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ICOs – The New IPOs?

How to fund innovation

in the crypto age
ICOs – The New IPOs? |


What is an ICO? 03
How do ICOs work? 04
History of ICOs 06
Key considerations for successful ICOs 08
Similarities and differences between ICOs
vs. IPOs vs. crowdfunding 11
Do ICOs disrupt VC? 14
ICO opportunities 16
Deloitte assets to support ICOs 17

ICOs – The New IPOs? |
 What is an ICO?

What is an ICO?

Initial Coin Offerings (ICOs) are a relatively new way to

fund start-ups and projects. Similar to an IPO, an ICO
is a way for a start-up or an established company to
raise capital, and a vehicle of investment for potential
investors. In this paper, we will focus on the possibilities
to use ICOs to fund Blockchain or cryptocurrency-based
start-ups and projects.

Usually, capital and “shares” in cryptocur- Like in IPOs, ICO investors are generally
rency start-ups and projects are repre- motivated by the potential future success
sented by tokens. In an ICO, the companies of the start-up and an increase in value of
seeking funding sell their cryptocurrency the tokens issued.
tokens in exchange for financial investment
or other contributions; the funding is Currently, ICOs raise large investments
executed using Bitcoin or other cryptocur- within minutes, based on often very limited
rencies. information transparency. It cannot be
emphasized enough that the only way to
Companies ranging from real estate bro- determine the value of an ICO is to assess
kers to digital banks are looking to raise the value of the underlying tokens. Based
money through ICOs, and the only prere- on the limited information usually available,
quisite is to have a cryptocurrency and a an informed investment is not always pos-
token as an integral part of the product. sible. Recent developments show that the
market is becoming aware of this gap and is
ICOs are usually performed at an early supplying potential investors with better in-
stage of operations to finance the initiation, formation in cooperation with professional
running expenses, and costs from the be- services companies.
ginning of the project until go-live. ICOs can
also be used in later stages of the start-up
lifecycle as an alternative to VC funding for
financing the company’s growth ambitions.

A token is either a gadget for user autho-

rization or a fixed series of characters
to identify a user, such as an application
programming interface (API) key.
ICOs – The New IPOs? | How do ICOs work?

How do ICOs work?

Since there are currently no explicit regulatory

boundaries, there are no binding rules on how
to prepare and execute ICOs.

Nevertheless, we have seen the majority of

the ICOs follow a sequenced approach in
four phases:

Figure 1: Stages of ICOs

Stage A Stage B Stage C Stage D

Pre-announcement Offer Marketing Campaign Token Sale


The first step for projects and The offer lays out the essential Since the start-up conducting After the marketing phase,
start-ups is to spread the word terms of the ICO and covers the ICO is usually not well the ICO is triggered and the
about the ICO to attract as ma- all the nuances of the project, known, the marketing cam- respective tokens are released.
ny potential investors as pos- specifies the desired invest- paign plays an important role Depending on the start-up
sible. Usually, announcements ment to be targeted as well as in a successful ICO. Specialized strategy, tokens are distributed
are made on relevant crypto- deadline for the ICO. The token agencies may be hired to pre- immediately and free for tra-
currency forums (Bitcointalk, that is available as part of the sent at various conferences, ding or released after a product
Reddit, etc.). The announce- ICO is specified in each offer. conduct road shows, etc. The or platform was initiated in
ment contains an executive After selecting a financial in- campaign tends to last up to order to ensure a return on in-
summary of the project goals strument (the token), the offer a month on average, with the vestment for ICO participants.
and ambitions. Additional in- covers all the rights that the target audience being institu-
formation, such as notable and token possesses. After signing tional and smaller investors.
unique features of the project the offer, the start date for the Participants in crowdfunding
as well as the acting team sale of tokens is announced, programs tend to be the main
members and their previous and the issuing company car- segment. At the end of the
experience and track record, ries out an active PR campaign. marketing campaign, the pro-
are helpful to attract potential cess of selling and buying
investors. The team then re- tokens begins.
ceives and analyzes feedback
to gauge interest and to tweak
and adjust the business model.
The first stage ends with the
final business model and a writ-
ten, detailed offer on the ICO.

