28​ ​November​ ​2017

Albert​ ​Ishak
Diane​ ​Freymond
Lolita​ ​Taub
Ross​ ​Strachan
DISCLAIMER

The information contained in this report is for informational purposes only and should not be
considered business, investment or legal advice on any subject matter. Furthermore, the
information contained on this report may not reflect the most current business, investment
and/or legal developments. You should not act upon this information without consulting an
expert​ ​counsel.

This paper was originally written for K Fund, a Madrid-based VC firm, and submitted as
coursework​ ​for​ ​the​ ​authors​ ​MBA​ ​program​ ​at​ ​IE​ ​Business​ ​School.

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Table​ ​of​ ​Contents

DISCLAIMERS
EXECUTIVE​ ​SUMMARY
Project​ ​Summary
Initial​ ​Coin​ ​Offerings​ ​(ICOs):​ ​A​ ​market​ ​on​ ​fire​ ​in​ ​2017
Background
Report​ ​Authors
Process
Qualitative​ ​Data:
Quantitative​ ​Data:
PROJECT​ ​OUTPUT
I.​ ​Phase​ ​1
Overall​ ​ICO​ ​Market​ ​Research
Hypotheses
II.​ ​Phase​ ​2
Data​ ​Gathering
Data​ ​Capture​ ​Process
Descriptive​ ​Statistics
III.​ ​Phase​ ​3
Logistic​ ​Regression​ ​Model
Sentiment​ ​Analysis​ ​and​ ​White​ ​Paper​ ​Data​ ​Points
PROJECT​ ​CONCLUSION​ ​&​ ​RECOMMENDATIONS
Implications​ ​of​ ​our​ ​ICO​ ​Findings​ ​to​ ​VC​ ​Funds
Recommendations​ ​for​ ​Further​ ​Action
Implementation​ ​Owners
Actions​ ​required​ ​by​ ​VC​ ​partners:
Actions​ ​required​ ​by​ ​limited​ ​partners:
Place​ ​emphasis​ ​on​ ​these​ ​partnerships​ ​and​ ​activities:
APPENDICES

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EXECUTIVE​ ​SUMMARY
Project​ ​Summary

Initial​ ​Coin​ ​Offerings​ ​(ICOs):​ ​A​ ​market​ ​on​ ​fire​ ​in​ ​2017

2017 has seen an explosion in the number of businesses using ICOs as a form of fundraising. According
to CB Insights, in the first 11 months of 2017, 130 ICOs have successfully raised $2.7 Billion. Of these, 2
have raised more than $230 Million and 18 have raised more than $100 Million September 2017 saw the
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most​ ​ICOs​ ​completed​ ​in​ ​one​ ​month​ ​ever​ ​at​ ​a​ ​total​ ​of​ ​$850​ ​Million.

The volume in ICOs is now beginning to rival traditional venture capital (VC) funding. In Q3’17, ICO
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fundraising equated to 32% of Series A funding . The average ICO now raises more than a traditional
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Seed/Series​ ​A​ ​round​ ​with​ ​an​ ​average​ ​of​ ​$3​ ​Million​ ​round​ ​for​ ​a​ ​blockchain​ ​startup .

With an ICO market on fire, VCs are wondering if and how they can get in on the action. And thus, i​n this
report,​ ​we​ ​seek​ ​to​ ​answer​ ​three​ ​questions:

1. Are​ ​ICOs​ ​a​ ​viable​ ​asset​ ​class​ ​for​ ​VCs?

2. If​ ​so,​ ​what​ ​makes​ ​an​ ​ICO​ ​successful?
3. What​ ​ICO​ ​strategic​ ​conclusions​ ​and​ ​recommendations​ ​can​ ​we​ ​share​ ​with​ ​the​ ​VC​ ​community?

Furthermore, this report seeks to provide an overview of ICOs; and provide insight that can then help
VCs​ ​answer​ ​the​ ​following​ ​questions:

1. Should​ ​our​ ​VC​ ​fund​ ​invest​ ​in​ ​ICOs?

2. If​ ​so,​ ​what​ ​does​ ​the​ ​VC​ ​fund​ ​need​ ​to​ ​know​ ​before​ ​investing​ ​in​ ​ICOs?
3. What do VC funds need to do to increase their chances of reaping the returns limited partners
expect?

