In this op-ed column for DeCenter, Oksana Moroz, co-founder of BeUpTo.Capital told how the ICO market changed in 2018. Why did last year’s strategies for campaigning and promotion no longer work and which audiences should be targeted?
In the summer, the old ICO market finally died, but most still live according to the old rules and look for the guilty in the absence of results.
Many people share the opinion that the cause of the problems lies in Bitcoin. The first cryptocurrency is only part of the problem, though. The main cause is the transformation of the market. It began as early as the end of 2017, and by the summer of 2018, it changed beyond recognition. Professional investors realized that blockchain is a "new Internet" and they quickly started working in the ICO industry.
If you believe Mike Novogratz, "a horde of institutional investors" is moving in the direction of the cryptocurrency market. Their appearance has already strengthened the rate of Bitcoin, reducing the activity of retail investors. Now, institutional investors dominate the structure of project financing.
Under their influence, there are three key transformations of the ICO market taking place:
The rules of the game are changing. Professional investors are integrating venture capital standards adapted to the specifics of the ICO. The usual tools of 2017 are ineffective and even harmful. But the rules for attracting investments became clearer and more transparent than at the beginning of last year, but they are only clear to those who are able to work with the venture capital market.
A new infrastructure is being formed. The number of professional investors investing in ICOs is constantly growing, as is the average size of the check. Their experience in the industry is extremely small, however, and therefore, external expertise is needed. Professional investors are forming a new infrastructure from consulting agencies that have experience in both markets (ICO and VC). They provide the necessary products to investors and projects, reducing the risks of some and increasing the funds raised for others.
New requirements for the old infrastructure have been put forward. Historically, the market was formed from the first evangelists. After believing in blockchain, however, they started building up new expertise for themselves (marketing, PR, and management) and applying it to the ICO. Many hunters for "wild" money have flocked to the industry, who do not have any skills other than self-presentation. High-profile experts and agencies from the traditional economy sector ignored ICOs. As a result, an infrastructure has emerged that fits the requirements of institutional investors very poorly. In such conditions, a professional leap for the market was inevitable.
The entry of institutional investors to the ICO market has changed the requirements for projects:
ICOs are held only by companies that are working. The time for ICOs launched by kebab houses has irrevocably passed, as has the time for financing ideas without teams and technology. ICOs are increasingly being conducted by normal, working businesses that need money to be scaled. Hence the growing popularity of closed tokens sales.
The entrance barrier has grown to $1 million. The likelihood of not raising the minimum amount of funds needed to implement the project has significantly increased. Most of the ICO budget is used on lawyers and roadshow services under the new standard. Only 20 to 30 percent of funds are invested in marketing.
The role of the roadshow has changed. It has evolved from feverish rushes between conferences into a key tool for collecting money. The roadshow has approached the IPO standard. Now, this is a complex process, the success of which directly depends on the ability to build relationships with funds based on the background of the team, and also on the ability to "warm up" investors' interest in the project and the efficiency of closing deals.
The CIS peculiarities. It is more difficult for regional teams to adapt to new realities. They do not have the necessary networking and background to work in the capital market. If the former is partially reparable (bases of funds or investors investing in ICOs are formed, there is an open database with 78 funds and 214 investors, The Crypto Funds and Crypto Investors (CIS and Eastern Europe)), and there are several advisors in the market with the necessary networking skills, but the second aspect is worked out over the years. As a result, teams from traditional VC geographies working in ready ecosystems are several quarters ahead of the curve.
Change of the communicative paradigm. The congestion of channels and their low confidence has led to the unfortunate fact that most of the marketing budgets are wasted. Carpet advertising bombardment and hyped slogans have given way to a thought out system of communications within the framework of money marketing.
If we continue to use the cases of 2017, then the effect will be very low, and the efforts and resources will be enormous. This does not mean that there is no market. It just became different with new rules, tools, and processes. This is the first tectonic movement of the ICO market, but not the last.