ICOs – The New IPOs? |
 How do ICOs work?

ERC20 – the current token standard

Most ICOs are currently based on Ethe-
reum and use the ERC20 standard, which
has emerged as the de-facto industry
standard for issuing tokens.

The ERC20 standard makes the assets

more easily interchangeable and ensures
they can work with DApps adhering to the
same standard. Moreover, the introduc-
tion of this standard allows for the tokeni-
zation of other features, including voting

ICOs – The New IPOs? |
 History of ICOs

History of ICOs1

Although public perception of Initial Coin Offerings

increased dramatically toward the end of 2016, the first
crowdsales and coin distributions started much earlier,
in 2013 and 2014.

One of the first cryptocurrency crowdsale sion of cryptocurrency use cases and ad-
projects was Mastercoin (now renamed to herent start-ups, media attention has
Omni), which gathered approx. $600,000. gone up too, accelerating the growth of
In 2015, Ethereum, now the second-largest ICO investments.
cryptocurrency by market cap, accumula-
ted total investment of over $15 million. In 2017, ICOs reached a new peak in quan-
tity and quality. Since January, over $1.2
Since then, investment in ICOs has increa- billion have been raised through ICOs dis-
sed and the infrastructures in which ICOs tributing altcoins to investors and building
operate have improved. Development up new use cases and products based on
teams now utilize social media platforms, Blockchain technologies. Even traditional
such as forums (, messaging venture capitalists and celebrity investors
websites (Twitter) and group working sites such as boxer Floyd Mayweather and self-
(Slack, Telegram), to raise awareness for made billionaire Mark Cuban have entered
their projects, communicate roadmaps and the cryptocurrency market and invested in
use cases, and to get in touch with poten- promising ICOs.
tial investors directly. Along with the expan-


ICOs – The New IPOs? | History of ICOs

The year 2017 (to September) has shown many high-investment ICOs.







0 Filecoin Tezos EOS Banco Status TenX MobileGo

Investment raised during ICO

Filecoin raised over $250 million over a solutions that offer efficiency, security, and
period of two weeks, mostly through data integrity, while Banco raised $153m
accredited investors ($200m) and venture and seeks to build a decentralized ex-
capital firms ($50m). Its aim is to build up change ecosystem that will enable holders
a decentralized storage network that em- of digital assets to trade peer-to-peer with
ploys the peer-to-peer Inter Planetary File ease and with little risk to the security of
System (IPFS) to store and secure data on their assets.
its blockchain. Its currency (called Filecoin)
can be earned by hosting files that lie on Still, success is not only defined by market
the unused storage of private hard drives. cap raised, but also by how the company
In July, Tezos raised over $232 million, buil- develops after its crowdfunding phase,
ding up a secure and future-proof smart how it interacts with its stakeholders, and
contract system that is, in comparison to what position it takes in the cryptocurrency
many other blockchains, free of any hard market. One key measurement here is the
fork risks due to a built-in consensus me- return of investment within a given time-
chanism. EOS raised an investment of $183 frame.
million and plans to provide blockchain

ICOs – The New IPOs? |
 Key considerations for successful ICOs

Key considerations for

successful ICOs2

Good match between

ICO and business

Abiding by Building the

the law right team

for successful
Considering an Sending the
ICO platform right message

Protecting investors’


ICOs – The New IPOs? | Key considerations for successful ICOs

To ensure a successful ICO, initiators

should take the following key consider-
ations into account:

1. Good match between

ICO and business
It is crucial for a business promoting its As such, the campaign is unlikely to meet
ICO that the product is directly linked to the expectations of discerning users in
blockchain technology and that it cannot the first place. A fundamental problem for
be substituted by a non-blockchain system, any digital token released during an ICO is
e.g. a simple database. For example, the that it will come under massive speculative
value of ETH, the tokens released during pressure as soon as it hits the markets.
the Ethereum ICO, is secure because they The only thing which can counteract that
are required to run DApps in the network. and prevent the token from ending up as
If, on the other hand, the only use for coins a gimmick is an equivalent demand for it;
is being bought and sold on an exchange, and that demand can only be produced by
it practically guarantees that their price will real utility.
crash very soon after the end of the ICO.

