Blockchain startups raised $3.2 billion in the first half of 2018, a new study has revealed. The study, conducted by TeqAtlas, a research company that majors on emerging technology, revealed that token generation events continue to be the favored funding method, generating close to twice the amount raised by traditional funding methods. The study also revealed the growing popularity of initial exchange offerings (IEOs) which are gradually replacing the initial coin offering (ICO) method.
Over $20 billion was raised by blockchain startups in 2018, a record since the industry became mainstream. However, in 2019, the figure has dropped drastically. In the first half of the year, blockchain startups have managed to raise $3.2 billion. The number of deals made in the industry has also taken a hit, with 268 deals in H1 compared to 910 in 2018.
IEOs have been enjoying its popularity over the first half of the year, gradually taking over from the ICO model which has been marred by regulatory issues—a natural progression, according to the TeqAtlas team. And while IEOs have been preferred as they are much less susceptible to manipulation, they aren’t full-proof either.
Speaking with CoinGeek, the TeqAtlas team explained, “Crypto trading platforms introduced IEO precisely to fill the gaps of ICOs, to provide investor protections and thus lure more investors in. However, we still see unscrupulous activity on those exchanges. Market makers place large fake bids, incentivize holding of assets and unreasonably lock tokens, provide false advertisement. It is hard to tell if the trading volume is true, what sentiment there is on the market. Nonetheless, it is for sure true that IEOs at least try to follow the regulatory framework.”
As CoinGeek revealed recently, most of the funding is for companies in the angel and seed stage. This is an indication that investors are demanding to see clear signs of revenue before making further investments. And according to TeqAtlas, IEOs have played a huge role in restoring investor confidence.
“After the hype period of 2014-2017 when nearly 3/4 of ICOs turned out to be a scam, institutional investors treat startups cautiously. IEOs are actually what help investors take a clearer and more transparent look. Moreover, since the exchanges value reputation, they collaborate with investors for project evaluation and due diligence process. Generally, we see signs of maturity with the help of IEOs.”
Over 800 VC firms have invested in blockchain startups, the report further revealed. The Digital Currency Group is still the outright leader in the number of closed deals in the sector. Fintech startups have been the most attractive to investors, with cyber-security and blockchain infrastructure being the other well-funded sectors.
And while the investment in the industry has reduced significantly, TeqAtlas doesn’t believe the investors are moving out of the industry:
“To sum up, we would not say that investors are moving out of crypto. Due to still present uncertainty caused by the reasons mentioned above, investors simply wait. Having got burned, big-time investors want to see what regulators and commissions will do, will they punish exchanges for what they have already done and shut them or will they find a work-around and come to mutually beneficial terms. Regulators like to take their time though, so we do not expect any sharp changes for the following year.”
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