Funding your startup with the ICO and token crowdsales explosion

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Entrepreneurs are taking notice of the $24.1 billion market capitalization of Bitcoin and the recent $12.3 million raised off a $300 million valuation of Gnosis.

Investors are allocating substantial sums to cryptocurrencies. Entrepreneurs would be wise to make themselves aware of the billions being raised in the global ICO (initial coin offering) markets.

An ICO is an unregulated means by which a new cryptocurrency venture monetizes its investment. ICOs use dynamic pricing based on real-time supply and demand. The time-based pricing strategy means that no central authority or government sets the price; rather, the price of the token is based on current market demands.

Most consumers have known about dynamic pricing for many decades. Hospitality uses demand such pricing in the tourism industry (e.g. high season, low season, shoulder season, etc.). Airline ticket prices fluctuate depending on the day of the week and number of days before a flight that the reservation is booked. Online retail adjusts prices according to competitors, time, traffic, conversion rates and sales goals. Utilities use real-time pricing to set peak and nonpeak prices for electricity. Retailers from Amazon to Major League Baseball let demand set the prices of their goods and services.

Raising money without traditional venture capitalists has been quite successful.

Recent token crowdsales

We frequently hear of Bitcoin ($24.1 billion market cap), Ethereum ($7.2 billion) and Ripple ($2.2 billion). What’s mentioned less often are the smaller companies that went from a novel, innovative idea to a funded startup in less than a quarter.

The ICO buzz since 2016 has been electric. Several ICOs that secured funding in 2017 include:

  1. Dfinity raised $3.8 million: A decentralized computing cloud with native smart contracts and a distributed intelligence DAO (distributed autonomous organization).
  2. Aeternity raised $11.4 million: A smart contract platform that stores contracts off-chain to increase efficiency. Aeternity uses a native Oracle machine to read off-chain data.
  3. Qtum raised $15.4 million: A proof-of-stake, smart-contract compatible protocol that works with both Ethereum and Bitcoin dapps (distributed applications).
  4. Cosmos Network raised $16.8 million: a network of interoperable ledgers to accommodate any asset, any blockchain and any programming language.
  5. Gnosis raised $12.3 million: An accessible prediction market platform enabling the free flow of useful information.

The amount of funding raised to date is getting a lot of attention. Even more noteworthy is the short time span in which this money was raised. Dfinity raised $3.8 million in less than 48 hours. Aeternity raised $11.4 million within five days. Qtum raised $15.4 million within a week. Cosmos Network raised $16.8 million within 24 hours. Gnosis raised $12.3 million within 24 hours.

New companies looking to raise capital to cover development costs have their eye on the growth and initial success of ICOs.

Blockchain sectors

To date, these ICOs have been crypto-based companies enabling new business models powered by blockchain technologies. We’ll soon see nontechnology companies get in on the ICO boom.

Blockchain startups have expanded well beyond infrastructure and finance. As of May 2017, there are 1232 blockchain startups that cover more than 13 sectors:

  1. Information and communication
  2. Finance and insurance
  3. Professional, scientific and technical activities
  4. Electricity, gas, steam, and air conditioning supply
  5. Arts, entertainment and recreation
  6. Education
  7. Wholesale and retail trade
  8. Human health and social work activities
  9. Agriculture, forestry and fishery
  10. Accommodations and food services
  11. Transportation and storage
  12. Manufacturing
  13. Real estate activities

Blockchain startups span 37 product and service categories including: infrastructure, content management, financial services, wallet, data analytics, exchange, trading and investing, payments, blockchain consulting, compliance and security, digital currency, enterprise blockchain, governance and transparency, identity and reputation, mining, provenance and notary, sharing economy, social networks, real estate, savings and loans, supply chain and logistics, news and insights, messaging, manufacturing, loyalty and rewards, legal audit and tax, learning, internet of things, insurance, HR, recruitment and payroll, healthcare, gambling and betting, entertainment and gaming, energy and utilities, crowdfunding, compliance and security, commerce and advertising, and many others.

Golem raised $8.6 million in under 30 minutes. Blockchain Capital in a record 10 hours raised $10 million. Cosmos Network needed just nine minutes to raise its first $17 million. The returns for investors have been impressive. The short payback period and the liquidity of cryptocurrencies are making ICOs very appealing to small investors and traditional VC firms.

The rapid injection of cash into ICOs is also drawing the attention of regulators. Entrepreneurs looking to fund their startups realize the window of opportunity is slowing closing — so get involved early.

Peter B. Nichol, empowers organizations to think different for different results. You can follow Peter on Twitter or his personal blog Leaders Need Pancakes or CIO.com. Peter can be reached at pnichol [dot] spamarrest.com.

Peter is the author of Learning Intelligence: Expand Thinking. Absorb Alternative. Unlock Possibilities (2017), which Marshall Goldsmith, author of the New York Times No. 1 bestseller Triggers, calls “a must-read for any leader wanting to compete in the innovation-powered landscape of today.”

Peter also authored The Power of Blockchain for Healthcare: How Blockchain Will Ignite The Future of Healthcare (2017), the first book to explore the vast opportunities for blockchain to transform the patient experience.

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Peter is a healthcare business and technology executive, recognized for Digital Innovation by CIO 100, MIT Sloan, Computerworld, and the Project Management Institute. As Managing Director at OROCA Innovations, Peter leads the CXO advisory services practice driving digital strategies.

Peter was honored as an MIT Sloan CIO Leadership Award Finalist in 2015 and is a regular contributor to CIO.com on innovation. As Head of Information Technology, Peter was responsible for Connecticut’s Health Insurance Exchange’s (HIX) industry-leading digital platform transforming consumerism and retail oriented services for the health insurance industry. Peter championed the Connecticut marketplace digital implementation with a transformational cloud-based SaaS platform and mobile application recognized as a 2014 PMI Project of the Year Award finalist, CIO 100, and awards for best digital services, API, and platform. He also received a lifetime achievement award for leadership and digital transformation, honored as a 2016 Computerworld Premier 100 IT Leader.

Peter has a B.S. in C.I.S from Bentley University and an MBA from Quinnipiac University, where he graduated Summa Cum Laude. He earned his PMP® in 2001 and is a certified Six Sigma Master Black Belt and Certified Scrum Master. As a Commercial Rated Aviation Pilot and Master Scuba Diver, Peter understands first hand, how to anticipate change and lead boldly.