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​ ​"What​ ​Is​ ​Blockchain​ ​Technology?"​ ​Bitcoin​ ​&​ ​Blockchain​ ​–​ ​CB​ ​Insights​ ​Research.​ ​Accessed​ ​November​ ​28,​ ​2017.
https://www.cbinsights.com/research/bitcoin-blockchain/.
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​ ​Just​ ​How​ ​Disruptive​ ​Are​ ​ICOs​ ​to​ ​the​ ​Classic​ ​VC​ ​Model?,​ ​4​ ​Nov.​ ​2017,​ ​tomtunguz.com/ico-trends/
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​ ​Kharpal,​ ​Arjun.​ ​"Initial​ ​coin​ ​offerings​ ​have​ ​raised​ ​$1.2​ ​billion​ ​this​ ​year​ ​and​ ​now​ ​surpass​ ​early​ ​stage​ ​VC​ ​funding."​ ​CNBC.
August​ ​09,​ ​2017.​ ​Accessed​ ​November​ ​25,​ ​2017.
https://www.cnbc.com/2017/08/09/initial-coin-offerings-surpass-early-stage-venture-capital-funding.html.

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Background

Report​ ​Authors

The report was researched and written by four IE Business School MBAs: Albert Ishak, Diane Freymond,
Lolita​ ​Taub​ ​and​ ​Ross​ ​Strachan.

Albert Ishak is an experienced analyst with expertise in strategy, data science, and financial modeling.
He focuses on leveraging technology and ripe market conditions to fuel corporate growth. In the past,
Albert used his analytical skills to explore new business opportunities and solve big business problems
for ​CBH Group​, the most prominent Australian co-op, and ​Crown Resorts​, a premier Australian hotel
group.

Diane Freymond has a background of 8+ years in digital marketing and innovation in large enterprise and
start-ups. She has completed the ​Venture Deals online course​, run by Kauffman Fellows and Techstars, in
June this year. Alongside her MBA, she was part of the management team of Madrid based ​Fundie​, a
student-run​ ​accelerator​ ​helping​ ​prepare​ ​socially​ ​conscious​ ​startups​ ​for​ ​VC​ ​investment.

Lolita Taub completed the ​IE Business School Venture Capital program​, Kauffman Fellows and
Techstars ​Venture Deals course​, and interned at ​K Fund​, a Spanish €50M early stage tech VC firm;
there she identified deal flow, evaluated viability and exit strategies for the existing portfolio and

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assessed the competitive landscape. Personally, she is an investing partner at Silicon Valley’s ​Portfolia
Enterprise​ ​Fund,​ ​a​ ​fund​ ​whose​ ​focus​ ​is​ ​B2B​ ​enterprise​ ​tech,​ ​Seed​ ​to​ ​Series​ ​C​ ​in​ ​the​ ​US.

Ross Strachan has experience in CVC, having completed several early stage investments at WPP
Ventures, the CVC arm of WPP, the world’s largest marketing and communications group. Personally, he
has​ ​invested​ ​in​ ​Seed​ ​and​ ​Series​ ​A​ ​financing​ ​rounds​ ​of​ ​startups​ ​in​ ​the​ ​UK.

Advisors included, Luis Garicano, Professor of Economics & Strategy at London School of Economics
and IE Business School, Ignacio Larru, CFO at K Fund, and Joshua Taub, VP Product and Pricing at
Swyfft. Partners included: K Fund, Google Cloud, Novum Insights, and the IE Business School. Insight
providers included: Athena Bitcoin, Galaxy Digital Assets, UTRUST, SwissBorg, Swisscom Ventures,
Creathor​ ​Ventures,​ ​Mattermark,​ ​CrunchBase,​ ​LinkedIn,​ ​Token​ ​Market,​ ​and​ ​Coin​ ​Market​ ​Cap.

Process

Research for the report included qualitative and quantitative methods. The authors scoured the web for
content on ICOs from VCs such as Mangrove Capital and papers released by research entities such as
CB Insights. Several ​i​nterviews were held with experts, founders, and investors in the ICO space; and
data was scraped, cleaned, and analyzed from various public and private sources. Two models were
built in the process: (1) to serve as an ICO success and failure predictor and (2) to serve as a predictor of
ICOs to succeed within a 3 month span of launch. The models were designed so that the process could
be replicated. This project was completed over 3 months, beginning in September and concluded in
November​ ​2017.

