CROWDFUNDING: Most ICOs Have Already Failed - But So What?

  Source: Autonomous NEXT, TokenData, CB Insights, Mattermark

Source: Autonomous NEXT, TokenData, CB Insights, Mattermark

An article on Bitcoin.com discussed some rough metrics for ICOs to date, claiming that of the 902 ICOs from last year according to Token Data, already 46% have failed. That's $104 million down the drain -- not to mention the opportunity cost of token appreciation and the funds that disappeared through various scams. So are things as bad as the article makes them out to be? We dove into the numbers, and came away with the opposite conclusion.

In looking at the Token Data underlying data set, there is an important distinction. And that is the difference between failing to raise capital and failing to execute on an idea after having raised capital. The Bitcoin.com article combines these two into a larger headline. But when we look at the "failing to raise" stats, things are not so dire. In 2016, that number is 14% and in 2017 it is 28%. This is in line with the intuition that it is now harder to raise money in crypto than before as investors become more discerning. But it is still far easier than raising money on Kickstarter, for example, which sees a 64% failure rate.

And second -- if we do the math on operational failure in 2017 ICOs, the answer comes out to 18%. That may seem like a lot in a short period of time. But we can compare this to the percentage of Seed stage startups that fail to raise Series A, thereby failing to achieve enough operational traction to move to the next round. A Mattermark data set suggests that 68% of early stage companies wipe out without going to the next round, and CB Insights shows similar numbers, with 40% failing to raise and 14% exiting the market. Runway for venture-backed companies is usually 18-24 months. If ICOs continue to fail at their current pace, perhaps the numbers will look even more extreme than traditional startups. But today, 18% is far below the 60-70% comparison.