2. Building the 3. Sending the

right team right message
The practical experience of many success- From a perspective of communicating and their timeframes. Being able to present
ful ICO campaigns shows that the team, the project goals, it is imperative to have a working, tested proof of concept to the
the goals, and the protection of investors’ a white paper and a roadmap prepared audience is better than just having a white
interests are the three topics which tend to before the launch of an ICO. A white paper paper when preparing for an ICO. Frequent
interest the audience the most. Therefore, usually accompanies an ICO for evidence communication with the audience both
they need to be decided and articulated purposes and outlines the content of the before and throughout the campaign is
clearly to the audience before the launch ICO, like a prospectus for an IPO, but with important. It will help get more people on
of an ICO. From an investor’s standpoint, the key difference that white papers are not board as well as provide feedback, allowing
a great team behind the project is one of mandatory documents. The white paper the team to make tweaks while the ICO is
the most important factors when deciding must clearly outline the technical aspects underway.
on contributing to an ICO. Conversely, an of the product, the problems it intends to
unproven, or worse still, an anonymous solve, and how it is going to solve them.
team is likely to serve as a major red flag Likewise, the roadmap should list clearly
and stop people from investing. defined and realistically achievable goals

ICOs – The New IPOs? |
 Key considerations for successful ICOs

4. Protecting
investors’ interests
Early-bird discounts for investors are regu- names of all key holders announced in pu-
larly used to incentivize investments, blic. Some of those keys have to be held by
especially at the beginning of an ICO where people otherwise uninvolved in the project,
there is uncertainty about whether the which serves as an additional guarantee of
business idea will be accepted by crypto- investors’ funds safety. There should also
currency investors. Another convention be a process in place for returning funds to
that has now become a well-respected their contributors (soft cap), because it is al-
procedure is to collect all contributions in ways possible that the ICO will fail to reach
a multi-signature escrow wallet, with all its target and trigger a campaign roll-back.

6. Abiding
by the law
Every country has different legal aspects
that must be considered when launching
an ICO. While some countries have laid
out generic guidelines for ICOs, others
can range from detailed stipulations to
no guidelines at all.
5. Considering
In the US, for example, the most well-
an ICO Platform known rule is the Howey Test, created by
the Supreme Court for determining whe-
There are special platforms whose entire be listed on Waves’ own exchange, where ther certain transactions qualify as in-
purpose is to ease both the process of eager investors can find them easily, and vestment contracts. If they do, then those
launching an ICO and investing in one. They companies can secure the necessary fun- transactions are considered securities
work similarly to platforms that aggregate ding. This approach can save a lot of money and are subject to certain disclosure and
various crowdfunding projects and make and effort, compared to launching a digital registration requirements. However, the
it easy for contributors to find the ones token on your own, which is inevitably asso- SEC and other regulators are engaged and
they want to invest in. The Waves Platform ciated with high development costs. Admit- aware of the developments in this market,
is one of the largest of these. It allows tedly, it gives the company less control over although they are taking a measured ap-
anyone, for example a young startup, to the token’s further development, but if it is proach. The SEC has not yet taken a public
set up digital tokens in mere minutes and not the company’s main product, then the view, put out a paper, or taken an enforce-
at almost no cost. These tokens can then trade-off may be well worth it. ment action in the space.