Qualitative​ ​Data:

In order to assess the viability of ICOs as a new asset class for VC funds, it is necessary to first discuss
the five key macro themes affecting the asset class and how they affect a VC investor’s investment
decision.​ ​Qualitative​ ​research​ ​was​ ​undertaken​ ​in​ ​the​ ​form​ ​of​ ​interviews​ ​and​ ​market​ ​research.

Quantitative​ ​Data:

Mattermark, CrunchBase, LinkedIn, Token Market, and Coin Market Cap were used to collect data for
our research. Data was verified through a cross-check with at least two independent data sources.
Unverifiable​ ​data​ ​was​ ​removed​ ​from​ ​our​ ​analysis.

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With verified data at hand, we ran two logistic regressions on the dataset. We ran Model 1 to obtain the
probability of whether an ICO will be completed or not. We defined an ICO as completed if it reached its
funding target within the specified timeframe. Otherwise, we considered the ICO as failed. We used
Model 2 to predict whether, within a three-month period of an ICO being completed, an ICO’s price would
increase.

Approach​ ​&​ ​Timelines

● Phase​ ​I
○ Identify features of a ICOs. In this phase publicly available information was assessed to
obtain the characteristics of an ICO from length of white paper to support in online
forums​ ​and​ ​length​ ​of​ ​pre-show​ ​conversations​ ​by​ ​the​ ​founders.
● Phase​ ​II
○ Once the features of ICO were decided, the selected information for ICOs starting in
2013​ ​together​ ​with​ ​financial​ ​returns​ ​to​ ​date​ ​were​ ​gathered.
● Phase​ ​III
○ With the dataset built logistic regression models were run to obtain the weights assigned
to each feature of an ICO versus success probability (success is defined as beating the
return​ ​for​ ​the​ ​S&P​ ​index​ ​in​ ​a​ ​three​ ​month​ ​period​ ​post-ICO).

PROJECT​ ​OUTPUT

I.​ ​Phase​ ​1

Overall​ ​ICO​ ​Market​ ​Research

Introduction

An ICO is a fundraising mechanism for companies, typically early stage, that seek to use blockchain
technology in their product development. The company offers tokens in advance of developing the
product, as a form of crowdfunding. Tokens are typically purchased with Bitcoin or another digital
currency.​ ​We​ ​discuss​ ​tokens​ ​in​ ​more​ ​detail​ ​later​ ​in​ ​this​ ​section.

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The principal goal of this report is to understand whether Initial Coin Offerings (ICOs) are a viable asset
class for a Venture Capital investor, and specifically, whether or not K Fund should raise fund to invest in
ICOs. To achieve that goal, it is necessary to first discuss the key macro themes affecting the asset
class. In this section we first discuss recent trends before focussing on the key elements fuelling the ICO
market,​ ​namely:
1. Use​ ​case
2. Token​ ​type
3. Codebase​ ​and​ ​blockchain​ ​choice
4. Regulation​ ​and​ ​registration​ ​location
5. Crypto​ ​investment​ ​vehicle

Dissecting​ ​ICO​ ​trends

As mentioned above, we have identified five variables that we believe every VC must be aware of before
launching a cryptocurrency fund. We want to highlight that these variables are not static, and that the ICO
market​ ​is​ ​an​ ​ever​ ​evolving.
Use​ ​case
As the market has developed, tokens have been linked to wild use cases. From Potcoin, the token for the
cannabis​ ​community,​ ​to​ ​PutinCoin,​ ​a​ ​coin​ ​founded​ ​‘to​ ​pay​ ​tribute​ ​to​ ​Putin​ ​and​ ​the​ ​Russian​ ​People’.

