New research from GreySpark shows that most ICOs either become huge successes or fail to raise any money at all. On one hand, 40% of ICOs succeed in reaching their fundraising goals. On the other, 46% of ICOs fail to raise any money at all.
Investing in ICOs Isn’t For The Impatient
The same study, which was relayed by The Next Web, showed that the majority of successful ICOs did not show a positive return on investment (ROI) within six weeks of closing their ICOs. At the six-week mark, the average successful ICO posted a 40% ROI on Bitfinex and a 34% ROI on Binance. The study hints at the idea that investing in ICOs is not for impatient individuals, due to the fact that returns tend to increase over the course of several weeks.
One major factor is an ICO team’s ability to deliver on promises made during the ICO. Some ICO teams pull exit scams soon after completing the ICO. Others find out fast that they underestimated the amount of money needed to successfully complete project development, while also overestimating their ability to release or market a working project.
If the project is especially complex or depends on widespread adoption to be called a success, then it may take longer than six weeks for token holders to see their holdings come to full fruition.
GreySpark summed up the challenges involved in launching a successful product to a “lack of traction, disappointing product advancements, scam, difficulties in execution, no market and poor marketing or go-to-market strategy.”
No Matter What You Do, Fundraising Will Be An Arduous Task
The GreySpark findings may not surprise anybody who has been involved in the crowdfunding industry for longer than cryptocurrencies have even existed. Users of mainstream crowdfunding platforms, like Kickstarter and Indiegogo, face many of the same challenges that ICOs do. For every successful crowdfunding campaign on Kickstarter, there are probably several that never met their funding goals, never successfully launched their products, or were outright scams.
Crowdfunding efforts do tend to favor project organizers who know how to reach an audience. Some users who would have donated to an interesting project never actually see that project because it got buried under the weight of so many other popular campaigns. Some ICOs never reach their hard caps because they made an honest effort, but could not reach their full target audiences.
For this reason, money is often diverted to pay marketing agencies when it could have been used to developing the promised deliverables. This money needs to be calculated for when deciding how much an ICO actually needs to raise in order to be successful. Even then, the money paid to marketing agencies doesn’t guarantee that an ICO will be successful when most experienced cryptocurrency investors will be wary of scams and teams that seem to be setting themselves up for failure.
How can an organization even run an ICO without attracting attention from regulators? Many organizers will simply cover their bases by hiring an attorney to help with the paperwork (another expense) and figuring out whether they want their token to be a security or a utility token (each of which has its pros and cons).
They will usually run KYC/AML procedures just to make sure they aren’t running afoul of financial regulations, which has the added benefit of earning the trust of serious investors, but can be a turnoff for people who joined the crypto community in the first place because they have trouble taking a good selfie with their photo ID.
The 46% of ICOs that fail to raise any money only means that crypto isn’t a cure-all for the challenges involved in crowdfunding for a new project or startup. In fact, it can add more challenges because the organizers face the additional challenges of making sure their behind is covered from a regulatory standpoint and convincing an audience that is wary of scams.