Blockchain accounts for only 2.3 percent of the whole fintech industry today. However, the ICO (initial coin offering), an interesting market innovation, is cropping up. It is a mix of IPO, crowdfunding, and P2B lending.
I wanted to share several slides from this presentation by ITO.SG. The research and analytics of this presentation were made by the company’s partners, Life.SREDA and the BB Fund. We evaluated the size and dynamics of the market through a research of all the ICOs that publicly happened in 2017 and by looking at the published information on the companies’ websites and ICO aggregators.
The deeper numbers on rounds by stage, funding by stage, and VC investment traction are based on Tracxn, a startup tracking system, and predictions from Life.SREDA and BB Fund’s analysts based on our own findings.
We also got data from the following resources:
The ICO bubble
Cryptocurrency has been seen as a relatively illiquid industry. But with ICOs, people can readily convert their currencies into goods and services and even stocks in startups. It is like “helicopter money” for these companies and also allows investors to diversify into cryptocurrency assets. Many articles have also labeled ICOs as a way to get high returns in a short amount of time.
Jamie Burke, the founder and CEO of blockchain-focused VC firm, Outlier Ventures, calls ICOs “the blockchain ecosystem’s killer app.” The way Burke sees it, ICOs are finally lowering the barriers to entry for technology investment, as whoever has some cryptocurrency can join the party. More than that, the coins’ speculative potential is allowing open-source projects to raise more funds than ever before.
“The point is that now, for the first time ever, open-source initiatives can be profitable for investors,” he said. “Previously, [these initiatives] were relying on donations and they were inherently unprofitable […]. Most of the projects which have launched ICOs are poorly designed and won’t scale. But I look past that. I still think we have the ability to kickstart this new economy.”
Like in the late 1990s (in the dotcom era), angel investors and venture capitalists bought stakes in dotcom companies for a few cents before they went public, unloading them for double and triple digit dollars the day these companies made their debut on Wall Street. We all know what happened in that case: the bubble collapsed.
We’re past the tulip stage now. Yes, that first dotcom bubble was ridiculous, but it also gave us enduring companies like Amazon, Google, and Ebay. And yes, scores of foolish day traders and IPO junkies got crushed, but a lot of smart, early players got very, very rich. That history is repeating itself now, too.
Right now, it seems like a “bubble” story, not unlike the dotcom era. But this is also an evolutionary phase. Many small companies will die, but the ones that will survive will be strong infrastructure-based solutions rather than end-user solutions. We expect only 5 to 10 percent of companies to survive. These will change the industry and become the future leaders like Amazon.
Future of ICOs
It’s very much the early days still. People are getting overloaded with offers and the quality of companies is going down. We expect to see some ICO cool downs in autumn this year, and the future will see more professional players such as big funds, institutional investors, and technology platforms enter the market.
A renaissance will come next year (2018) when we expect to see a lot of regulatory changes and when professional capital enters the market, which will bring stability. When businesses that have raised ICOs go out of business—having spent all their money—its founders will become more mature and investors will become more sophisticated.
Igor Pesin, a partner at the BB Fund, told me recently:
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