While people talk about a bubble in funding for private start-ups, one might want to take a look at the surge in funding for cryptocurrencies first.
According to William Mougayar, a Toronto-based venture adviser and investor, funding in initial coin offerings, a means of crowdfunding the release of a new cryptocurrency, has now exceeded that of early stage venture capital funding.
“Ever since the Bancor and Gnosis ICOs kicked the door open on creativity and boldness in ICO campaigns, the appetite for ICOs has been steadily increasing,” Mougayar wrote in a posting on Startup Management. “I sensed that June was a pivotal month that may be setting the tone for the next months to come, so I spent a good part of the past several days trying to tally up exactly how much was raised.”
Based on his research, Mougayar said more than US$560m flowed into the space in June alone. For comparison, angel and seed stage investments only see roughly $550m invested each month on average.
A recent report from CB Insights and PricewaterhouseCoopers shows that $8.7bn flowed into Internet-related start-ups in the first half of 2017, and across all sectors roughly 50% of investment was in the seed and early stage firms, he said. So taking half of $8.7bn, cutting it in half once again and then dividing by six to get a per month number gives you roughly $360m, below the amount of ICO funding seen, Mougayar said.
Investors in digital currencies have been experiencing more volatility than in traditional markets as of late. Digital coins are currently worth around $86bn, down from a market capitalisation of $100bn last week and $115bn on 14 June, according to data from Coinmarketcap.com. Bitcoin, the largest of the digital currencies, is down about 20% from its peak of $3 000, reached on 12 June.
“Will this become a sustainable trend remains to be seen,” Mougayar wrote. “In early February, I predicted that a thousand ICOs would raise $1bn by the end of 2017. A billion dollars sounded outrageous at that time, but we have already eclipsed it on a year-to-date basis,” he concluded. — Reported by Julie Verhage, (c) 2017 Bloomberg LP