ICOs will kill VCs, unless they adapt

Wouldn’t it be awesome if you could just blindly throw some money into a pool and magically make good returns? Well, that’s kind of what’s currently happening with ICOs (also known as token sales) and this is evident from two data points — the initial token sale price and current sale price (analogous to traditional company shares).

ICOs are clearly on the rise and they’re steadily moving into the realms of the Venture Capital industry, threatening to take its place. VCs also operate on high returns by betting on startups, so it’s quite clear that they soon undergo a huge transformation due to ICOs.

In fact, VC firms will either flourish or get eliminated depending on their value addition beyond capital delivery in the rapidly evolving startup funding scene — it’s up to them how it plays out.

Now, let’s try to get a grasp of what’s actually going on in the current markert with a good old fashioned data-backed analysis.

Comparing the return — ICO vs. VC

We’ll begin with the ROI of ICOs — because frankly that’s what most investors are interested in — let me start by explaining how I prepared the dataset for this study. There isn’t a complete database of initial prices of all the completed ICOs on the web, but there are sites like ICO Stats and Token Data that track sizeable number of tokens.

I was able to combine the available data from the above-mentioned sites and create a dataset of 155 tokens (152 are from 2016 and 2017) with initial sale price and current sale price. You can download the dataset from the following link.

After I calculated the ROI of all these tokens, the average value came to a whopping 1373 percent, which roughly translates to 14-fold return. To put things into perspective, let’s assume that we’ve got a really great VC firm that can yield fivefold return in a span of five years (being highly optimistic). Here’s a chart depicting the return on $1,000 investment in both ICOs and startups by VC firms.

Cementing the ICO market

Now that we’ve established that the returns given by ICOs are way more than the ROI of traditional VC investments, let’s examine the funds raised via this mode from 2014. Here below is a chart depicting the total ICO funding till September, 2017 (dataset downloaded from Coindesk):

The chart shown above tells that cumulative amount of more than $2.3 billion funding have been raised till now. And, ICOs are here to stay primary because of…

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