Blockchain funding: ICOs raise around $800 mn in Q2CY17, exceed VC by over 3x

Every industry and business model eventually gets disrupted.

Venture capital, the industry which invests in innovation and fuels such disruptions in various fields, is one which has not yet been challenged.

But a new challenger has entered the ring which has the potential to threaten the business model of VCs that rarely innovate themselves.

The new contender is called ICO or initial coin offering.

Initial coin offering or ICO is a crowdfunding method where new blockchain-based assets raise capital in exchange of new tokens with established ones like bitcoin, ether or even with fiat currencies like the US dollar.

Latest data released by Coindesk showed that for the second quarter of 2017, funds raised through initial coin offerings (ICOs) exceeded those raised through VCs by over three times.

From April to June, ICOs helped raise USD 797 million, compared to USD 235 million raised via VCs. This is more than a 2,000 percent jump compared to the first quarter of 2017, when only USD 36 million was raised through ICOs.

Many ICOs exceeded the largest blockchain VC deal, several raising over USD 100 million in funding.

The report further shows that between 2012 and Q2 of 2017, various blockchain ventures have collectively raised USD 1.13 billion through ICOs compared to USD 1.79 billion via VC.

For the ongoing third quarter, ICOs raised USD 574 million in July and USD 75 million in August. On Thursday, blockchain data storage network Filecoin completed its ICO, through which it raised over USD 257 million, the highest ever raised via ICO.

According to Coindesk's ICO tracker, the total cumulative ICO funding stood at USD 1,782 million, as of August 24.

Will ICO replace VC?

"ICOs [Initial coin offerings] can make traditional venture companies obsolete in the coming few years," said Brock Pierce, Co-Founder and Managing Partner of Blockchain Capital, when asked about this new phenomenon of the crypto world earlier this year.

Pierce had also said that crowdfunding was the first major step in the democratisation of early stage financing or venture capital, where it opened the market to a broader set of potential investors and ICOs, a more sophisticated form of the same, will make such deals available to a much larger number of people who would not have access otherwise.

Since then, a lot has happened in the ICO space, with the latest being getting declared illegal in China. This does raise the question of whether ICOs can kill venture capital or will they themselves go extinct.

With the lack of regulatory clarity around the space, nothing can be said for sure at the moment, except that ICOs have overtook VC as the dominant funding source for blockchain-based starups.

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