ICOs are an appropriate method of fundraising for startups, only if the use of blockchain technology
makes sense to the business model, product and value proposition. To date, the influx of capital via ICOs

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has encouraged many startups to use blockchain technology just because it offers a perceived ‘easier’
route to raising funds. However, in many instances, blockchain technology is unlikely to be value
accretive to the business model. Whilst some startups have been exposed pre-ICO and have scrapped
their ICO plans, others have been successful in raising funds. Any investor assessing the attractiveness
of an ICO should first consider whether the offering of a token, instead of an equity investment, makes
sense.

In terms of stage of product

roadmap, ICOs are typically
raised at a traditional seed
stage, in advance of
product-market fit. In a
recent study, Token Report
analyzed 226 successful
ICOs and found that only 20
tokens were currently
usable on the platform on
which they were developed for. This means that these tokens are already serving the functional purpose
of what they were designed for. Otherwise put, the remaining 206 tokens are being traded as purely
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speculative​ ​instruments.

Knowing the difference between viable and unviable projects, the investor must next consider the token
type.

An overview of use cases is included in Appendix 1. A split of fundraising by sector is included in

Appendix​ ​2.

Types​ ​of​ ​Tokens

Linked to the use case, is the type of token offered in each ICO. An investor should consider if the type of
token is appropriate given the business model, product and value proposition, and consider whether the
type​ ​fits​ ​their​ ​own​ ​investment​ ​thesis.​ ​Token​ ​types​ ​are​ ​summarized​ ​below:

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​ ​Kharif,​ ​Olga.​ ​"Only​ ​One​ ​in​ ​10​ ​Tokens​ ​Is​ ​In​ ​Use​ ​Following​ ​Initial​ ​Coin​ ​Offerings."​ ​Bloomberg.com.​ ​October​ ​23,​ ​2017.
Accessed​ ​November​ ​09,​ ​2017.
https://www.bloomberg.com/news/articles/2017-10-23/only-one-in-10-tokens-is-in-use-following-initial-coin-offerings.

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 ● Currency tokens: ​Cryptocurrencies, such as Bitcoin, are principally used as a medium of value
exchange.

● Utility tokens: ​A Utility token, also known as a “Network Access Token” permits the holder to
exchange the token for goods/services on the issuers platform. The token gives you access to
something​ ​the​ ​network​ ​allows​ ​you​ ​to​ ​do​ ​(e.g.​ ​products​ ​and​ ​services).

● Asset tokens: ​Asset tokens represent some sort of (generally physical) asset or product. These
differ from Utility tokens in that Utility tokens are exchangeable for the goods/services offered by
a​ ​platform​ ​(e.g.​ ​cloud​ ​services).

● Equity tokens: ​An equity token implies ​ownership and control, ​and is similar to a traditional stock.
Issuing equity tokens means awarding equity in the cap table to investors, but by using
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blockchain​ ​technology,​ ​allows​ ​the​ ​startup​ ​to​ ​access​ ​a​ ​wider​ ​pool​ ​of​ ​potential​ ​shareholders.

In summary, tokens can

take the shape of
something that resembles
FIAT currency, vouchers,
equity, and stock. As we
will discuss later in this
section, token type attracts
different regulatory
attention, which can lead
to ICOs being reversed,
and​ ​money​ ​being​ ​returned​ ​to​ ​investors.

Having discussed token type, an important consideration is the codebase and blockchain that the token
will​ ​be​ ​launched​ ​on.

Codebase​ ​and​ ​Blockchain​ ​choice

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​ ​Brenn.​ ​"ICOs​ ​&​ ​Token​ ​Types​ ​for​ ​Dummies:​ ​An​ ​buyers​ ​guide​ ​to​ ​crypto-tokens."​ ​Hacker​ ​Noon.​ ​October​ ​31,​ ​2017.​ ​Accessed
November​ ​09,​ ​2017.​ ​https://hackernoon.com/icos-token-types-for-dummies-an-buyers-guide-to-crypto-tokens-b6edea16776e.

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When appraising an ICO, an investor must consider the technical complexity of the development plans.
There are differing levels of complexity, that impact time to launch, achievability and talent attraction and
retention.

Balaji S. Srinivasan, Board Member at A16Z and founder of Earn, a social network using blockchain,
discusses the variances in underlying blockchains and codebases and their differing layers of complexity.
We​ ​briefly​ ​discuss​ ​each​ ​of​ ​his​ ​categorizations​ ​below:

● Tokens based on new chains using forked Bitcoin code: ​These tokens make minor tweaks to the
Bitcoin​ ​code,​ ​which​ ​resulted​ ​in​ ​new​ ​blockchains,​ ​separate​ ​from​ ​Bitcoin.

