The meteoric rise of crypto-currencies, with Bitcoin at the white-hot spear’s tip of it, caught the financial world somewhat off-guard. With the lessons learned from it, however, investors and the founders of startups have adjusted their strategies when it comes to raising capital for their ventures as well as investing in up-and-coming initiatives.
The year saw the Initial Coin Offering (ICO) become the newest addition to the world’s financial lexicon, with startups choosing to access funding through the creation of their own tokens/coins rather than by the old-fashioned way of selling stakes in their companies. The new capital-raising method came about as a way for innovative people to obtain funds for technological innovations and concepts that didn’t necessarily have an established underlying business model. It was an ingenious way to convert a good idea into ready cash.
A Good Year for ICOs
By around June of this year (2018), the trend really took off with early adopters being the first to fully take advantage of the new opportunities availed by ICOs. 9 out of 10 projects were quickly taken up by investors eager to hop aboard the endlessly promising initiatives. You wouldn’t be surprised to see quite a number of them raising funds by the tens of millions of dollars backed up by nothing but the business plan, commonly referred to in the industry as a company whitepaper.
The ride seems to have been slowing down over the past few months, however, as successful ICOs begin to become fewer and farther between than they used to be. Investors are now demanding more concrete and viable ideas for them to put their money behind rather than pie-in-the-sky speculative projects with little hope of being solid commercial successes.
Crypto-currencies, on the other hand, continue to grow from strength to strength. It might not be as easily understood as forex trading for beginners, but there are more and more signs of its increasing popularity in the general public sphere. Major companies are leading the way for mass adoption of crypto-currencies as viable payment and transaction instruments. These industry-leading organizations include the likes of Virgin, Microsoft, and Expedia, while massive corporations such as Wal-Mart and McDonalds are a good bet to adopt the currencies by the year’s end.
Industry Professionals Chime In
Business people shaking hands in a meeting room
Those who would like to get their piece of the ICO pie in order to see their ideas come to life have had to shift gears when it comes to their approach. Jane Lippencott, one of the founders of the ZenCash crypto-currency is of the opinion that the founders of these concerns need to have the discipline and long-range planning ability to resist the temptation to launch ICOs at the very early stages of their operations.
As one of the minds behind the crypto-currency that’s backing a blockchain platform for publishing, transactions, and communication, she feels that launching an ICO early exposes uneducated and impulsive investors to extremely high risks. More worrisome is the fact that such early cash infusions place the development teams under high-pressure to prove the company’s viability and provide a return on investor’s money on a shortened and ultimately unrealistic timeline.
According to her, it makes far better business sense to raise funding through the more traditional route of seeking angel investors and doing the seed-money rounds so as to ascertain and establish a workable product-market fit before going for the ICO. This would allow entrepreneurs to raise a good amount of no-strings-attached capital while building up a community and a solid base of customers to support their initiative.
What Does the Future Hold for Investors and Entrepreneurs?
The future seems to be set for quite a few changes, if the current signs are anything to go by. According to Jehan Chu, one of the managing directors of Kenetic Capital, which is one of the most well-established blockchain investment platforms, we may have seen the last of the $100 – $200 million ICO launches we grew accustomed to over the past year or so. In their place, he says we should expect to see slimmer, more agile, and less bulky initiatives being launched.
The focus of investors as well as entrepreneurs will be on sustainability of their business models and their viability in a market that’s becoming increasingly saturated and cut-throat. There is only so much capital floating around nowadays, so everyone has to put their very best foot forward if they’re to find room for themselves at the table.