Eventually Most ICO's Will Fail
In 2017 it felt like there were initial coin offerings or ICO's as they're known everywhere. It was a glorious year for cryptocurrencies, with Bitcoin hitting a high of $20k USD and other coins like Ethereum, Neo, Litecoin and more seeing record growth.
Sadly, 2018 hasn't seen the same good luck that 2017 brought to cryptocurrencies. In 2017 ICO's made around four billion dollars in crowdsourced investments and browsing ICO Bench, you can see there were a lot of ICO's in 2017.
Some of the most notable ICO's in 2017 were:
There were quite a few who did under one hundred million mark, with the average being around $20 - $40 million. Eventually, a lot of these ICO's are going to fail, even if the idea and alleged technology are sound, many will fail.
Besides the aforementioned scaling and performance issues that nobody has solved with cryptocurrency just yet, there is the business side. An ICO project is a startup and when it comes to running a startup, you need to manage your cashflow and burn rate.
Then there is the regulation side of things. The SEC in particular have started coming down hard on initial coin offerings, and thanks to scams like Bitconnect the likelihood of strict regulation is undoubtedly going to be something ICO's face in most developed countries in 2018.
The only reason we have yet to see a heap of ICO's fail is because of the insane amounts of money a lot of projects raised. Money buys you time, it doesn't guarantee you will succeed, but it does give you a bit of runway to sort out the business and technology side of things.
No business plan.
The writing is on the wall, most ICO's that I saw in 2017 talked about the technology side of things in their whitepapers, but most never mentioned a monetisation strategy. What happens when ICO funds run out, how are you going to sustain the business if you're not making any money?
You see this in the real world for traditional tech startups, everyone has an idea for a startup and they pitch their grand idea to a venture capitalist and forget the one important thing an invest wants to hear: how are you going to make money and pay me back?
The only projects that I saw that mentioned some kind of strategy for making money were finance based cryptocurrency projects like debit cards and P2P lending where fees will be collected from transactions. But these figures are betting on the fact that you will continue to grow your business and increase user numbers, what happens if people decide your product sucks or a competitor emerges?
Inexperienced
It is surprisingly easy to run your own ICO, which means that a lot of people who shouldn't be running businesses because they lack the experience can now go online and sell tokens in an ICO for an idea they cannot execute nor have any prior experience in.
These cowboy projects being run by kids and entrepreneurs who have never run a business before or taken investment are going to be some of the first to fail once the ICO funds run out.
Most startups fail
Although an ICO is unlike a traditional tech startup in many ways, they're the same fundamentally on a business level. Someone has an idea and they want someone else to fund it for them.
The reality is 75% of venture back companies will fail. I wouldn't be surprised to see that figure when applied to ICO projects be 85% or even 90%, given how easy it is for anyone to raise money.
At least in the real world when you pitch your idea to a VC, you have to put some effort into the pitch. You have to know your numbers and the VC is going to tear you and your idea apart, before deciding to part with their cash. In contrast, anyone with Ethereum can invest into an ICO and most never ask questions.
Failure begins 2019/2020
Given how much money some cryptocurrency projects raised, you'll only sporadically see failures arise in 2018. However, 2019 and 2020, we will start to see a lot more cryptocurrency projects start to run out of money and die because they failed to think about the future.
It will be interesting to see once regulation comes into the picture and the dust settles, what will an ICO look like in 2020? And more interestingly, what will the success rate be for ICO's?
Coins mentioned in post: