Why Are Most Blockchain Startups Destined To Fail?
2022 has definitely been harsh on companies, especially blockchain startups. Honestly, I am really fond of the technology and people working hard to utilize it to change the world. But with hindsight, it is clear to see that most of these startups are destined to fail. A whopping 90% of ICOs failed within 6 months. Also, if your company held an ICO and is still holding, I would bet against you. It is not that their idea is inherently bad or that the teams are not good enough. It is just negating the science of growth.
Low debt-to-equity ratio, audited financials, revenue in the millions or billions, and a high value of tangible assets are some of the strict requirements needed for a company to go public. What does a blockchain company need to offer a public coin offering? One smart contract, that is it. No product, no revenue, nothing.
Unfortunately, early ICOs are very financially beneficial for the startup, which incentivizes most startups to launch an early ICO with the promise of raising funds that will help with the development of the roadmap. The issue is the token launched has no intrinsic value, it represents a promise from the startup to investors that the value of the tokens will increase over time to recoup their investment with profit. In the best case scenario, these tokens represent convertible debt to the investors. Therefor, the number one goal has changed for the startup from growth to pleasing a huge number of investors and returning their “debt”. Number One Issue. As a startup, the goal is to grow as much as possible and as fast as possible. User base, transactions, and use cases need to grow the more you develop.
Open AI started on day 1 with 0 users and ended up with 1 million in 5 days. Most blockchain startups, due to the ICO culture, start with 1 million “users” on day 1 and end up with 0 after a couple of months. The reason is because they incentivized users to become investors that hold the token for no other than bagging a neat profit, morale goes down, development gets blocked and the startup disappears.
The bear market was a blessing in disguise as users became discouraged to invest in projects uselessly, and taught startups that the ICO is only a scam to bag money.
After all was said, ICOs are not a bad concept in general, if an ICO starts with a good tokenomics plan and to private investors that have an interest of growing the company, with more tokens released to the public with time and progress in the project, which creates a lean model for good startups to raise money.
As the legend says, “All the value of an idea lies in its execution.”
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