So Much For ICOs Taking Over VC

Morning Markets: The latest Y Combinator demo day brouhaha got me thinking, weren’t ICOs supposed to have taken over by now?

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Remember when crypto was booming? When bitcoin and ether were hitting smashing price records, volume was high, and transaction fees spiked as blockchains choked on volume? It was a fascinating time.

During the most-recent crypto boom, initial coin offerings (ICOs) captured market and media attention. The transactions, largely the selling of crypto-tokens for more liquid alternative assets or regular currencies, took off. And as they represented a way to fund new companies and speculative projects alike, some wondered (here, here, here) if ICOs might supplant part of the venture capital market.

After all, who wants to give up equity in their business when any yahoo with a CRT could raise $10 million by selling tokens on the promise of building a product in the future?

The hype didn’t last, however. After billions and billions of dollars were raised through ICOs, the fundraising technique began to slip. In more recent quarters, the declines have continued. Indeed, according to statistics viewed by Crunchbase News this morning, ICOs are effectively dead.

Here’s a look at the monthly ICO fundraising haul in 2018, via ICOData (December 2017 posted a slightly higher result than January 2018, but we can see the all-time peak in the chart):

That’s stark. Even more notable, the same data source pegs aggregate 2019 ICO fundraising at under $90 million as of this morning. That means that the negative trendline has continued. ICOs are kaput as a mainstream way of funding new projects.

Perhaps it was the fraud, the theft, the waste, or the general failure of ICO projects that did it.

In Contrast

Equity co-host and all-around cool human Kate Clark wrote something for TechCrunch yesterday that you should read. Providing an overview of Y Combinator’s demo day economics, Clark breaks down the scramble among the investing class to get their capital into the accelerator’s latest batch of startups, prices be damned.

While ICOs raised under $40 million in March to date and eight-figures under $100 million in 2019 so far (data via ICOData once again), Y Combinator’s latest children are steeped in cash raised at high valuations with comfortable terms.

There’s so much cash available that some participants in the latest Y Combinator batch skipped demo day altogether. If you deliberately miss a chance to pitch to hundreds of investors hungry for returns, you’re operating from a place of strength.

Normal-ish venture activity, then, seems more than healthy in terms of the amount of capital that it can pump into new projects. And ICOs have fallen back to the earth with a splat. So much for change.

Illustration: Li-Anne Dias.