Crowdfunding 2.0: Shifting Investment trends from ICOs to STOs/ETOs
ICO or Initial Coin Offering is a way of raising capital via crowdfunding, in which digital tokens or coins are offered instead of equity to early backers which can either be used for products/services or can be traded in crypto exchanges for speculative gains. The year 2017 proved to be a monumental year in which Bitcoin soared over 1500% and generated great interests among the ordinary masses. The huge interests combined with slick marketing, a promise of big returns and slack Govt. regulations allowed a lot of blockchain projects to raise billions of dollars worth of investment via ICO fundraising. But unfortunately, the interests in ICOs waned from early 2018 due to developmental delays, regulation and multiple scams, that were pulled in the name of ICOs.
The ICO success story was short-lived but illustrious: in 2017, 875 ICOs raised US$ 6.23 billion while in 2018, 1257 ICOs raised US$ 7.85 billion — that's equivalent to 10% of the global venture funding.
Blockchain technology offers better transparency, simplicity and cost efficiency with lower administration and management costs for both investors and companies. In 2019, STOs (Security Token Offering) /ETOs (Equity Token Offering) would likely build on these advantages afforded by blockchain and the excitement of ICOs, by offering investors better regulation and protection of their investments. Thus, entrepreneurs will now be able to reach a wider audience of international investors whereas previously they would have been dependent upon VC funds only.
But the rise of STOs/ETOs doesn't mean the death-knell of ICOs as an instrument of fundraising. In fact, I can see that the ICO market has grown by leaps and bounds where investors have become more mature having taken a VC perspective for investments, over greedy short-term returns. In fact, over the last half of 2018, a lot of successful ICOs have been able to attract seed investments or Series A investments from traditional funds as well. The days of raising millions by selling a DREAM with a bunch of pretty faces and a white paper is truly over though and now investors are even wary of investing in projects without a working platform or an MVP; which I think is essential to also build a community around the project, that plays a big role in the ICOs success.
The crypto-market is possibly more red & gory at present than even George RR Martin could possibly infuse in Game of Thrones. Winter is here, much earlier than it can be depicted in GOT, having engulfed ICOs in a bear market. But as the saying goes every cloud has a silver lining and so has this Crypto- Winter. The withering of the ICO model as has done little in dampening the moods of the serious players, as more and more people are interested in knowing and applying the concept of decentralization in their business model; both as an instrument of fundraising and running of day to day affairs. As someone who has been closely associated with the blockchain industry, I perceive a turnaround in the sentiments with ICOs as well as STOs/ETOs, having proven business models, in the mid to late 2019.