CRYPTO: Initial Coin Offerings 1Q 2018 in Review

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There's a bear narrative in the air about ICOs and crypto currencies. It starts out by suggesting that last year was a bubble around Bitcoin, that many unscrupulous parties tried to jump on the bandwagon and take naive investors' money. This spilled out in the fintech, crypto and public markets. See, for example, Long Island "Blockchain" being de-listed from NASDAQ. Or India cracking down on crypto currencies. Or the ban on Venezuelan crypto petro currency. And on top of this, regulators across the globe are recognizing Initial Coin Offerings for what they are -- unregistered securities offerings from unlicensed institutions. Not surprisingly, we don't quite agree.

We looked at $1 million+ ICOs over the first 3 months of 2018 for an updated set of charts (see below). But first, a review. 2017 saw $6 billion in token sales (non equity), as compared to about $1 billion of traditional and corporate venture equity going into blockchain companies. That means 6x the funding, 6x the human capital, 6x the interest. So far in 2018, the same pattern holds. Despite the macro crypto slow down, we see $3.5 billion of capital flow into tokens in Jan, Feb and March. Now, there is some underlying slow down relative to November and December of last year, and the number of projects starting fund-raising in March is lower. Some high profile companies are choosing to airdrop instead of ICO. But at a high level, the crypto economy is going to be far bigger this year than last year. This is because, we believe, the early stage ecosystem of company/project formation should be uncorrelated from large coin cap prices. The same can be said about -- for example -- the price of BAML stock and the number of startups raising Seed funding.

Further, there is continued differentiation in the projects across industries. The infrastructure layers of various currencies and protocols are still being negotiated, representing about 25% of the 2018 raises. Many investors continue to look for value in fat protocols (we think this is hard due to network effects). The financial infrastructure, like banks, investment tokens, and decentralized exchanges, are still being put in place, also about 25%. Real growth, however, is coming from things like Identity, Gaming, IoT and other decentralized applications. File that one under obvious.

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As a last point, we're sharing our latest number of crypto funds: about 251, not including the 9 or so that shut down or pivoted. The number is not growing as quickly as we'd expect -- partly because it's a more difficult environment to raise, and partly because folks are being less vocal about what they're doing. Our intuition is that there's probably 60 or so vehicles we are yet to identify. And on the other side of the equation, many traditional venture funds are starting to buy tokens. Does this mean traditional venture should start being listed as a crypto fund? Blockchain is infecting all the capital markets, which is just what technology does.

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