A Deep Dive into the Dismal Success Rates of ITOs

2017 has been etched in history as the “Year of Bitcoins”. With a surge of more than 400%, Bitcoin outperformed all other asset classes and painted a promising picture for cryptocurrency enthusiasts. This confidence in cryptocurrencies heralded a wave of Initial Token offerings (ITOs) and Initial confidence offerings (ICOs), which went on to achieve all-time cumulative funding of more than $20B till date.

However, not everything has been sunshine and roses in the ITO landscape. As per a study by Bitcoin.com, of all the projects that raised ITOs and ICOs in 2017, as much as 46% had to bite the dust in the end. Among the unsuccessful projects, most failed ventures were those which either couldn’t reach their soft cap in the fundraising round or underperformed in the delivery stage.

Below are the major factors that led to the doom and gloom of many promising blockchain projects. Understanding where these projects missed their mark would throw light not just on the risk-prone aspects of an ITO but also the solutions that can mitigate these risks.

Learning from the sad biographies of the various unsuccessful ITOs, the following four reasons emerged frequently as the critical drivers of project failures.

Problem 1: A Promotional Strategy that Backfires

Since new ITOs are emerging every new second, it takes a specialized marketing strategy to make one’s project stand out from the rest. However, in this bid to shine, some campaigns have gone overboard with their promotions and created blunders that have cost them their whole projects. One such case is of social media Askfm, whose marketing strategy was to send its crypto enthusiasts to Mount Everest. This plan, which was initially being hailed as extraordinary, drew flak after one of the enthusiasts died on the expedition. The negative promotion from this incident was so severe, it decimated their reputation to bits.

Lesson Learnt

Going for an innovative promotional strategy is not bad as long as all its potential risks are considered. As a novel concept, ITOs are still considered a risky venture, so any additional perils associated with their marketing or business strategy won’t bode well for a company. As marketing plays a critical role in making or breaking a project, ambitious blockchain entrepreneurs must consult expert marketers in the industry to promote their project and build their reputation.

Problem 2: Absence of Legal Documentation

A successful ITO needs to simultaneously juggle regulatory investigations and legal troubles at the same time. Linda Health Coin is a brilliant example that reflects how ITOs can fail due to lack of relevant legal documentation. Their token aimed to provide a smart course of treatment powered by AI. However, their lack of an investigation disclosure came across the radar of the securities regulator of the U.S. state of Colorado. Since they perceived the Linda Token as unregistered security, the whole ITO was halted in the territory of Colorado.

Lesson Learnt

In the field of ITO, where regulations are still sketchy but exist, it’s important to take care of all the legal nuances that can get a project in trouble. All ITOs should have access to experienced legal experts who can guide them on the potential legal risks and help win the trust of the contributors.

Problem 3: Shady Founding Team

The news surrounding ITOs abound with occurrences of scams and frauds. One such case was that of CryptoCopy ITO, which aimed to optimize the investment process and promised its stakeholders “10% of the platform’s profits”. The unsuspecting participants overlooked the red flags like its founder, Igor Manjencic whose previous venture RICH coin had also failed and got scammed in the end.

Lesson Learnt

One of the biggest credibility factors of an ITO is the trustworthiness of the team behind it. Contributors should either conduct thorough due diligence of the project before investing or accept projects from a platform that guarantees the legitimacy of its campaigns.

Problem 4: Corrupt Service Providers

Projects in every phase of their ITOs need efficient service providers who can assist them with legal, promotions and other professional services. When unscrupulous service providers stab in the back, everyone related to the project bears the brunt of it. The case of Moirai project is one such example where everything went downhill because their advertising partners “took investors money and refused to refund back”. Even if Moirai wasn’t directly at fault, the blame came on them as they were the face behind the project.

Lesson Learnt

The kind of partners and service providers a founder chooses plays a big role in deciding how much the ITO flourishes. It’s important for entrepreneurs to be assured of the reliability of their providers to prevent any future mishaps from taking place.

While launching an Initial Token Offering, entrepreneurs need to tackle multiple problems; from legal regulations, resource shortages, lack of crypto market knowledge and experience to competitive business environments. Apart from these, finding reliable and efficient third-party service providers becomes another strenuous task.

In such early stages of development, startups require support and guidance to successfully launch the ITOs and test out their ideas. In the same vein, contributors need the means to conduct robust due diligence to select the right project to invest.

Here’s where crypto incubators strike in. After thoroughly researching and selecting the potential candidates, the incubator programmes evaluate their real chances of success and drive their success through proper expertise and support.

Levolution is one such utility token virtual incubator that will offer vast resources including skills, knowledge, tools and an extensive network of connections to aid blockchain entrepreneurs. By partnering with reputable providers in an area, they will cater to the legal and administrative requirements of the startup companies. Through Advisory Services, they will also advise projects on their business model, technology, fundraising, marketing, white paper creation, and post-ITO services.

In order to be featured on the Levolution platform, projects will be required to meet their internal know your customer (“KYC”), anti-money laundering (“AML”) and due diligence process, thus safeguarding participants from fraud and scam projects.

Therefore, by building solid foundations from which companies can launch their projects, Levolution strives to infuse ITOs with efficiency and effectiveness and become the flagship of trust within the crypto industry.

Interested in knowing how will they achieve their goal? Check out their plan here.

Levolution is a blockchain-based ecosystem intended to provide enterprises & entrepreneurs with the knowledge, resources, and ability to launch a token offering