ICOs – The New IPOs? |
 Similarities and differences between ICOs vs. IPOs vs. crowdfunding

Similarities and differences

between ICOs vs. IPOs vs.
As the names already imply, ICOs and IPOs share the
same logic: in both scenarios, the initiators are trying to
raise funds and find investors in exchange for a stake in
the company. Investors are attracted by potential profits
on their investment.

Nevertheless, the most important differ- ensures seamless funding that is easy to
ence is that ICOs are currently not regula- initiate for exponential ideas or white
ted and are therefore neither controlled papers. To give a comprehensive overview,
nor supervised by regulatory bodies. This we compared past ICOs to IPOs and crowd-
lack of regulation on ICOs poses potential funding along seven key criteria for diffe-
risks to initiators and investors alike, but rentiation:

Seven key criteria for differantiation of ICOs, IPOs and crowdfunding:

Purpose Return on investment, Return on investment, Realize idea, gain rewards

(investor view) ownership secondary ownership and voting power and/or early access

New business venture with white Established business with New business venture with
paper as business concept proven assets (e.g. user base) concrete product/ service idea
Parties involved

Currently unregulated, SEC Regulated by financial Restrictions on investors

started first ICO audits authorities, e.g. SEC allowed to take part in funding

Supporters expecting return Institutional and private Supporters expecting rewards

on investment investors and/or early access

Small to medium size, strongly Large to medium size, depen- Small size, suitable for realizing
Transaction size
depending on specific ICO ding on exchange market idea or first prototype

High transferability, medium to Low transferability due to

Transferability High transferability with
high costs for intermediates/ rewards and/ or access, P2P
& fees minimal transaction costs
exchanges platform fees might apply

High, currently limited investor Medium, depending on Medium, limited regulations,

protection or legal obligations exchange market regulations but ROI not key purpose

ICOs – The New IPOs? |
 Similarities and differences between ICOs vs. IPOs vs. crowdfunding

The central purpose of ICOs from an inves- Even crowdfunding faces SEC regulations
tor’s perspective is return on investment for equity based funding rounds. There-
(ROI). In most ICOs, tokens do not carry fore, unregulated reward-based crowd-
ownership or voting power. This is compa- funding is more common by far. Due to
rable to preference shareholders in IPOs, their unregulated nature, ICOs carry the
who want to maximize ROI instead of sha- risk of collecting cryptocurrencies just to
ping the future of a publicly traded com- start looking for the next exponential idea.
pany. The Swiss company Lykke was one This implies tremendous risks to investors,
of the first ICOs where coin holders have which we explain in more detail in the
equity in the company3. next paragraph4. The upside lies within
the seamless transferability of tokens with
IPOs are strictly regulated by national au- minimal transaction fees applied. This
thorities and regional market exchanges, also allows for hybrid models, e.g. an ICO
increasing information needs and transac- combined with crowdfunding, where raised
tion fees through required intermediaries. cryptocurrencies can be used directly

“Both ICOs and IPOs therefore differ

greatly from the purpose of crowdfunding,
where supporters want to realize a spe-
cific idea based on minor rewards or early
access to a certain product or service.”

for tangible products, e.g. cloud storage Comparing initiators of ICOs, IPOs, and
services5. Following up on the largest ICO crowdfunding, ICOs have not needed more
by raised funds, SEC audited The DAO and than an idea to raise funds. Nevertheless,
characterized the ICO as a security sale. most successful ICOs offered sufficient
This implies potential future disclosure white papers with high level technology
requirements for ICOs, which imposes a infrastructure, major achievements and
regulatory risk to future initiators6. outlooks for the future to attract investors.

