Researchers Say Failed ICOs Rate is 46% – Fact or Fiction?
At the end of February, Bitcoin.com published a report that triggered a violent reaction across the entire cryptocurrency world. The article stated that 46% of 902 blockchain projects that conducted tokensales in 2017 subsequently failed. Allegedly, 142 projects failed at the ICO stage. Another 276 projects suffered an unenviable fate; they either grabbed investors’ funds and did not produce the product, or simply disappeared. If this report is true, the rate of failed ICOs might scare off even the most dedicated crypto investors!
The study claimed, “An additional 113 ICOs can be classified as “semi-failed”, either because their team has stopped communicating on social media, or because their community is so small as to mean the project has no chance of success.” That means that 59% of all of last year’s ICOs either completely failed or are currently teetering on the edge of the abyss.
Did 46% of ICOs Really Fail?
No one denies that ICO investments are risky, but we should consider these figures in context. Due to the low entry threshold in the field of ICO campaigns, more and more scammers flooded the market. This circumstance is clearly reflected in the report of Bitcoin.com, since there are really many scenarios to “get money and escape.” The same data appears in the report released in January by Ernst & Young.
The inclusion of fraudulent initial coin offerings in the category of failed ICOs is misleading. They were not aimed at success and development from the outset and should not be considered as real blockchain projects. If to exclude utter garbage, the percentage of failed ICOs will significantly decrease.
Is it justifiable to consider ICOs that have not gathered the amount claimed as failed initial coin offerings? If initially nobody thought that the idea is worth the investment, do we consider it a failed blockchain project?
Low social media activity and a modest community do not indicate a lack of activity behind the scenes of the ICO. In the end, most project founders and their team members continue to store tokens, which motivates them to continue working. Consequently, the category of “semi-failed” projects should not be taken into account when estimating the percentage of failed cryptocurrencies.
Comparison of ICOs and Startups Funded by Venture Capitals
In the world of startups, the following rule works: nine out of ten new companies fail in the first five years. Even if we take these figures literally, we should not be surprised that half of the new blockchain projects have failed. They work with a completely new technology, which increases the likelihood of collapse, as technological and legal obstacles await them along the way. However, the failure rate of start-ups funded by venture capital is not too different.
According to Harvard Professor Shikkhar Ghosh, 75% of US startups that attracted venture capital ultimately fail. This figure is higher than other organizations indicate. Thus, the National Venture Capital Association reports: only 25 to 30% of startups behind venture capital culminated in a total failure. However, as Ghosh noted in an interview with the Wall Street Journal, venture companies “bury their dead noiselessly.”
Ghosh’s research shows that 30 to 40% of such startups eventually sell their assets, which means a clear collapse. But also, according to Ghosh, if the failure criterion for the startup was the lack of a planned return on investment, then approximately 95% of all venture capital sponsored projects simply failed.
Bitcoin.com’s Report and Failed ICOs: Lie or Incompetence?
This information allows us to make an interesting comparison with ICO-funded startups and characterize Bitcoin.com’s findings as controversial. All new companies, regardless of the source of funding, have a high failure rate. Knowing that 30-40% of startups funded by venture capital firms collapsed, it’s no wonder that the ICO failure rate is about the same. For that matter, it’s surprising that the rate of failed ICOs is not higher. Yet we are at the beginning of the development cycle.
Thus, we should take these statements about the high percentage of ICO failures with a little trepidation. Do not demonize this innovative form of financing or the startups taking utilizing it.
Moreover, it is obvious that the ICO concept will be live for a long time. Despite the high level of fraud, this new form of funding is a real blessing for innovative startups. This is because they often do not have access to traditional financing schemes, such as bank loans or venture capital. And due to the free circulation of digital tokens for fundraising, private investors can invest in new projects hassle-free.
Is it Worth it to Invest in ICOs?
Cryptocurrencies are a risky asset class and new ICO tokens are the riskiest assets within this class. With all of this, experts can level many risk factors inherent in the ICO investing if the situation is well studied.
Like any other form of investment, ICOs invite the investment community to distinguish potential winners from losers. The key to success is to find the most promising projects that have all the main features of successful blockchain ventures. For example, an experienced and qualified team, an existing product, and convincing arguments for the token release. But let’s be honest, few people can objectively assess the quality and reliability of an ICO project. Everybody pays attention to the “cover” of the project, that is, corporate design and communication with potential investors. In this scenario, there’s no need to hide the fact that the failed ICO list will be continually replenished.
It’s our main function to find and support the ICO projects that have the most potential for impacting daily lives. Additionally, we do everything we can to inform investors so they can make the right ICO investment choices. Join us today!