Initial Coin Offering (ICO) came as a revolutionary way for startups for generating funds. But with more and more interests developing in the blockchain sector, the ICOs are being snatched up by the wealthy ruling parties in the domain.
As reported by Bloomberg, this year the interest shown by investors in blockchain startups has boomed significantly with over $18 billion raised in total. This amount is significantly larger than what was generated last year through ICOs. The major reason behind this is the targets that were chosen by the startups for their coin offerings. Instead of focusing on the public, the approach is now directed more towards investments from the wealthy investors of the market. As per CoinSchedule, Tatatu raised $575 million from investments whereas Basis raised $133 million all through their private rounds and targeted offerings. Almost all the large token sales are now done majorly through private rounds instead of public ones.
As more and more steps are being taken in the direction of scrutiny and regulations, startups are focusing more towards investments coming from the private sector rather than the public one. Private investors’ interest towards investing in this game of ICOs has also grown in the recent past. Despite showing the groundbreaking trend in the beginning, ICOs are now becoming a traditional business game. ICOs are becoming more like business ventures as compared to open expeditions. Traditional finance has been making its way in this framework and has affected how the market operates.
As stated by Lex Sokolin, the global director of fintech strategy at Autonomous Research in London:
The space went from three things to think about to 30 things to think about, and those 30 things are very analogous to traditional finance,
The initial framework upon which ICOs operated was simpler. Startups willing to raise funds would upload their white papers describing their project on their websites, and then the people interested in the projects would buy tokens being sold by the startups which can later on be used in their services. Funds were collected by the startups in the form of bitcoin or ethereum. But as the market boomed with ICOs coming in spotlight, things started to get a lot more complex.
With more and more stringent regulations placed on the ICOs across the world, it became difficult for startups to put up ICOs without paying lawyers to watch out for regulations. As a result, putting up ICOs for the public became difficult over time. An alternate way to bypass these restrictions is to just offer the ICOs to accredited investors only without going through the process of registration.
All of this also gained attention from venture capitalists, and crypto hedge funds increasing their interest in ICOs. It became easier for startups to raise funds by only targeting this class of investors. As per CoinSchedule, an approximate 18% of total funds raised were done through private ICO offerings, and 37% of ICO offerings were done through private pre-sales.
The co-founder of Tel Aviv-based Orbs, which was able to raise an approximate amount of staggering $120 million through private sales, stated that:
If you can raise money in the private sale, today it’s the best kind of ROI [return on investment] for the company because it comes with the least uncertainty and the least risk for regulations,
It is easier for startups to find investments through private means as compared to the public ones. Although publicly opened ICOs have the advantage of getting its news spread across the crypto world, private ICO offerings are able to raise more funds.
In a nutshell, raising money through private ICOs is the most alluring ways for investors to gain money these days. Although it was initially thought ICOs would be open to public, but that does not seem to be the case anymore. The entire system of ICOs was supposed to be something that would be open to all, but now it all seems distant. With more money raised through private channel, ICOs have become private business ventures now a days. Although the major inclination by startups has been towards private sector, public sector offerings are still thriving.