ICOs, Investing

What Percentage of ICOs Fail?

Initial coin offerings (ICOs) have exploded in popularity, raising more than $4 billion in 2017 alone.

While these digital token sales have helped fund innovative ventures and novel digital currencies, many of these offerings have failed. A large number of them either did not hit their funding goal or simply refrained from reporting funding figures altogether.

High Failure Rate

The number of ICOs that have avoided providing such information is high, according to an analysis conducted by Bitcoin Market Journal. Of the more than 600 digital token sales evaluated by Bitcoin Market Journal’s Analysis Team, 394 completed, meaning that they reached their end date.

Out of these roughly 400 completed offerings, approximately 35 percent reported funding figures.

That means that nearly two-thirds of the token sales that completed did not report how much money they raised. Analysts say this likely points to failure.

Chris Keshian, co-founder of the Apex Token Fund, a tokenized crypto fund-of-funds, stated:

“As an investor, I assume that when an ICO chooses not to report their token sale, they were not able to hit their target raise.” 

Marouane Garcon, managing director of Amulet, a crypto-to-crypto derivatives platform that focuses on customer success and usability, offered similar sentiment, observing:

“Most of these teams aren’t reporting the results of their ICO because they have failed to meet their target.” 

A More Complex Picture?

While a lack of reporting could signal failure for a digital token sale, it could very well point to other things.

“There are no reporting requirement standards,” noted Keshian. As a result, organizations holding these offerings have little incentive to report their fundraising figures unless they “knock it out of the park.”

He added that “many of the ICOs have small teams and are overextended and exhausted after the ICO sprint, and some may see the reporting of these numbers as an unnecessary component of the process.”

There could be other reasons, noted Brad Chun, chief investment officer of hedge fund Shuttle Fund Advisor.

It could simply be that the teams holding these digital token sales are not sure how to report their figures when markets are so volatile, he noted.

Alternatively, the team that held the ICO may simply lack experience in “management and communications.”

Impact of Audits

Another factor that might affect how many ICOs report their funding results is the time needed to perform audits.

Of the more than 250 digital token sales that have neglected to provide funding data, roughly two-thirds were within two months of their end date. The remaining third hit their end-date more than two months ago.

While such an explanation might make sense, not everyone agrees.

Yazan Barghuthi, project lead at Jibrel Network, stated that the need to perform audits “shouldn’t be an excuse.”

He elaborated:

“Funding is such a core part of overall project management, that at any given point in time, a company should be able to tell you +/- 0.5 percent how much in funding they are holding. And that +/- 0.5 percent allowance is being generous.” 

Barghuthi added that many token sales have probably refrained from providing fundraising data simply because they have sold tokens at a “heavy discount.”

“Reporting a dollar figure in addition to their Total Token Supply figure, which was presumably all sold, would allow people to do the math and figure out that their purchase price was not in line with what was offered behind the scenes.” 

Key Role of Transparency

Transparency is crucial to maintaining trust in the capital markets. Since the digital currency markets are relatively new, one could argue that disclosing key information is even more important for those looking to hold ICOs.

“Transparency sits at the core of this industry and technology,” stated Grant Blaisdell, co-founder and CMO of Coinfirm, a blockchain and regulatory technology firm.

While investment in ICOs has been robust, this funding could dry up if investors lose their faith in the entrepreneurs and companies holding digital token sales.

If these entities hold such an offering and fail to produce the desired results, they should think twice before neglecting to report how much money they raise, said Garcon.

“It’s easy to see the logic in not wanting to broadcast bad news, but these teams should think again. Does Apple not report a bad quarter? Of course they do, and it’s broadcasted across every media channel imaginable. If they’re serious and passionate about building a real business then you would report your failures alongside your successes.”

While not all entrepreneurs holding ICOs may have the same point of view, Blaisdell argued that the broader industry is moving toward greater transparency.

Staying Up-To-Date

Investing in ICOs is a complicated endeavor. Conducting the proper due diligence can prove highly beneficial. One way to conduct the needed research on individual digital token sales is to visit our initial coin offerings page, where you will find valuable information about current and upcoming ICOs.

Another good way to stay on top of the latest developments in the space is to subscribe to the Bitcoin Market Journal newsletter.

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