrency it became so easy to raise millions of dollars with very little effort.

Formula on How To Raise Millions of $$$

ICO =

1. Fancy looking landing page Website

+

2. A White Paper consisting of a few pages with high level promises of disrupting something.

No Business model, MVP or Prototype required. In a lot of cases not even a proper team behind the project. Even Kickstarter campaigns raising far less requires a greater amount of effort to run.

Why ICO?

It has been an easy path for many startups to raise big money for their projects because the ICO model allows you to bypass many things such as:

• Unregulated market with virtually no oversight by government organisations
• Access to the Retail Investor. Many jurisdictions only allow startups to receive funding through investors classified as an Accredited Investor. In the US crowdfunding can get you $1 mill but what’s a person to do if you you want to raise $4 billion like EOS did?
• No MVP or Prototype required
• Raise funds first then build team later
• No need to answer to investors demands or anyone else’s for that matter
• Crowdsourcing across borders
• Get rich quick

Of course there are many projects that are genuinely on the path to building something revolutionary with Blockchain technology. Is it fair to say 90% of ICO projects will fail? The ROI on ICO projects cannot be accurately calculated because not enough time has passed. ICO’s after all only came about in 2016. Will it be higher than the funding in VC and the returns you receive there? It will be interesting to see in a few years time what the investment returns will be.

Legit Startup Funding

Looking at the VC funding over the years and where they put their money not all startups need to go through the ICO model. Those startups with actual intentions of disrupting certain industries can receive funding through traditional means.

Here is a breakdown of the different industries that have received VC backed funding over the years:

When we look at the numbers nearly all use cases for the ICOs out there have the ability to receive funding. Most of them are related to building software DAPPs.

Some sectors which are under represented in funding could perhaps be seen in the Energy, IT Hardware and Media industries.

Funding By Region

Depending on the location of your startup, funding may also be limited. Here is a chart showing where funds went across the globe:

Most funding is still going to the Americas and the Asia Pacific regions. Leaving Europe as an area with a smaller slice of the pie.

Where ICO Funds Go

Looking at where investors poured funds into ICO projects:

When comparing the above industries to the ones being under funded by VC’s, we can see that the Energy and IT Hardware sectors are also still under represented in the easier to access ICO market. Media seems to be getting a healthy dose of funding in the ICO market even though they are not in the VC path.

Going one step further and looking at the regions receiving ICO funding:

North America is by far raising the most amount of funds in the ICO space. This is consistent with funding in VC where America also comes out on top. Then we are followed by Europe which is under funded in the VC world. Asia seems to have a small slice at 9.76%. Compared to how Asia fares in VC funding where they received 44% it is quite a noticeable difference. Africa is so small it doesn’t even register on both charts.

Who Should be Doing an ICO

To level the playing field if I was a startup which fit into the below areas I would consider going through the ICO route to secure funding for my project. The traditional route may provide some past obstacles that the ICO route would better serve.

Similarly from an investor’s perspective if I was looking at some ICO’s to invest into with the potential to disrupt I would consider these factors also. Of course it should be said that any ICO investment presents one of the highest risk investments that can be currently had. As always do your own research when deciding where you put your hard earned money into.

If I was a legit Software startup in North America I would just stick to Silicon Valley funding.

1. Energy and IT Hardware Sectors

A startup focusing on use cases relating to Energy and IT Hardware because they traditionally receive less funding from VC’s.

2. Africa and South America Region

North America is well funded in the VC and ICO world. Asia receives a lot of funding in VC but not in the ICO world. Europe is a region whereby less VC funding flows to but they get a fair share of the ICO funds.

A huge region of Africa is an area that has had a very hard time securing funding. Similarly the story is pretty much the same in South America.

Therefore an African or South American startup having a hard time securing funding might find it easier to secure funding through ICO’s.