Lucas Geiger, “ICOs won’t replace venture, they’ll be benefit from it”,
Storj website -
Felix Holtermann, “US-Börsenaufsicht warnt Krypto-Investoren,

ICOs – The New IPOs? |
 Similarities and differences between ICOs vs. IPOs vs. crowdfunding

Initiators of crowdfunding can often appear and private investors to ensure sufficient
more advanced, with first tangible concepts funding for growth, while still offering
or prototypes in place and seeking funding certain equity shares. Crowdfunding and
for the scaling of production. Compared to ICOs instead focus on a broad community
ICOs and crowdfunding, IPOs need to pro- with tiny pieces of investments by private
vide proven assets like a unique user base, supporters. In other words, anybody could
intellectual property (IP) in the digital space, participate in an ICO, but should be aware
or conventional physical assets incorpora- of associated risks.
ting IP. Therefore, IPOs look for institutional

Risks for investors Risks for initiators

There is no investor protection or legal There is a potential risk for the initiators if
guideline on how to proceed after invest- the ICO is treated like a security sale. In that
ment. For example, initiators could sell case the rigid legal requirements for finan-
their tokens without a holding period, cial securities become applicable, which
profiting from higher token values, via a then triggers a lot of additional administra-
cryptocurrency exchange and then exit the tive and legal obligations.
project or company with a profit. The only
limiting factor is the potential loss of repu- In order to avoid this, ICO initiators call their
tation for initiators and their respective ICOs “donations” rather than ICOs. Additio-
ability to initiate other Blockchain projects nally, most ICOs come with a disclaimer
in future. There have been some examples that the “donation” is not a security sale. It
of fraudulent ICOs, in which communicated remains to be seen if those disclaimers will
projects did not actually exist, or the infor- stand up to potential litigation.
mation about project features and initia-
tors was false or incomplete.

In those cases, and in the absence of regu-

latory laws, investors will have a hard time
holding fraudulent initiators accountable
or redeeming their investments. To (re-)
gain the trust of investors, the Blockchain
community has established best practices
and guiding principles for ICOs.

ICOs – The New IPOs? |
 Do ICOs disrupt VC?

Do ICOs disrupt VC?

In 2017, when Blockchain entrepreneurs seek funding for

their technology, the question regarding where to find
money is not “whether to ask friends & family vs. venture
capitalists (VC)”, but “where to set the funding limit in an

ICOs are becoming the dominant way of strong negotiators; second is that cryp-
funding Blockchain startup ventures. Ac- tocurrency prices have been trending up
cording to statistics, ICOs have surpassed as they come into the focus of a wider
venture capital funding as a means of segment of the population.
raising cash. Blockchain companies collec-
ted $327 million from ICOs during the first How do VCs react to the recent changes?
half of 20177. By comparison, VC funding They invest in ICOs themselves. VCs also
accounted for only $295 million during the see advantages in ICOs, because their early
same period. In other words, this year, only stage investments show liquidity for the
four years after the first ICO, the new route first time. However, since almost anybody
to financial resources has already sur- can invest directly in ICOs, where is the
passed the traditional “entrepreneurs’ first added value and justification for the high
choice”. Apart from skipping the application fees limited partners pay to their fund man-
process for VC funding and time-consu- agers? VCs argue that the ICO market is still
ming due diligence, a reason why ICOs are far from efficient, i.e. there are many traps
an entrepreneur’s new first choice is that uninformed investors could fall into. Profes-
they are much more democratic and inclu- sional investors more frequently detect red
sive, allowing many to invest small sums flags in the course of their due diligence,
instead of a few acting as large share- which private investors with no personal
holders. In turn, this gives the startup’s contact to the entrepreneurs would never
management more freedom. find out.

In consequence, there are two direct Apart from the aforementioned advantages
results: first, it is a loss in bargaining power of ICOs over VC money, there are also rea-
for venture capital firms, because traditio- sons for Blockchain entrepreneurs to favor
nally the well-known funds were very VC funding. Satya Patel from the Venture


ICOs – The New IPOs? |
 Do ICOs disrupt VC?

