Money makes the world go around, anyone telling you differently is either painfully naive or trying to sell you something. This isn’t a bad thing, money in essence just simplifies the bartering process, and without it economic growth would cease. Unfortunately, oftentimes the people who need the money aren’t the ones who have it – and from these, patrons, crowdfunding, and eventually ICOs were born. But just as patrons replaced begging, and crowdfunding replaced patrons, can there be any doubt that ICOs are the next logical step?
The various methods of acquiring funds all share similarities, but it is in their differences that ICOs truly shine. The future is here, it is time to stop begging for money and instead provide irresistible incentives to ensure people metaphorically throw funds at your idea.
We would like to thank the team at PinkTaxi for their contributions to the design and implementation of the research and to the analysis of the result.
ICOs are scary, aren’t they?
I’m not here to tell you that ICOs are the perfect investment, or that an ICO will always succeed. Heck, the glaring data is that around 46% of 2017’s ICOs have already failed, according to Bitcoin.com. The thing about that failure rate is that a majority of those companies raised their funds in the first place, something that only 36% of kickstarter projects manage to do. Couple those success rates (54% ICO, 36% Kickstarter) with their respective average amount raised per project, which is about $250k for ICOs in 2017 and $25k for kickstarter projects of all time, and the painting starts to become a bit more clear.
But I understand that these failure rates can be intimidating, and I couldn’t agree more. Everyone knows that ICOs are potentially risky to invest in, given the young age of the industry, right? After all, companies like Kickstarter have processes in place that guarantee funds/perks/products for customers who invest in companies, don’t they? This should make them a far safer investment, in a sense, but let me tell you briefly the story of Zano Drones.
All Aboard the Hype-train
Zano Drones started like many other Kickstarters, they had a beautiful page, a unique idea, and a super exciting product video. A drone that would fly around and basically be your personal paparazzi for a fraction of the price compared to anything remotely similar. From the get go, Zano was met with enthusiasm and success on Kickstarter. Over the course of their campaign, they managed to raise nearly $3.5 million dollars, almost 20 times their original goal.
“Zano is up and flying, holding position, avoiding obstacles, streaming live video back to a smart device, capturing video and photos,” read their Kickstarter campaign notes. “Our supply chain is 100% ready to go, from vital components that make Zano fly, to the very boxes that Zano is packaged in.”
But as time went on, production releases started to miss deadlines, campaign updates started to become less frequent, until eventually the company shut down and filed for bankruptcy about 2 years after their Kickstarter launch. What happened?
Zano Drones is the perfect example of why community vetting is absurdly important and can save major headaches down the line. Zano’s parent company, the Torquing Group, was a legitimate company by all means, but the problem was their product. They were making substantial claims that were simply impossible to back (considering their price point and the current technology at release), but no one raised any red flags. As Mark Harris points out in his Medium article,
“Only one person clicked the Report This Project button at the very bottom of Zano’s page during its Kickstarter campaign. This button allows any user (not just backers) to sound the alarm on projects they feel are implausible or suspicious.”
Enter Community Involvement
Lack of community involvement and vetting allows for companies like Zano, with virtually impossible to achieve product goals, to raise 20 times their fundraising target and eventually leave nearly every single one of their backers without product, refund, or closure.
ICOs, on the other hand, are much easier to vet and verify thanks to the heavy community investment. Although ICOs have suffered from hype-train syndrome in the past (looking at you, BitConnect), the community has bounced back and many more vetting processes have been developed. We wrote a whole piece on the process of vetting an ICO, but here are just a few of the ways ICOs are better verified than traditional crowdfunding campaigns:
- Ability to investigate the founding team, programming team, advising team, etc. Crowdfunding campaigns often rely on snazzy videos to sell their final product, while ICOs instead rely on their educated and qualified staff to build trust.
- Whitepapers are worth their weight in gold. A complete breakdown of the market, the competition, the potential, and the product should be included in a well written, cleanly organized fashion.
