The market for Initial Coin Offerings (ICO) is growing and growing. The first quarter of 2018 has set new records. In just three months, companies raised more capital than in the whole of last year. Telegram holds the record for the largest-ever ICO with a total volume of 850 million USD collected. An enormous market value for ICOs.
With ICOs, companies like Telegram raise money from investors to implement growth plans. The counterpart in the financial world is the initial public offering (IPO). There, the volumes for placements of tech companies are significantly higher. Spotify raised nearly $30 billion from investors this week. The Swedish company avoided the usual way of placing shares via the major investment houses and listed the securities directly on the stock exchange. This is an unusual step so far, but one that saves the extremely high fees. Spotify’s behaviour shows that many young companies are looking for cheaper sources of capital. ICOs are well on their way to filling this gap in the market.
The development is rapid. There were virtually no major initial coin offerings in the first quarter of last year. Only in May 2017 did the volume rise to just over one billion US dollars in December 2017, parallel to the strong upswing in Bitcoin and de facto all other crypto currencies. However, the development of ICOs is currently continuing unhindered. Every month in 2018, the volume of funding was well over one billion US dollars. In March, the 54 successfully listed ICOs together even exceeded the USD 2 billion mark for the first time.
Raising capital for start-ups
In addition to the many successful ICOs, critics often point to the failed attempts in which companies do not even reach the declared softcap. These experiments and experimentation testify to a rather young market. Participants test the limits and tastes of investors.
For many companies it is also difficult to get a comprehensive picture as an investor. First platforms are experimenting with ratings in which experts evaluate the project and the founding members. In addition, voluntary and rudimentary KYC procedures are available to increase the reliability of the ICO. The main features of the procedure are reminiscent of the ratings of listed companies – with all the known advantages and disadvantages of ratings. There will be even more solutions to choose from in the future. More and more start-ups are thinking about ICOs for raising capital. More than 1,300 young companies from various industries are currently trying out their own initial coin offering.
The success also attracts larger investors to the stage. Family offices – asset managers of rich families – are looking for alternatives to the classic capital market. They represent the large individual amounts of totals in the five-digit range and upwards. This is significantly higher than the average capital invested by private investors: reliable figures are not available, but estimates assume around 200 to 500 euros per person per ICO. The entry of family offices could be the step into the next, larger round for ICOs.