Hungry sharks: Are ICOs overtaken by VCs?

We can see tendencies in the market that many ICO investments are overtaken by VCs. In my previous article, I outlined empirically, that ICO fundings outperformed early-stage VC investments. But it could be that the VCs put their money into ICOs themselves.

What you need to know about ICO stages

ICOs usually consist of different funding stages. Most common is the differentiation into a private, a pre- and a public sale. As the name indicates, the private sale is delighted to certain, selected investors who usually invest larger amounts. In this stage, most of the information is not made public and only the investors gain access to it.

This offers opportunities for Venture Capitalists since they have an access to a larger amount of investable capital, giving them certain advantages against private investors. They can fund the early developments of the ICO itself before it is launched publicly, – and this is a pretty good thing enabling projects to execute an ICO.

How deep are VC investors diving into ICOs?

Looking at the latest ICOs, a shift of Venture Capitalists investing in ICOs can be observed: Taking the Telegram ICO as an example, the team collected the tremendous amount of 850 million USD only in a private sale. And there are many more examples that can barely be proven empirically, but experts are forming a consensus about it: The amounts of capital raised shifts more and more from the public sales to private stages, mainly attracting VCs.

Is it a problem for the market?

It is not really an obstacle for the market in general that ICOs and a limited circle of individuals overtakes ICOs. As long as ICOs are reaching their funding goals, it does not really matter for them where the money comes from.

Although, ICOs were often associated with the possibility of investing with very small amounts of money – therefore enabling everybody to enter this market that has never been easier before to utilize for the mainstream. The effect that may arise is that private sales are getting bigger – hence, public sale investors have a bigger disadvantage against private sale investors (who entered with better conditions). Additionally, the ICOs offered to public audiences or performing a small private investment stage might be those who were not interesting enough for VCs. Therefore, the conditions of ICO investments are getting a bit worse for private or mainstream investors.