What is the Success Rate of ICOs?

2018 is marked to be the year that the ICO world changes. With all of the publicly-offered ICOs having a cumulative funding level of $3,775.21 million as of November 25, 2017, successful ICO companies are preparing to invest in other ICOs as a way to build verticals that would force new projects to share a common platform with existing projects.  This will promote the growth of larger ICOs into ecosystems that would be more economically and commercially viable.

This move underscores a troubling trend in the ICO world, namely, that many ICOs fail. Why? What leads to the success or failure of an ICO?

Why Do Some ICOs Fail?

To start, it should be understood that the amount of information that is actually available on ICOs is scant. ICOs are under no obligation to issue any reports about funding levels or on the economic health of the company or the project, which make analytics regarding ICOs difficult to ascertain. 

Despite this, Bitcoin Market Journal conducted a review of 394 crowdsales that completed their sales in 2017. Of these, approximately 35 percent reported funding figures. While this could simply be a reporting failure, it may also point to a need to hide the final tally.

"As an investor, I assume that when an ICO chooses not to report their token sale, they were not able to hit their target raise"; Chris Keshian, co-founder of the Apex Token Fund, said.

The absence of news, however, is not evidence of the absence of results. Just because ICOs choose not to share final funding information, can it be assumed that two out of three ICOs fail? Not necessarily.

It could be that inexperienced teams may feel uncomfortable reporting, considering their tokens are likely on the market and are under high volatility churn. Others may not know how to file a profitability report or know that they should do so. Still others may have concentrated their efforts on producing the crowdsale documents without considering the division of labor needed for the wrap-up.

Additionally, only a third of the ICOs that were marked as missing funding information were outside of two months from their crowdsales' end date. It may be that the companies have not had enough time to complete their audits. 

Some, though, see all of this as excuses. For instance, Jibrel Network's Yazan Barghuthi, believes that not reporting funding data hides the fact that some ICOs rely on heavy discounts and favorable deals from institutional investors to get their tokens sold. "Funding is such a core part of overall project management, that at any given point in time, a company should be able to tell you +/- 0.5 percent how much in funding they are holding. And that +/- 0.5 percent allowance is being generous", Barghuthi said. 

The scary part of this is that this lack of transparency may be hiding a bigger problem. It is estimated that over 90 percent of all ICOs will fail to deliver on the product for which that they were created, to reach their funding goal, or to complete their crowdsale. This may be for a multitude of reasons, such as that the technology they are trying to create is unattainable, the project has management issues, or there are internal disputes about direction. The lack of transparency, fueled by the sense of FOMO (fear of missing out) on the next big thing, is creating a speculation bubble that is unsustainable.

The road forward is for investors to demand transparency in an ICO's operation before agreeing to invest. This does not mean just having a detailed whitepaper or regular social media tweets but also posting regular profit reports and quarterly statements. Funding in ICOs could evaporate if investors' trust fades, making this a key concern for this fledgling industry.

"It's easy to see the logic in not wanting to broadcast bad news, but these teams should think again", Grant Blaisdell, co-founder and CMO of Coinfirm, said. "Does Apple not report a bad quarter? Of course they do, and it's broadcasted across every media channel imaginable. If they're serious and passionate about building a real business then you would report your failures alongside your successes."

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