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Why 90% of ICO start-ups fail?

Massimo Di Giuda

The popularity of ICO is growing every month. It has revealed to the world such projects as Spectrocoin, Storj and Stratis. The latter has grown from $0,01 to $10,5 over the last year. Those who missed a chance to buy bitcoins when they were dirt cheap, are now looking for various investment options to recoup. How to avoid getting hurt by these start-ups?

ICO as an apple of discord

The market of cryptocurrencies continues to develop, involve new participants and expand horizons. Now the financing of projects by means of ICO has become a new trend. Like most innovations related to money circulation, ICO has attracted a huge fan base as well as fierce opponents. It's worth noting that the followers of cryptocurrency are not engaged in active promotion of digital money and do not encourage their neighbors to finance another start-up.

Meanwhile opponents of ICO and cryptocurrency in general, for some reason keep shouting about Ponzi scheme and warn those who are unfamiliar with the issue against the loss of money. Unfortunately, the governments in some countries do not seek to go into details and tend to take conservative stance by preferring to ban first, and then figure out. The USA have already equated the ICO token with securities. And announced that the Initial Coin Offering must comply with the requirements of the federal securities law. Such decisions make the projects move to fintech-friendly countries.

What is dangerous about ICO?

Why most of ICO turn out to be unprofitable? The projects based on selling tokens is another way to raise funds. Along with issuing shares through an IPO, obtaining a loan from a bank or playing guitar in a subway to fill a bucket with coins. Just one of many. The mere fact of selling tokens does not say anything about the project, it's just a method of fund-raising. Whether the start-up will be profitable – time will tell. Banks and other commercial structures tend to carefully analyze the company's documents before deciding whether to work with it further and trust their money.

In case of ICO investors act as the auditor, supervisor and lender at the same time. And what is typical in most cases, there is almost no time to study documents. For example, it took Aragon Network only 26 minutes to raise $25 million through ICO. Is it bad? It's not as black and white as it may seem. It is important to let people manage their money themselves.

From IPO to crowdfunding

Are there any fundamental differences between ICO and IPO? Yes, and there are many of them. The main difference is that in the case of an initial public offering, a new company enters the market. Anatoly Radchenko, managing partner of United Traders, considers that ICO is just the promise to make the project, that is, to create contracts describing the tokens' structure.

ICO takes away investors from crowdfunding as well. More than $3 billion have been pledged to Kickstarter projects over eight years. According to the data, the dynamics of successful projects is declining, and the percentage of profitable start-ups is falling. Namely, its share fell by 15% in 2016 compared to the previous year.

Another feature of ICO is that as long as the tokens of a new startup are not on the stock exchange, it's almost impossible to sell them. That is, it is necessary to wait not only until the project is carried out but also until its coins start to be traded on the exchange.

Before making ICO investments Philipp Philippak, front-end developer at Waves Platform, advises to examine the team members, look at their background, who they are and where they worked, what startups they were a part of. It is also needed to learn whether there is already working prototype of the project, that you can at least study and try to understand it.

Will the number of successful ICO projects grow in the future? There is no clear answer, it is worth remembering that ICO is not a goal, but a method of raising money. A successful project will be able to find investors in many different ways.

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