● Tokens issued on top of the Ethereum blockchain: ​Ethereum is the most prominent challenger to
Bitcoin blockchain due to its enablement of third party development, but additional ICOs have
launched​ ​similar​ ​ground-up​ ​blockchain​ ​ecosystems​ ​during​ ​2017.

● Tokens based on new chains and new code: ​Tokens that are built on entirely new codes and
protocols,​ ​to​ ​be​ ​bitcoin-like​ ​but​ ​with​ ​enhanced​ ​capabilities,​ ​such​ ​as​ ​Ethereum.

● Tokens based on forked chains and forked code: ​In response to differing views on technical
issues, a community may decide to split from a chain, by altering the code. The most famous
example​ ​was​ ​that​ ​of​ ​Ethereum​ ​Classic.

Srinivasan concludes: ​“In general, it is technically challenging to launch wholly new tokens on new
codebases, but much easier to launch new tokens through Bitcoin forks or Ethereum-based ERC20
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tokens.”

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​ ​Srinivasan,​ ​Balaji​ ​S.​ ​"Thoughts​ ​on​ ​Tokens​ ​–​ ​news.earn.com."​ ​News.earn.com.​ ​May​ ​27,​ ​2017.​ ​Accessed​ ​November​ ​09,​ ​2017.
https://news.earn.com/thoughts-on-tokens-436109aabcbe.

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Knowing the type of technology that underlines an ICO and a token is key in doing ICO investment due
diligence. An investor must consider whether the level of complexity and time to develop matches the
business model and value proposition of the project. It’s important to be weary of projects that add
complexity to appear more exotic to prospective investors. Following Srinivasan, these projects will take
longer and be harder to achieve, and therefore have an increased execution risk. That said, blockchain
technology is still in an expansionary phase, and as it attracts more brilliant minds, it is inevitable that the
complexity​ ​and​ ​capability​ ​of​ ​new​ ​projects​ ​will​ ​increase.

From the codebase, we must now consider regulation, and the relative guidance issued by major leading
blockchain​ ​hubs.

Regulation​ ​and​ ​Registration​ ​location

There is a widely accepted belief that there is an impending wave of regulation from major financial
centres, as regulators believe certain tokens may be perceived as securities and as such should be
subject to securities regulation. This has had significant impact on startups considering ICOs and should
be scrutinized by any investor. Whilst it is almost certain that regulation will be imposed upon ICOs, it is
not​ ​clear​ ​whether​ ​change​ ​will​ ​be​ ​imposed​ ​both​ ​retrospectively​ ​and​ ​prospectively.

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To​ ​date,​ ​there​ ​are​ ​two​ ​main​ ​trends​ ​apparent​ ​in​ ​ICO​ ​regulation​ ​that​ ​have​ ​emerged​ ​during​ ​2017:

1. ICOs are concentrating registration in five countries. Crunchbase estimates that 74% of 2017
YTD funding comes from five countries. These include: the US, Switzerland, Singapore, Canada
and​ ​UK.
2. ICOs​ ​are​ ​launching​ ​utility​ ​tokens​ ​more​ ​than​ ​any​ ​other​ ​token​ ​type.

7891011
During​ ​2017,​ ​the​ ​5​ ​main​ ​registration​ ​countries​ ​have​ ​issued​ ​clarifications​ ​on​ ​the​ ​treatment​ ​of​ ​tokens.
We​ ​discuss​ ​each​ ​announcement​ ​in​ ​turn,​ ​beginning​ ​with​ ​the​ ​US:

US

On July 25 2017, the SEC announced that certain types of tokens would be considered securities under
US Federal or state securities laws, making it illegal to sell or market them to US residents, with the
exception under Reg D 506c which allows tokens to sell to up to 99 accredited investors (under the US
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definition​ ​of​ ​accredited​ ​investors).

Under a joint initiative between Coinbase, Coin Center, Union Square Ventures and Consensys, a
non-legally binding framework was established to assist developers to ascertain if their token would fall
under​ ​SEC​ ​existing​ ​legislation​ ​as​ ​a​ ​security.

