Token offerings hit their highest funding point last quarter, with 10+ deals totaling about $70M.

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While traditional VC investment deals to private blockchain companies rose for the third consecutive quarter, more of these startups are turning to initial coin offerings (ICOs) as a viable financing method. Still shaky from a regulatory perspective, ICOs are token sales offered by blockchain companies looking to exchange equity for financing. Tokens are subsequently traded on cryptocurrency exchanges, and rise or fall in value as a function of the company’s popularity, growth potential, and/ or general speculation, similar to conventional securities and liquid markets.

Over the past four quarters, 28% of total early-stage blockchain funding dollars came from ICOs, and the figure is growing. In Q1’17, 37% of all blockchain funding (not just early-stage) came via ICOs. Due in part to investor and media interest in ICOs, cryptocurrency prices have also been trending up, with bitcoin passing $1,800, ethereum briefly crossing the $100 mark, and litecoin passing $30 for the first time.

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We used CB Insights to dive deeper into blockchain funding trends and compare venture funding to initial coin offerings. Blockchains are cryptographically-secured, distributed ledgers, first developed as the underlying technology of the popular cryptocurrency bitcoin. Cryptocurrency-focused companies, which we include within our blockchain definition, offer products or services related to the trading, storing, or usage of cryptocurrencies, while blockchain-focused companies develop solutions that apply blockchain and distributed ledger technologies across sectors and verticals.

VC vs. ICO Quarterly Trend

Looking at the data on a quarterly basis, ICO funding grew quickly throughout much of 2016, while traditional venture funding to blockchain companies fell progressively over the same period. (Note: ICO funding numbers exclude Q2’16′s $150M failed token offering by ethereum organization DAO after a hack of its network. In that case, money was returned to investors.)

Both ICO and VC funding popped in Q1’17, with token offerings hitting their highest funding point, at 10+ deals totaling about $70M. Cosmos, Qtum, and iEx.ec took the majority of the funding. Cosmos builds interoperable blockchains; Qtum offers a decentralized application layer; and iEx.ec is developing a cloud computing platform.

Note: ICO funding numbers sourced from TokenMarket and Smith + Crown.

2017.05.15 ICOs vs VCs v5

Early-Stage VC vs. ICO Quarterly Trend

To get a more accurate comparison of funding numbers, we looked specifically at early-stage venture funding to blockchain companies vs. ICOs, since most companies holding token sales are either pre-product, in beta, or in the earliest days of post-launch. In this case, we can see ICO funding growth is ramping up as traditional venture funding to early-stage blockchain firms has vascillated. Over the past year through Q1’17, ICO funding totaled nearly $150M (excluding DAO), while early-stage blockchain venture funding totaled just below $400M.

2017.05.15 Early Stage VC vs ICO Blockchain Financing History v5

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  • Dmitriy Perelstein

    Bubble. Huge bubble just waiting to burst sooner or later… Most of these companies raising money via ICO aren’t even companies per se. They are teams at best, some with demos, some with ideas, some with just concepts. This one will come crashing down eventually and SEC with shut down this amusement park where investing adolescents are getting a quick rush of adrenaline.

  • Allan Lund Hansen

    While I agree with most of your sentiment here, the problem is that most of these companies doing ICOs are not located in the States, so the SEC will not have jurisdiction.

  • Dmitriy Perelstein

    True, but the SEC can potentially block the platforms that place the ICOs if those are located in the US (although I don’t know if any are. Waves is not, for instance). Or maybe go after the individual investors and preclude them fro buying tokens that way. They already made a precedent by sub-poenaing Coinbase to turn over all info on all transactions of all of its customers for a period of 3 years. This is still being fought over in court, but the precedent has been set.

  • ra ba

    Welcome to the brave new world (of blockchain). No need for bankers and vc’s as intermediaries anymore. This is only the beginning of disruption.