- Distributed, educated, and unbiased community members across various mediums work hard to validate information and provide insight on ICOs.
Unfortunately, team experience isn’t always enough, especially when it comes to crowdfunding projects that aren’t ICOs.
The Noble Crowdfunds that Fell Short
After a rough year, rising production costs, and the continued need to subsidize tickets to ensure a variety of community members could attend shows, the New York City Opera found itself trying to raise funds on Kickstarter. But after raising only $300,000 of their $1,000,000 goal, the opera had to file bankruptcy and was unable to put on their productions.
This isn’t an isolated incident either. For instance, look at the Malaysian Government’s attempts to crowdfund money to pay off their national debt after new elected officials took office. Of their $250 Billion debt, only $2 million was raised – albeit impressive, this amount barely scratches the surface.
Crowdfunding is a great idea to raise funds, but through traditional platforms and underdeveloped processes the results can be lackluster, particularly in the aforementioned case of Malaysia’s debt. An inspiring tale that may have raised far more funds had donations not been so difficult for outside parties, one of the major reasons that Malaysia failed to raise funds was their collection methods. They decided to provide a bank account for people to transfer money into, which left a lot of potential donors filled with doubt and uncertainty.
Venezuela, on the other hand, is attempting to tackle their national debt problem in a similar yet completely different way. They have launched their own ICO and coin, called El Petro, which is backed by their oil reserves. Whether you agree with the politics of their decision, the numbers paint a clear picture – people are far more likely to flock to a cause when they are given incentives. In this case, Venezuela has reportedly raised over $5 billion USD, nearly 250,000% more through their ICO than Malaysia raised through their crowdfunding.
We’ve created an infographic to better explain this idea to you:
ICOs to Better the World
The entire purpose of an ICO is to raise money, but that doesn’t always mean that the money won’t be going to do something great for the world. One common misconception is that crowdfunding is for philanthropic endeavors, while ICOs are strictly for profit seeking businesses. As time goes on, more and more organizations are realizing that by offering incentives they can drive their fundraising efforts far higher than they first hoped by hosting an initial coin offering instead of asking for donations.
Take, for example, the Seratio Platform – an entire premise and economy based around the idea of measuring the good that organizations bring to communities. This platform was able to fundraise over $6.5 million dollars, and because of these funds they have since launched their platform and started to provide the measures necessary to support legislation in the UK, Europe, and internationally to further their cause.
Another benefit of using launching an ICO is that it allows for companies like PinkTaxi, a global brand launching an ICO to help women around the world, to show off their prestigious team and product. When the community verifies that a company is legitimate, the company can instill greater confidence in its potential investors than a fancy video ever could.
In the case of PinkTaxi, many of their team members are from the Paxi Company, a successful pink taxi company located in Pakistan. Having this relevant field experience enables PinkTaxi to anticipate possible problems when launching in new countries, focus primarily on incorporating the blockchain into their operations (instead of having to focus on creating an entire company), and consult with field experts to ensure everything goes smoothly.
Companies like the Seratio Platform and Pink Taxi that have underlying moral standards are more likely to succeed through an ICO than generic crowdfunding because they:
- Don’t rely on the “good nature” of individuals to donate to their cause and instead take matters into their own hands and offer attractive incentives.
- Understand that a sustainable business cannot be maintained based solely on the charity of others.
- Give their clients and investors a feeling of fulfillment because they are contributing to a greater cause while potentially simultaneously earning an ROI.
At the End of the Day
When noble hearted companies want to change the world for the better they can’t rely entirely on the kind hearts of philanthropic strangers. Sure, universities sometimes receive support from alumni, street beggars get a few coins, and nonprofit canvassers might raise some funds for their organization. But the bottom line is that money makes the world go around, and organizations that come to this conclusion faster (no matter how noble and honest they may be) are far more likely to succeed.
The days of one-way crowdfunding are coming to an end as more and more people start to ask “but what about me?” every time they open their wallets.