Silicon Valley is witnessing a sharp decline in the seed-funding for startups – as the funding for early-stagers shrank by 40 percent since its peak in 2015. The study, conducted by LinkedIn, suggests that while the volume of funding remains the same, most of the investors are pouring money into the later-stage startups, quite away from the fresh entrants.
Many analysts are dubbing this as the decline of innovation as lack of funding has the potential to disturb the pace of acquiring the necessary tools and resources required to innovate. A startup cannot attract the highest qualified talent to develop world-class products if it doesn’t have access to finances.
While there are various (investment and market) factors behind it, a key contributor to this decline is the growth of token sale or ICO as an alternative source of funding. Though this may not be true in the early days of 2016, is quite relevant in today’s perspective as a lot has happened in the last 3 years that reshaped the dynamics of crowdfunding market.
**Can we assume that ICOs are the potential replacement for traditional funding? **
This is quite premature to claim, but startups have actually found a very captivating alternative to angel investors and VC funds. With the rise of these substitute funding techniques, startups have got what they needed the most – a funding pledge without any strict conditions attached. This is the reason startups are rushing towards ICOs like never before.
Over $2 billion has been raised through ICOs in the last 6 months. If we exclude the in-progress ICO of Telegram (stated to be the largest ICO ever), here are some of the leading names. Filecoin raised $257 million, Tezos raised $232 million, Status $90 million, and Bancor raised $153 million through their ICOs.
Interestingly, it’s not just the startups who take the ICO as a better alternative to traditional funding. Investors are also very keen about participating in token sales. Keeping all the pros and cons in sight, startups can launch an ICO by issuing crypto-tokens on the Blockchain and offer early investors a chance to acquire tokens, in exchange for cryptocurrency – it is surely the way forward.
However, we are not suggesting it to be mainstream very soon as many investors fear regulatory and political factors coming into play. In the longer run, ICOs could be a more sustainable method of crowdfunding provided there is regulatory and market support. For startups, an ICO is a kind of a blessing because it saves them from tough deals.
In order to get funding from a VC, they had to make certain compromises like taking investors on the advisory board, making decisions in line with their interests, sharing equity, and more. This would lead to disastrous results as and many startups could have their vision threatened by the conflicting opinions of their shareholders. In contrast, they do not have to make similar pledges in ICOs – making the token sale a purely win situation.
The only need of the hour is clear and well-crafted rules of the game, which minimize the chances of fraudulent activities and thefts. Not many startups are aware of the intricacies that go into a token sale and so, they end up raising nothing, other than debt and costs. Hence, they need ICO advisors to avoid any mistakes or losses down the road.
If you are aiming for an ICO or want to raise money via crowdfunding, our experts can help you with strategy, talent, and advice. Send us your ideas or questions, so we could schedule a free introductory consultancy session for you.