Recently, we found that, for 2018, the amount of money being raised by blockchain and blockchain-adjacent companies via traditional VC rounds is on pace to surpass 2017’s highs.
But despite more than $900 million in recorded venture funding in 2017, and more than $375 million in known venture funding for the first two months of 2018 so far, traditional VC rounds — convertible notes seed, angel, Series A, Series B, etc. — now pale in comparison to ICOs in terms of dollar volume.
Chances are that if you’re reading this, you’ve at least heard about initial coin offerings (better known by their initialism as “ICOs”). Even if you’re not a traditional VC, you may have invested in one.
The original aim of bitcoin and most of its many descendants was to up-end a monetary system reliant on central banks and trusted third parties. It’s no small wonder that crypto-enthusiasts have devised a way to circumvent the old process of raising capital to fund new projects, which traditionally is deeply embedded in old-school banking culture and trust.
Today, we’ll take a look at just how quickly ICOs came to dominate blockchain startup funding and get an idea of the scale of capital inflows into this new funding instrument.
ICOs: Fewer deals, but bigger deals than VC
For all of 2017 and the first two months of 2018 at the time of writing, Crunchbase data has captured a total of 527 venture capital rounds and ICOs raised by companies in its bitcoin, ethereum, blockchain, cryptocurrency and virtual currency categories.
The chart below shows how that population of rounds breaks down between traditional VC and initial coin offerings.
At least according to Crunchbase data, the number of ICOs raised in the past 14 months is smaller — by a factor of almost half — than the number of venture capital rounds announced by blockchain and blockchain-related companies.
But despite the smaller number of ICOs, these funding events — on average — attract much more capital than the average venture funding round. The chart below shows the breakdown of capital raised between VC rounds and ICOs with known amounts of capital.
Over the past 14 months, blockchain and related startups have raised nearly $1.3 billion in traditional venture capital rounds worldwide. But for the ICOs Crunchbase has captured, nearly $4.5 billion was raised via ICOs.
For more on the ICO data presented above, see the note at the end of this article.
For first rounds, ICOs look more like late-stage funding events
It’s often the case that blockchain startups raise their first outside rounds as ICOs, but size-wise these funding events look less like seed rounds and more like super late-stage technology growth rounds. According to Crunchbase data, here are a few of the largest ICOs closed in 2017:
And in 2018, there will no doubt be even larger ICOs raised. For now, all eyes turn to Telegram’s ICO, the target size of which may be as large as $2 billion according to two sources who wish to remain unnamed.
Fanaticism, unbelievability and delusion?
Although the USD-denominated price of Bitcoin (BTC) and many other cryptocurrencies have pulled back significantly from 2017 highs, the ICO market continues to chug along like the little financial engine that could.
But there are some uncomfortable facts the market has to reckon with. Bitcoin news site Bitcoin.com ran a survey that found that out of 902 companies that sought to raise an ICO, 142 failed before closing funding, and 276 failed after fundraising. It also found an additional 113 projects it classified as “semi-failed” after “their team has stopped communicating on social media, or because their community is so small as to mean the project has no chance of success.” The ultimate conclusion of that survey is stark: “59% of last year’s crowdsales are either confirmed failures or failures-in-the-making.”
The cryptocurrency community can treat any skepticism as mere “fear, uncertainty and doubt,” or FUD. But although it’s likely that years down the road there will probably be successful, sustainable ventures funded by this new way of raising cash, entrepreneurs and investors alike should be wary of fanaticism, unbelievability and delusion — a different kind of FUD — clouding their judgment.
A small note on data
At the time of writing, Crunchbase’s data set of traditional venture capital deals (angel, seed, convertible notes, Series A, Series B, etc.) is far more robust than its data set of initial coin offerings. There are a number of competing lists of ICOs out there, and each reports significantly different statistics from one to the next.
Due to reporting delays and a certain inherent opacity to the market, Crunchbase likely undercounts the actual number of ICOs, but reported numbers will likely rise over time as new data is continuously added to its platform.