Why Have So Many ICOs Failed?

At the end of 2017, Vitalik Buterin, Ethereum founder (respected for his openness on a variety issues), dropped this bombshell during ETHWaterloo’s hackathon.

It is a well-known fact that 93% of startup fail. It should be a known fact that CoinMarketCap will show 90 percent of the ERC20s listed on CoinMarketCap as going to zero.

Amy Wan (founder and CEO Sagewise) recently confirmed that notion, saying:

In the United States, over 90 percent of startup “fail” within their first year. It is not yet clear if ICOs are more likely to fail than those that have raised funds through traditional channels. It is important to understand what “failure” means. Does it refer to failure to gain traction, deliver the product or raise money?

These statements are echoed in industry sentiment: many projects that we currently see will disappear soon. Everyone is asking themselves why this is happening, and how can ICOs not deliver on their promises?

There are many answers. Vitalik Buterin has his opinion on the matter, saying that ERC20 token-based projects are too centralized. The Ethereum blockchain, which is the foundation for the tokens, can be decentralized. However the tokens are controlled and created by closed groups that have been backed capitalists and centralized interests.

failed ICOs

Buterin says that we’re currently in the “token-1.0” phase of our development. While some flagship apps from the era, like Etherdelta, are enjoying huge commercial success, Ethereum’s current stage of development is littered by bad ideas and worse products.

This, in essence, is tokens 1. While there are many good ideas out there, some are very poor ideas. There is also a lot more scams and very few very bad ones. Tokens 2.0 will be of significantly higher quality than the things people plan to build in 2018, and 2019. We will soon see the long-term consequences of the tokens 2.0 wave. What role is best for them?

Buterin was added to the panel.

The man responsible for the majority of recent ICO booms is quoted as saying these words. It’s obvious that companies approach the cryptocurrency market with incorrect ideas and information. The four main reasons many failed ICOs can be summarized under the heading of 4 points.

Inexperienced Teams

You have probably visited an ICO website many times and wondered “Why did my parents have to get me a PlayStation One instead a programming book when we were nine?” This industry has both an advantage as well as a problem with the abundance of brightly-colored young faces that beam at you across the screen. These kids were raised on technology, which helped them become the great programmers they are today. However, most lack practical experience.

Recently, Ian Kane (Co-Founder of Ternio) spoke out on the issue.

“I believe there are a number of reasons ICOs fail. But it boils down to a lack of experience. This is because these companies have little experience in certain categories.

1. They are targeting the following industries: banking, shipping and real estate.
2. Blockchain is necessary for this use case.
3. Effectively managing a company – finances, hiring and PR
4. Communication after ICO – Updates to the core community are crucial.”

It’s pretty simple, Mr. Kane. Although a team of 10 developers fresh out of college may dream of making a difference in the world, they won’t be able to handle the rigors involved with launching and managing a company that supports an ICO. A company that has a product which could be enriched by a native cryptocurrency will give you the best results. It is best to have an advisor board of experienced individuals who can help you guide your development. Technology-based frontiers also eliminate the element of human interaction. As a result they are often unable to interpret behavioral cues and hunches that might indicate their partners may be doing more harm than good. ICOs can fail because they lack social experience.

Neglecting customer feedback

Neglecting customer feedback and poor market research

Shardix CEO Richard Nehrboss believes that too many ICO teams fail to do proper market research, and focus instead on technology. Even the most successful projects can be affected by this and it could cause them to fail on the markets.

Recently, Mr. Nehrboss stated that “over the past year, we saw many ICOs introduce new technologies. Many of these companies lack a cohesive community interface. The reason for this is the prevailing mindset of the blockchain community, which has been focused primarily on technology development. These ICO’s spend too much time comparing themselves with more advanced tech. They don’t take enough time to listen and understand the desires and needs of their community em>.

The cryptocurrency market as a whole is facing this problem. This term is linked to the dark corners of internet and “business deals” that many uniformed individuals don’t wish to be part of. The irony of it all? They’ll trust their money to a bank that robs every time they move that money. It is therefore difficult to identify good marketing strategies that will work for cryptocurrency, as people may not be ready. This is also true for the second half, as many projects fail to have active PR departments or community managers that will gather feedback.

Low entry requirements

Almost everyone can launch an ICO and start their own cryptocurrency. The barriers for entering the cryptocurrency market are lower than ever with the availability of development information, sites offering currency creation services, and regulations that still need to be finalized by the government.

Joe DiPasquale is the CEO of BitBull and co-founder. He shared this quote with us:

Too many ICOs launch without a minimum viable product or a proof-of-concept. Many projects have opted to ICO despite the possibility of failure due to their simplicity in putting together a website. Other startups usually have higher requirements for viability before they can seek outside funding. This means that they are less likely to fail than some more famous ICOs.

Some experts point out that ICOs are problematic because they permit unskilled investors to invest. They lack the same investing expertise as angel investors and venture capitalists. They will often invest their capital in projects they are not qualified to do so.


ICOs are a victim of their success

360 Blockchain USA CEO Jeff Koyen has an excellent quote about what is causing the demise of cryptocurrency-related projects

The success of Crypto is its victim. One thing is to see a Stanford graduate landing a $10m Series A round at Sand Hill Road. All they had was a pitch deck, a wireframe and their pitch deck. If you’re a startup manager, then you’ll know that even $10 million can be difficult. There are equity dilution and a board. Oversight is a part of traditional capital.

Koyen says, “While traditional startups are often unsuccessful, it is more common for ICOs to fail than others.” He adds that “It’s amazing to raise capital without sacrificing equity. Many founders of ICOs retain control over their businesses. These founders have advisors and not directors. They also have token-holders but not cap tables. Founders and members of the team can be disorganized if they don’t have traditional accountability. The money was just too easy .”

It is evident that this holds true for crypto more than any other market. The “easy” money could cause an ICO project to go bust before it has even begun. With money pouring in seemingly from all directions, it is easy for people to become rich and have dreams of Lambos.

These failures may not be as important, but they are still significant in the larger scheme of things. The most important measure of success is how many people are willing to buy the tokens. Do you prefer a well-launched and organized token no one would want to purchase or one that delivers in certain areas, but remains highly sought after? It is normal to fail as part of growing up. The general consensus is that the cryptocurrency market has yet to experience the worst. This article should be ended in the same way we began it: with Vitalik’s quote explaining the future.

“When you start a new industry, there is a lot of experimentation and lots and lots and lots and lots and lots and lots and lots and lots and lots and lots and lots and lots and lots and lots and lots and tons of different ideas. The market matures over time… Personally, I believe it will happen but there will be some work involved.”

We will be happy to hear your thoughts

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