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ICOs More Profitable for Startups than Venture Capital

Sead Fadilpašić
Last updated: | 2 min read

In 2018, the amount of money raised by blockchain startups using venture capital* (VC) investments is on the way to surpass the 2017 highs, but initial coin offerings (ICO) overshadow traditional VC by a staggering number, Techcrunch reported.

Picture: iStock/Andrey Bukreev

In 2017, more than USD 900 million was recorded in venture funding – a number soon to be eclipsed by 2018, since in the first two months of this year, more than USD 375 million has been recorded so far, according to the report. But this, too, is easily forgotten in the face of the dollar volume raised by ICOs. These ICOs contributed at least 3.5 times the amount of capital raised by VC.

The number of ICOs was significantly smaller – by almost half – than the number of VC rounds announced by these companies. However, by the capital raised, ICOs are the clear winner with a total of USD 4.5 billion in both 2017 and the first two months of 2018.

Moreover, the market is waiting for the Telegram’s ICO in March, whose target size is claimed to be up to USD 2 billion.

Not all numbers are so bright in the blockchain startup future, however. A total of 59% of startups in 2017 were marked either failed or “semi-failed”. But the fact remains that ICOs are leaving older, more traditional ways of funding in the dust.

However, ICOs have to deal with an increased regulatory pressure, which might discourage new token sale projects.

The US Securities and Exchange Commission (SEC) has filed a number of subpoenas to both individuals and companies suspected of violating securities law by their involvement in ICOs, as reported last week. In a response to the booming market for ICOs, the commission has requested information from firms that have sold tokens to finance their projects, and professionals who have assisted with the offerings.

Also last week, the Bank of England Governor Mark Carney stressed that “the time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system.”

* – Venture capital is a type of private equity, a form of financing that is provided by firms or funds to small, early-stage, emerging firms that are deemed to have high growth potential, or which have demonstrated high growth (in terms of number of employees, annual revenue, or both). Venture capital firms or funds invest in these early-stage companies in exchange for equity, or an ownership stake, in the companies they invest in.