In this article, we will try to explore the blockchain and how much money the cryptocurrency company has raised on average before the start of secondary financing, and how long it will last.
We divided startups into two types according to the form of fundraising:
1. Get seed round financing, followed by other venture capital
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2. Funding through token sales through ICO, STO or IEO processes
All data used in this article is from InWara's market information platform.
The era of blockchain and cryptocurrency startups
Blockchain and cryptocurrency startups have attracted the attention of a large number of investors around the world. In just a few years, these startups have raised up to $46 billion. With such great success, people are easily attracted to the wonderful stories of good startups.
However, although these startups claim to have technological advantages, most of them have failed like other startups. According to an article in Forbes, one of the main reasons for the failure of startups may be the excessive funds raised too early, resulting in the exhaustion of funds. Yes, this sounds contradictory, but it makes sense.
So, based on this confusing paradox, by estimating the speed at which blockchain or cryptocurrency startups burn money, let's try to analyze how much money a startup needs in order to survive.
VC "does not return"
The first is a blockchain and cryptocurrency start-ups that raise funds through seed round financing. It is necessary to estimate how much money they have raised on average and how long they can be maintained before a new round of financing such as Round A.
(Blockchain/cryptocurrency startups raise funds through VC, data source: InWara)
The average amount of funds raised at different stages was $1.94 million for the seed round, $8.8 million for the A round, and $24.8 million for the B round. On average, these start-ups spent 16 months between the seed round and the A round, and waited 25 months between the A and B rounds of financing.
What can we infer from it? For a blockchain and cryptocurrency startup, you might need about $2 million in the initial phase to start a business, which should last for about 16 months, and then you have to raise money again.
The same principle applies to the subsequent fundraising phase.
So, what about blockchain-based financing? The token sales mechanism such as ICO and IEO is the main reason why these startups initially became the focus.
Up to 65% of the funds raised by blockchains and encrypted startups are obtained through token sales mechanisms such as ICO, STO and IEO.
After an in-depth study of the fundraising of these startups over the past few years, blockchain financing has dominated the traditional VC.
The token sales route is not good.
It is worth noting that thousands of ICO projects were launched in 2018, raising billions of dollars. While companies like EOS have raised billions of dollars and have achieved great success, most of them have raised less or even zero.
(The situation of fundraising for token projects, data source: InWara)
Analysis of the funds raised by blockchain and cryptocurrency startups shows that as many as 47% of startups raise less than $5 million. And less than 5% of companies have raised more than $50 million. This suggests that funds raised through blockchain-based financing channels are relatively small.
The transition from ICO to IEO
But in the first half of 2019, there was a shift from ICO to IEO. IEO has become the preferred method of raising funds, and some projects, such as BitTorrent, have achieved their goals in a matter of minutes, raising millions of dollars.
This has even led to the re-use of IEO fundraising by blockchain and cryptocurrency projects that have previously been funded through ICO to obtain a new round of funding to support its operations.
These data are based on dozens of startups that simultaneously conduct ICO and IEO.
Blockchain and cryptocurrency startups raised an average of $11.8 million through ICO and raised an average of $8 million through IEO. But what needs to be noted here is the time interval between token sales activities. In just three months, dozens of ICO blockchain startups have chosen to hold another token sales activity.
Unlike traditional venture capital, the purpose of the token issuance activity is not only to raise funds, but also to establish a community for marketing, token distribution, and so on.
But it is not excluded that some projects use the enthusiasm of IEO to raise funds.
Ethereum balance reveals mystery
There is a last resort to measure how much money is needed for an ICO project. We can analyze their Ethereum wallet balances. This allows us to measure how much money it has raised during the ICO, how much money has been used so far, and how much money was used during what time.
(Ethernet wallet balance for 100 ICO projects, data source: InWara)
This data is based on approximately 100 ICO project sample data. Between May 2018 and April 2019, an average of 3,700 Ethereums were taken from the ICO wallet. This number is very small, why? Our in-depth analysis of the data shows that some ICO projects are absorbing a large number of Ethereum.
Another possibility is that these ICO projects are preparing for the next round of bull market, Ethereum, for future realization.