ICOs are the new IPO as $18bn in deals close in first five months of 2018
Bitcoin may be broken but that hasn’t stopped more than 500 Internet Coin Offerings (or ICOs) closing so far in 2018.
Aftera rambunctious 2017, consultancy PwC believes the ICO sector is maturing into an alternative to traditional debt or equity funding .
An ICO is a form of crowdfunding. It’s like an initial public offering — but instead of offering shares in a company, an issuer offers digital tokens that can be traded on cryptocurrency platforms or swapped for services.
A whopping 537 ICOs closed in the first five months of 2018 alone — more than every other year combined before now.
They raised $US13.7 billion ($18.5 billion).
By comparison in the second quarter this year there were 660 IPOs around the world, raising $US94.3 billion.
A hybrid of venture capital and ICO funding is becoming a popular model, as businesses get ‘smart money’ and crowd validation in the one go, according to a PwC report called Initial Coin Offering – A Strategic Perspective (PDF).
Just seven companies in Australia have raised more than $150 million from ICOs in the 18 months since they really began kicking off here.
The largest is blockchain security business HCash which raised 21,000 Bitcoins worth of token in November last year, then worth a staggering $53 million.
Unicorns and burnouts
And where the 2000s introduced the idea of the Silicon Valley ‘unicorn’, so the rise of the ICO has created the crypto version in EOS, which raised $4.1 billion.
Telegram’s proposed $1.7 billion ICO would have fallen into that category had they not scuttled it.
Only a third of announced ICO actually made it through a successful funding round.
“Many projects are delayed and lose momentum during ICO preparation processes – reasons can [stretch] from legal struggles to problems within the ICO project team,” the report said.
“Some companies that launched ICOs struggle with major difficulties such as legal or governance issues. ICO projects with smaller scale funding then the top 20 have a higher tendency to get off track or even dissolve – reasons can be manifold.”
The report said most of the top funded ICOs are on track developing a product — because most go into a funding round with just a plan.
Do it in a tax haven
Australia is not among the top countries to launch an ICO in.
Tax havens the Cayman Islands and British Virgin Islands top that list, followed by Singapore, the US, Switzerland, Estonia, Lithuania, Israel and Hong Kong.
But where the US seeks to regulate tokens, Switzerland and Singapore are regulating the markets themselves and countries like Lichtenstein, Malta and Gibraltar are seeking to follow that model to become crypto hubs.
For example, Malta wants to become “blockchain island” and is implementing a blockchain law, while Gibraltar has labelled tokens as commercial products.