As Crypto Crowdfunding Begins to Mirrors Traditional Fundraising, It’s Clear: Fundraising is Fundraising

One sure-fire way to grab the attention of every tech entrepreneur: Start running headlines like Startup Raises $35 Million in 30 Seconds With Cryptocurrency Offering. And it wasn’t just clickbait. In 2016 and 2017, such headlines became hard to avoid.

The Initial Coin Offering craze was in full swing and startups were suddenly raising tens (or hundreds) of millions based on little more than a napkin stage idea. Opportunistic founders flocked. There were some great projects funded, some not great projects funded, and a lot of people looking at crypto for the first time.

And even faster than the ICO craze arrived, it has largely disappeared.

What happened?

Bad Projects Were Exposed

Bloomberg published a study that revealed more than 80% of token sales conducted in 2017 were scams, accounting for approximately $1.34 billion in funding. Projects like Pincoin ($660 million), Arisebank ($600 million) and Savedroid ($50 million) lead the way.

Since the majority of these projects were true crowdfunds — as opposed to angel investors or VC firms — these scams relied on spreading hype, misinformation, and deploying other mass-influence techniques to get a few hundred (or thousand) people to invest small amounts. It worked. People were duped and lost money.

Naturally, the U.S. Securities and Exchange Commission started poking around and asking questions.

The Grownups Showed Up and Started Asking Questions

While the first batch of bad token sale projects was exposed, the grownups started to show. VCs and angel groups started launching new funds designed to take part in the best token sale projects.

And here’s what’s interesting about that: these VCs and angel groups started treating deals the way they treat any (standard equity) deal. They asked for multiple meetings with teams and founders, asked questions about the technology, evaluated markets carefully, and generally did the diligence they’ve always done.

Ya know, the stuff the crowd didn’t do.

The Grownups Shift the Market

With so much of the crowd’s money gone to less-than-good projects and all of the new money flowing in from VCs and angels, crypto projects were forced to start playing by traditional fundraising rules.

That means a few things but most notably: projects generally needed to build something before seeking funds.

Token Fundraising in 2018

That means the fundraising market has shifted dramatically — the marketing hype machines have died down, token sale advertising is heavily restricted, and most deals have gone the way of traditional equity fundraising.

Boring, right? But this is what’s best for the future of token-based fundraising.

We now see projects like PlayChip, a gaming platform that is bringing its token to an existing business with hundreds of thousands of active users in seventy different countries across nine different gaming platforms. They registered with regulators, won the Draper Hero’s Choice Award, are the official sponsor of a major sporting team in Australia (the South Sydney Rabbitohs of the NRL), and play ball with Know Your Customer (KYC) regulation. This is nothing like what we saw in projects in 2016 and 2017. They’re bringing their existing platform to the Ethereum blockchain rather than starting from scratch.

Armed with that, it took PlayChip just two weeks to raise more than $10 million. Not quite $35 million in 30 seconds, but about as good as it gets in 2018.

Similarly, Mortgage Blockchain Labs took the show on the road, sharing its project with groups of VCs and angel investors around the world as it works to complete its fundraising. Logging thousands of miles through the air is a far cry from 2016 when millions could be fundraised just by punching up a white paper and launching a token in an afternoon.

In short: meet the new boss, same as the old boss. The token sale party is over, and that’s good for everyone.

Andrew J. Chapin is the Co-Founder & CEO of Benja, head of the benjaCoin token project, author of Art of the Initial Coin Offering, and a token advisor for several projects.

This story is published in The Startup, Medium’s largest entrepreneurship publication followed by + 382,862 people.

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