ICORating Q2 report: Funding rises, but so do unsuccessful projects

Eoh
Kyung-hoon, leader of a club studying cryptocurrencies, checks a
chart after a meeting at a university in Seoul, South Korea,
December 20, 2017.

REUTERS/Kim
Hong-Ji

• The amount of funding raised through “initial coin
  offerings” rose from $3.3 billion in the first quarter to $8.3
  billion in the second, according to a new report.
• But the proportion of funding campaigns that failed
  also rose to 55%, leading analysts to say the quality of
  projects in the market has “significantly worsened.”
• The average return for ICO tokens in the quarter was
  -55%, compared with a gain of nearly 50% in the first
  quarter.

LONDON — Money continues to flood into the booming market for
digital tokens issued by startups despite the projects seeking
funding getting worse and investment returns suffering, according
to a new report.

55% of “initial coin offerings” (ICOs) failed to complete in the
second quarter, according to a report from agency ICORating. That
was 5% more than failed in the first quarter.

ICOs are where companies and projects issue digital tokens
structured like bitcoin or ethereum. These tokens are sold in
return for cash used to fund the development of their businesses.
ICOs exploded from almost nothing to be a multi-billion dollar
market in 2017, surging in popularity alongside the rise in the
price of bitcoin.

The increasing failure rate came despite a rise in the amount of
money being invested into ICO tokens. 827 projects raised
$8.3 billion through initial coin offerings in the second quarter
of the year, the report states, compared to $3.3 billion in the
first quarter.

This mismatch led ICORating to conclude that “the overall quality
of projects has significantly worsened.” Fewer projects are
attracting bigger sums, while many others languish with small
sums or outright failure. The biggest ICO in the second quarter
of 2018 was PumaPay, a cryptocurrency solution for merchants that
raised $117 million in May.

The increase in investment into ICO tokens comes despite poor
performance in the second quarter. ICORating found the
median return for tokens in the second quarter was -55.5%,
compared to +49.3% in the first quarter. Bitcoin, the
bellwether for the crypto and digital asset market, has declined
over 50% since the start of the year.

North American startups attracted the bulk of funding, taking in
64.6% of the total raised in the quarter. Financial services
continued to be the most popular sector for startups, with 87
ICOs focusing on the industry.

ICORating

Separately on Wednesday, blockchain-focused VC firm Outlier
Ventures released a report saying that venture capitalists
invested $1.8 billion into blockchain-focused businesses in the
second quarter of the year. Most ICO projects use blockchain
technology in one way or another, although the majority of VCs
still invest in equity rather than buying tokens issued during an
ICO.

Outlier Ventures’ review of activity in the blockchain space
found an increase in M&A activity among startups. Tron
acquired
torrenting service BitTorrent for $140 million in June, for
example. Tron aims to decentralize the entertainment industry
and raised $70 million through an ICO last December.

Jamie Burke, CEO at Outlier Ventures, said in a release: “We are
seeing extremely well-capitalized protocols launch venture funds
and accelerators as well as acquire equity-backed companies and
teams to scale development or buy network-market-fit.”