Capital Fund Homebrew said: “I think that company, and they also push its public
both can coexist. After all, entrepreneurs popularity and initial user base far more
do not approach VCs just for the money; than an individual investor can. Nonethe-
at least, VCs hope they do not. At the end less, VCs still have reasons to exist; while
of the day, a coin is not going to pick up the competition for them is rising, VCs need
phone at 11 o’clock at night when your lead to focus on their value-add to the startups
engineer has been fired. We think that the and limited partners, i.e. offering support
best entrepreneurs value currency, but and connecting founders with the right
they value counsel more.”8 people, as well as performing in-depth due
diligence and separating the wheat from
To sum up, for Blockchain startups ICOs the chaff.
have already disrupted the VC ecosystem.
ICOs are a cheaper, faster, and more effi-
cient way of funding for a newly formed

ICOs will not replace Venture Capital -

both will coexist. The choice will be
made depending on the ambition of the
founders / initiators - The ones seeking
funding “only” are probably going to ICO,
whereas the ones looking for additional
support will consult with VCs.


ICOs – The New IPOs? |
 ICO opportunities

ICO opportunities

Besides the obvious opportunities for entrepreneurs

and cryptocurrency start-ups to raise investments for
their ideas, ICOs could also be a funding alternative for
corporates from all industries.

In recent years, many large industry players Since only a certain amount of the issued
have successfully established internal incu- coins will be publicly traded, the issuing
bators and accelerators to develop innova- enterprise could still hold a majority stake
tive and new business ideas in creative and in the spin-off, without further internal
agile environments and settings. investment required.

Nevertheless, many of these ideas are not And due to the nature of ICOs this could
developed further or realized due to a lack happen at an early stage of the business
of relevance to the core business and/or idea. Therefore, enterprises could elabo-
future strategy of the company. Even if rate and experiment with more ideas and
there were a business and market potential grow them out of the early/infancy stage
for those ideas and concepts, they are to test the business and market potential,
often canned because of related funding with the ICO being the first validation stage.
requirements for scaling and growing the
ideas. ICOs could be a potential alternative
for enterprises to fund the development
and growth of accelerator spin-offs without
the financial burden of investing into
something that is not a strategic priority.

ICOs can be leveraged by coporates to

alternatively finance and “spin off” business
ideas of the incubator / accelerator pro-
grams that are not strategically relevant.

ICOs – The New IPOs? |
 Deloitte assets to support ICOs

Deloitte assets to
support ICOs

Due to the breadth of Deloitte services, ranging from

strategy and technology consulting services to tax, audit
and legal advisory, we are able to offer ICO initiators
end-to-end support for all relevant aspects of the (pre-)
ICO process and activities.

End-to-end Blockchain service provider

Strategy Services Solutions

Strategy Business Technology Ecosystem Implemen- Managed

Consulting Consulting Consulting Development tation Services

Industry Focus Multidisciplinary

• TMT Our Differentiators

• Life Science Premier Partner focused on

Health Care value creation: top and bottom line
• Financial End to end services from Ideation,
Services Strategy, Implementation, and Run
Blockchain Human
Differentiate with our deep Industry Legal
• Energy & 360° Capital
Resources Knowledge and broad Partner Ecosystem

• Public Sector Delivering quick returns through an

Tax Risk
Agile / Rapid Prototyping approach
• Consumer & Finance
Industrial Shaping the market with cutting edge
Products eminence and thought leadership

ICOs – The New IPOs? |


Dr. Dirk Siegel

Partner I Leiter Blockchain Institute
+49 (0)151 5800 2835

Mirko Rene Gramatke

Director | Monitor Deloitte
+49 (0)151 5800 4621

Jens Hermann Paulsen

Manager | Blockchain Institute
+49 (0)151 5800 1977

Wanja Alexej Giessen

Senior Consultant | Monitor Deloitte
+49 (0)151 5800 2730

Mark Brosig
Senior Consultant | Monitor Deloitte
+49 (0)151 5800 1826

Sven Heinzelmann
Consultant | Monitor Deloitte
+49 (0)151 5800 4041

Sawan Sathyanarayana Kumar

Senior Consultant | Consulting
+91 9886 5830 72

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