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ICOs Attract 25x More Funding Than Traditional Venture Capital Investment

ICOs Attract 25x More Funding Than Traditional Venture Capital Investment

ICOs Attract 25x More Funding Than Traditional Venture Capital Investment

Former Coinbase employee and software-focused early-stage venture capital investment firm Runa Capital principal Nick Tomaino believes blockchain projects initiating initial coin offerings (ICOs) can earn upwards to 25x more than traditional venture capital investment.

Since mid-2016, the rise in the popularity and demand for ICOs have been relatively evident in the level of success blockchain projects have had. Gnosis in particular, which secured a multi-million dollar investment at a $300 million valuation through its ICO, was reported by mainstream media outlets including The Wall Street Journal (WSJ) and Forbes, due to its 12-minute completion of a $12 million investment, which effectively earned the company $1 million every minute.

There have been overwhelming criticisms over the existence of a bubble in the ICO scene and the significant overvaluation of blockchain projects. Specifically, blockchain projects that haven’t even completed alpha to beta testing have been raising millions of dollars at a massive valuation based on pure speculation.

Theoretically, ICO is a phenomenal investment method which allows anyone in the community, with or without large capital and resources, to invest project they deem valuable. Therefore, while ICOs are largely overvalued, the concept that allows virtually anyone to become stakeholders in a company presents benefits to both the startup raising funds and investor. Also, ICOs provide an incredibly high liquidity through a tokenized system, which can be sold on exchanges almost instantaneously.

Emphasizing the overvaluation of ICOs, Nick Tomaino, the principal of Runa Capital, wrote:

“I'd estimate there's a ~25X multiplier on token funding rounds today (meaning if you can raise $1M from venture capital firms, you can raise $25M from crowd).”

Tomaino’s view point on the ICO market is rather unique and valuable as he is evaluating the market based on his position as a venture capitalist. Tomaino also has underlying knowledge and experience with the cryptocurrency market in general due to his early involvement in Coinbase, one of the largest and most influential companies in the Bitcoin industry.

Tomaino further explained that the concept as an entrepreneur and an early stage startup is attractive. However, he also noted that unreasonable expectations stemming from massive valuations could result in many problems for companies in the future.

“As an entrepreneur, that [ICO] is attractive. Plus you have a pure biz model (create a useful service to increase demand + token value). The problem I keep coming back to is too much funding too early leads to problems (unreasonable expectations, undisciplined decisions etc),” Tomaino said.

The blockchain is a relatively new technology which portrays a decentralized network that hasn’t been around in both the technology and finance markets, with the exception of the BitTorrent client. Hence, unreasonable expectations could severely damage a startup or company’s long-term growth, short-term market cap and its token’s value.

Author : Joseph Young

Joseph Young is a finance and tech journalist based in Hong Kong. He has worked with leading media and news agencies in the technology and finance industries, offering exclusive content, interviews, insights and analysis of cryptocurrencies, innovative and futuristic technologies.

blockchain technology Cryptocurrency Market ICO Runa Capital
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