Are you ready for the 1 billion dollars ICO?

CO is a new term to many readers, but very much day-to-day terminology to a lot of small and big investors.
The acronym means Initial Coin Offering and it could be considered as a spinoff of the traditional Initial Public Offering (IPO). Companies like Linkedin, Facebook, Groupon and Google greatly benefited from this efficient financial tool, which in simple words allows anyone (the Public) to acquire shares of a company in the stock market.
However (usually) this process happens when a company is already either established or ready to become profitable.
For instance Facebook, which was founded in 2004, went public in 2011 when yet had to show significant profit, but it was undoubtedly a phenomenal catalyst for success.
In the case of Facebook, large shareholders like the U2 singer Bono Vox, had invested at early stage, hence IPO served as a way out.
The flow of money went from the small investors (whom years later paid a higher price per share), to the big investor (that years earlier had invested large sums to acquire shares at low price). In recent years start-ups have allowed investors to shorten the exit time (selling back) by a few years, but the elephant in the room remained the equity.
Once an investor owned shares, he or she is entitled to determine the direction of the company and sometimes not interested in diluting the value by onboarding more investors, hence limiting the chances of growth.
The answer to this problem could be ICO.
As much as for many external observers the whole cryptocurrency frenzy may sound difficult to understand, some investors have already eyed the $170 billion capitalisation of cryptocurrencies as the new Eldorado for investment.
By acquiring coins (in the form of Tokens) instead of equities, big investors have now the chance to quickly resell an asset that is somehow linked to the performance of the company, but not necessarily so deeply rooted, like shares would be.
As the pile of Bitcoins, Ethereum, Lithium etcetera grows day by day, the ICO market becomes larger and larger. But not all that glitters is gold.
In fact, a recent statistic showed that out of the 800 odd ICOs that took place in 2017, the #1 ICO that attracted the largest amount of investment has collected more than #2 and #3 combined. Subsequently, from #4 to #49 all together, they collected approximately as much as #2 and #3 combined.
Sadly, from #50 to #800 all together, they collected a negligible amount of investment.
In summary, ICOs are great news material when they hit the bestseller status, but generally neglected when they barely hit $20 thousand. Hence a $25 million ICO stays in the news for weeks or months, while the other 95 per cent unsuccessful ICOs are soon forgotten.
But the market is just at the beginning. Just in June when ICO became the new buzzword, companies could have prepared and filed an ICO with minimal investments, but now, with the spring of “ICO experts” (which in most cases have no experience whatsoever), the consulting price for ICOs has climbed to 6 figures.
At the upcoming Money 20/20 Asia conference there is going to be a “major” ICO announcement — the organisers said. So the crypto community is now all thrilled to find out where are they going to “throw” some coins next. So while some big investors get out of the investment, a multitude of small fish will take over the lot of token and bear the risk.
Sounds like a perfect business model where big investors are able to exit the investment within 2 to 5 months (as opposed to 2 to 5 years last decade) and profit quickly.
Hence, once the machine will be well oiled, we will start witnessing bigger and bigger ICOs. Right now everyone marvels at the idea of 100 million dollars ICO, but mark my words, within 2 to 3 years we will be accustomed to 1 billion ICOs.
I remember when nearly 15 years ago I saw the first advertisement of a personal computer featuring 1GB RAM. It sounded like science fiction to me, and now it sounds like “geek nostalgia”. The same will happen — I guess — with ICO. We might think of it like the newest craze now, but it will soon become normality.

Stefano Virgilli
stefano@virgilli.com