In recent times, ICOs have been bombarded with scrutiny from regulators around the world. In the face of this scrutiny, venture capitalist has picked interest in cryptocurrency. ICOs have been funding blockchain based companies, with startups raising $434 million since December 2017, the most ever in a three-month period, despite the fact that ICOs are supposed to unsettle venture capital.
With the rate at which the token industry is receiving the scrutiny radar, the increased interest in equity by venture capitalists shows that the business will grow. According to Frank Meehan, a partner at SparkLabs Group, equity has much more value if a company goes ahead and gets an ICO. That’s the game right now.
VC Firms Investing In Cryptos
The hype around the ICO is quite understandable, with its market velocity and stories of theft and sabotage. But venture capitalist deserves the buzz from market analysts and crypto enthusiast alike. The venture capitalist investment in blockchain startups is soaring in the midst of the ICO probe.
According to Jaffe, managing director of Insight Venture, the firm is discussing with some of its portfolio companies to see how they can use blockchain technology or serve startups in the industry. Also, the company says that it has $18 billion in raised capital for more than 300 companies, including Twitter Inc.
Looking at the Numbers
According to Meehan, the $100 million blockchain fund at SparkLab that was launched late 2017 has already invested in six companies. If SparkLabs invests in a company’s ICO there is a possibility of a discount, and the investment can be sold sooner than and equity at stake.
With what the CoinDesk data has shown, Token sales continue to grow, with startups raising more than $3 billion through ICOs in the first two months of 2018, which is more than fifty percent of what they took in through all of 2017.
Statistics from TokenData, as reported by Bitcoin.com, however, show that in 2017, 46% of token startups either failed after their ICOs or they weren’t able to complete funding. In the first three months in 2018, 50 out of 340 completed IOC have failed, according to TokenData. This is in addition to the stats released by TokenData which show that 50 percent of the ICOs from 2017 have also failed.
The failure rate isn’t shocking, considering the fact that many companies just waltz into the scene with nothing but a white paper and do not even have a working product. Such companies work with an underdeveloped technology whose applications have not been tested on a mass scale.
According to the managing director of Insight Venture Partners, Lonne Jaffe, investors should exercise caution and not just jump into the market without proper due diligence as the market is still evolving. Most investors are not ready to invest in companies that are not mature; they prefer mature ICO companies to avoid unpleasant surprises. This means that startups need to raise equity fund product development and marketing.
On March 6, 2018, in a public letter, the U.S. Treasury Department saw startups that issue tokens as transmitters and said that they will need to comply with bank secrecy and know your customer guidelines. Jay Clayton, SEC Chairman, in February 2018 said that every ICO he has seen is a security. Although, most startups seem to deny this and insist they aren’t. On March 26th, 2018, Twitter joined Facebook and Google to ban ads for ICOs and coin sales. This move affected Industry bellwether Bitcoin, as it fell as much as 8.7 percent.
Investors, however, see buying of tokens linked to equity or other assets as a sure way to reduce regulatory surprises. Joe Forbes, the chief executive officer at Causam eXchange thinks that ICOs are broken and the SEC is going to have a lot to say about the money that’s been raised. He believes that unnecessary and avoidable risks that can jeopardize the company’s future should not be taken.