Traditional Funding Or ICOs?
Blockchain is a technology that has interested almost all investors worldwide. Traditional investors are willing to invest in the blockchain companies. Soon when blockchain technology erupted, most sought after investors started to fund blockchain companies. As a result, the investment fund was far more than expected. For instance, 1.3 billion dollars were raised in the first quarter of 2018.
Through ICOs funding, a startup can sell their equity or utility tokens to raise the fund. The ICO funding has many benefits over traditional funding such as:
- Lower competition to raise the funds.
- There is a greater number of investors to fund startups rather than large players.
- It is almost similar to pitch ICO investors to that of venture funding investors.
- As ICO investors can be accessed online, there is no extra cost involves in traveling and startup presentation. Thus, it is cost-effective to get funding through ICOs.
Was ICO Funding Worth A Hype?
Although ICO funding became insanely popular in the initial stages, soon its weaknesses started to disrupt the market. It fell prey to hacking and scammers. The investors who were once really excited to invest in the blockchain companies through ICO method, they realized that sooner or later they are going to lose their money.
Many investors also lost a huge amount of money through technology vulnerabilities. Blockchain technology is undoubtedly the most secure to date. It’s the endpoint errors that caused the ICO funding method to fail.
Undoubtedly ICO method became immensely popular in the beginning but due to scams and hacks, the investors became stricter with accepting pitches and white papers.
The startups are no longer willing to try this method to raise funds for their business. The traditional funding method is the only “safe” choice for gaining extra capital to run a blockchain company in the UK.
Does It Have Any Effect On The Blockchain?
The cryptocurrency was the first among the blockchain applications. Startups started to explore this technology in retail, education, transportation, financial, healthcare, and consumer goods. The blockchain technology showed so much potential to improve present business practices.
The result was exponential growth in the blockchain technology. Everyone started to recognize technology. Every other investor was willing to invest in the blockchain companies. But there was only one question, how to invest in the blockchain?
That’s when ICO investment was formed. It had many pitfalls but still, startups started to fundraise by using this method. When the ICO investment emerged along with it the blockchain technology became popular. Initially, startups preferred ICO funding over traditional funding. But soon when its potential harms came into existence the blockchain companies moved towards traditional funding again.
What Study Tells About The UK Blockchain Companies?
The funding strategies have changed in the past year. According to a study, UK startups raised 656 million USD from equity funding. Whereas some blockchain companies in the UK raised a whopping amount of 1.5 billion USD from ICOs (Initial Coin Offering). Both of these statistics were measured from 2017 to 2019.
The price of cryptocurrencies was increasing rapidly during 2017. People started to get attracted to this new technology that can be used as a funding method. The cryptocurrency is also being used as an unregulated entity in many countries. This means there is no one to report if someone gets cheated through cryptocurrency funding fraud.
All of these were the reason cryptocurrency became the hottest funding method during the period of 2017 to 2019. But the scenario is entirely different this year. A venture capital firm MMC Ventures confirmed that blockchain companies are now shifting towards the traditional funding methods.
As a result, the ICO funding model is facing degradation. The business owners are aware of how valuable it is to use ICO as a funding resource. But after proper calculation, they have found that traditional funding methods are more convenient and cheaper.
Other than these discrepancies, the ICO method also has loopholes. According to a study, out of the ICOs conducted in the year 2017 almost 80% were scams. These numbers have shattered the confidence of the blockchain companies to apply for funding through ICO.
After all these issues that were emerged for the businesses in the UK, the ICO funding method slowed down at the end of 2018. But this funding system has also been proven to be a boon for some companies. When the blockchain companies were funded with ICO, the business owners had plenty of time to focus on the fundamentals. Although the UK is considered to be the hub of blockchain companies, the number is substantially less as compared to other businesses. Bitcoin companies in the UK require more funding in the later stage of the operations. The main reason for moving towards ICO funding is the requirement of capital. Because European investors perform strict traction before providing funding to such companies