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.
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.
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.
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