Late in February, Bitcoin (available on Coinbase).com published a story that made big waves in the cryptocurrency world. In it, the piece referenced statistics from Tokendata and came to the conclusion that 46 percent out of the 902 blockchain projects that conducted token sales in 2017 have already failed. 142 projects failed at the funding stage by not raising enough funds and a further 276 projects have failed since, either due to simply taking investors’ money and not delivering a product or by slowly fading away.  
Furthermore, the study stated that “an additional 113 ICOs can be classified as ‘semi-failed’, either because their team has stopped communicating on social media, or because their community is so small as to mean the project has no chance of success.” This suggests that 59 percent of last year’s ICOs have either already failed completely or are very likely failures-in-the-making.
Have 46 percent of ICOs really failed?
While no one would deny that investing in ICOs is risky, the numbers quoted in the report need to be seen in perspective. Due to the low barriers to entry to launching a token sale, the ICO market has been plagued by scams. That’s clearly reflected in this Bitcoin (available on Coinbase).com report, as the number of “take the money and run” scams is very high, somETHing Ernst & Young research also revealed in January.  
However, including ICO scams in the “failed ICOs” category is misleading as these ‘projects’ were never meant to succeed in the first place and should thus not be considered actual blockchain projects. If you take away ICO scams, the percentage of failed ICOs already drops significantly. Continuing in that vein, is it reasonable to include ICOs that raised no money as ‘failures’? If nobody thought the idea was worth investing in, can it really be called a failed blockchain project?
Finally, low activity on social media and a small community of followers does not necessarily mean that there is no activity happening behind the scenes of a blockchain project. After all, most founders and team members will hold their own tokens so they are highly incentivized to deliver on their mission. Hence, the “semi-failed” category can also not really be taken into account when looking at ICO failure rates.
Comparing ICOs and Venture Capital funded startups
In the startup world, the accepted rule-of-thumb is that nine out of ten new companies fail within the first five years. Hence, if we take the study’s figures at face value, the fact that almost half of new blockchain projects have not managed to succeed should not come as such a big surprise. These projects are working with an entirely new technology. This increases the likelihood of failure as these projects have both technological and regulatory hurdles to overcome in order to succeed. Having said that, when looking at VC-funded startups, the failure rates do not differ much.  
According to Harvard professor Shikhar Ghosh, 75 percent of U.S. VC-funded startups fail. This rate is higher than reported by other organizations, such as the National Venture Capital Association, which estimates that only 25 to 30 percent of VC-backed startups fail completely. However, as Ghosh told the Wall Street Journal, VC tend to “bury their dead very quietly.”
Ghosh’s research indicates that 30 to 40 percent of VC-funded startups end up liquidating their assets, which by any definition is a clear failure. However, he also said that if a startup’s failure was defined by not delivering the projected return on investment, then around 95 percent of VC-backed startups can be considered as failures.
This information draws an interesting comparison to ICO-funded blockchain startups and relativizes the findings of the Bitcoin (available on Coinbase).com study as all startups have high failure rates regardless of their source of funding. Knowing that 30 to 40 percent of VC-funded startups in the U.S. fail completely, it should be no surprise that the failure rate for ICO-funded startups is roughly in the same range. If anything, it should be surprising that the failure rate for blockchain startups is not higher in light of the fact that we are at such an early stage of this technology’s growth cycle.
The perceived high failure rate of ICO-funded blockchain projects should, therefore, be taken with a grain of salt and neither this innovative form of funding nor startups venturing down this funding route should be demonized.
Furthermore, it is clear that ICOs are here to stay. Despite the high amount of fraudulent activities, which regulators will need to address, this new form of funding is a blessing to innovative startup projects that cannot gain access to traditional funding routes such as bank loans or venture capital. Moreover, through the immediate trADAbility of the digital tokens sold to raise funds, private investors have the ability to invest in innovative new startups projects that they would otherwise not have access to.
Should you still invest in ICOs?
Cryptocurrencies are already a risky asset class and newly-issued ICO tokens are among the riskiest investments within this asset class. Having said that, many of the key risks found in ICO investing — such as falling for a scam or choosing a project with a low likelihood of success — can be largely mitiGated if adequate research is conducted prior to investing.
Like in any other form of startup investing, when investing in ICOs you will end up picking winners and losers. The key is to find the most promising projects that possess all the important attributes of a potentially successful blockchain project, including an experienced high-quality team, an already functional product, and a token rationale that makes sense.