by Peter B. Nichol

Funding your startup with the ICO and token crowdsales explosion

May 16, 2017
Consumer ElectronicsInnovationIT Leadership

Entrepreneurs are taking notice of the $24.1 billion market capitalization of Bitcoin and the recent $12.3 million raised off a $300 million valuation of Gnosis.

A woman stacking gold coins.
Credit: Thinkstock

Investors are allocating substantial sums to cryptocurrencies. Entrepreneurs would be wise to make themselves aware of the billions being raised in the global ICO (initial coin offering) markets.

An ICO is an unregulated means by which a new cryptocurrency venture monetizes its investment. ICOs use dynamic pricing based on real-time supply and demand. The time-based pricing strategy means that no central authority or government sets the price; rather, the price of the token is based on current market demands.

Most consumers have known about dynamic pricing for many decades. Hospitality uses demand such pricing in the tourism industry (e.g. high season, low season, shoulder season, etc.). Airline ticket prices fluctuate depending on the day of the week and number of days before a flight that the reservation is booked. Online retail adjusts prices according to competitors, time, traffic, conversion rates and sales goals. Utilities use real-time pricing to set peak and nonpeak prices for electricity. Retailers from Amazonto Major League Baseball let demand set the prices of their goods and services.

Raising money without traditional venture capitalists has been quite successful.

Recent token crowdsales

We frequently hear of Bitcoin ($24.1 billion market cap), Ethereum ($7.2 billion) and Ripple ($2.2 billion). What’s mentioned less often are the smaller companies that went from a novel, innovative idea to a funded startup in less than a quarter.

The ICO buzz since 2016 has been electric. Several ICOs that secured funding in 2017 include:

  1. Dfinityraised $3.8 million: A decentralized computing cloud with native smart contracts and a distributed intelligence DAO (distributed autonomous organization).
  2. Aeternity raised $11.4 million: A smart contract platform that stores contracts off-chain to increase efficiency. Aeternity uses a native Oracle machine to read off-chain data.
  3. Qtum raised $15.4 million: A proof-of-stake, smart-contract compatible protocol that works with both Ethereum and Bitcoin dapps (distributed applications).
  4. Cosmos Network raised $16.8 million: a network of interoperable ledgers to accommodate any asset, any blockchain and any programming language.
  5. Gnosis raised $12.3 million: An accessible prediction market platform enabling the free flow of useful information.

The amount of funding raised to date is getting a lot of attention. Even more noteworthy is the short time span in which this money was raised. Dfinityraised $3.8 million in less than 48 hours. Aeternity raised $11.4 million within five days. Qtum raised $15.4 million within a week. Cosmos Network raised $16.8 million within 24 hours. Gnosis raised $12.3 million within 24 hours.

New companies looking to raise capital to cover development costs have their eye on the growth and initial success of ICOs.

Blockchain sectors

To date, these ICOs have been crypto-based companies enabling new business models powered by blockchain technologies. We’ll soon see nontechnology companies get in on the ICO boom.

Blockchain startups have expanded well beyond infrastructure and finance. As of May 2017, there are 1232 blockchain startups that cover more than 13 sectors:

  1. Information and communication
  2. Finance and insurance
  3. Professional, scientific and technical activities
  4. Electricity, gas, steam, and air conditioning supply
  5. Arts, entertainment and recreation
  6. Education
  7. Wholesale and retail trade
  8. Human health and social work activities
  9. Agriculture, forestry and fishery
  10. Accommodations and food services
  11. Transportation and storage
  12. Manufacturing
  13. Real estate activities

Blockchain startups span 37 product and service categories including: infrastructure, content management, financial services, wallet, data analytics, exchange, trading and investing, payments, blockchain consulting, compliance and security, digital currency, enterprise blockchain, governance and transparency, identity and reputation, mining, provenance and notary, sharing economy, social networks, real estate, savings and loans, supply chain and logistics, news and insights, messaging, manufacturing, loyalty and rewards, legal audit and tax, learning, internet of things, insurance, HR, recruitment and payroll, healthcare, gambling and betting, entertainment and gaming, energy and utilities, crowdfunding, compliance and security, commerce and advertising, and many others.

Golem raised $8.6 million in under 30 minutes. Blockchain Capital in a record 10 hours raised $10 million. Cosmos Network needed just nine minutes to raise its first $17 million. The returns for investors have been impressive. The short payback period and the liquidity of cryptocurrencies are making ICOs very appealing to small investors and traditional VC firms.

The rapid injection of cash into ICOs is also drawing the attention of regulators. Entrepreneurs looking to fund their startups realize the window of opportunity is slowing closing — so get involved early.