The framework uses The Howey Test as an indicator of a token’s level of securitization. It’s worth diving
into​ ​what​ ​this​ ​test​ ​encompasses.

The​ ​Howey​ ​Test

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​ ​"SEC​ ​Exercises​ ​Jurisdiction​ ​Over​ ​Initial​ ​Coin​ ​Offerings."​ ​JD​ ​Supra.​ ​Accessed​ ​November​ ​08,​ ​2017.
https://www.jdsupra.com/legalnews/sec-exercises-jurisdiction-over-initial-12515/.
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​ ​FINMA,​ ​Eidgenössische​ ​Finanzmarktaufsicht.​ ​"Swiss​ ​Financial​ ​Market​ ​Supervisory​ ​Authority​ ​FINMA."​ ​FINMA​ ​-​ ​FINMA​ ​is
investigating​ ​ICO​ ​procedures.​ ​Accessed​ ​November​ ​09,​ ​2017.​ ​https://www.finma.ch/en/news/2017/09/20170929-mm-ico/.
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Tan,​ ​Angela.​ ​"MAS​ ​clarifies​ ​regulatory​ ​position​ ​on​ ​offer​ ​of​ ​digital​ ​tokens​ ​in​ ​Singapore."​ ​The​ ​Business​ ​Times.​ ​January​ ​01,​ ​5867.
Accessed​ ​November​ ​09,​ ​2017.
http://www.businesstimes.com.sg/banking-finance/mas-clarifies-regulatory-position-on-offer-of-digital-tokens-in-singapore.
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Tan,​ ​Angela.​ ​"MAS​ ​clarifies​ ​regulatory​ ​position​ ​on​ ​offer​ ​of​ ​digital​ ​tokens​ ​in​ ​Singapore."​ ​The​ ​Business​ ​Times.​ ​January​ ​01,
5867.​ ​Accessed​ ​November​ ​09,​ ​2017.
http://www.businesstimes.com.sg/banking-finance/mas-clarifies-regulatory-position-on-offer-of-digital-tokens-in-singapore.
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​ ​Commission,​ ​Ontario​ ​Securities.​ ​"CSA​ ​Staff​ ​Notice​ ​46-307​ ​Cryptocurrency​ ​Offerings."​ ​Ontario​ ​Securities​ ​Commission.
August​ ​24,​ ​2017.​ ​Accessed​ ​November​ ​09,​ ​2017.
http://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20170824_cryptocurrency-offerings.htm.
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​ ​Turner,​ ​Rod.​ ​"Entrepreneurs:​ ​The​ ​Keys​ ​To​ ​Making​ ​Your​ ​ICO​ ​Securities​ ​Compliant​ ​Using​ ​Regulation​ ​A."​ ​Forbes.​ ​October​ ​20,
2017.​ ​Accessed​ ​November​ ​08,​ ​2017.
https://www.forbes.com/sites/rodnturner/2017/10/17/u-s-entrepreneurs-how-to-make-your-ico-securities-compliant-using-regulat
ion-a/3/#7ffcc0925998.

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In the US Supreme Court case of SEC v Howey established the test for whether an arrangement involves
an investment contract. As per the case, an investment contract is a type of security and, in context of
blockchain tokens, the Howey test can be expressed as three independent elements. It was agreed that
in​ ​order​ ​for​ ​a​ ​token​ ​to​ ​be​ ​a​ ​security,​ ​all​ ​three​ ​elements​ ​below​ ​must​ ​be​ ​met:

1. ​ ​There​ ​is​ ​an​ ​investment​ ​of​ ​money

2. ​ ​The​ ​money​ ​is​ ​invested​ ​in​ ​a​ ​common​ ​enterprise
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3. ​ ​There​ ​is​ ​an​ ​expectation​ ​of​ ​profits​ ​predominantly​ ​from​ ​the​ ​efforts​ ​of​ ​others

It is important to note that The Howey test has not yet been directly applied by the courts to any digital
currency​ ​or​ ​blockchain​ ​token.

Equally important, in September 2017, it was reported that the SEC had charged two businesses for
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using​ ​ICOs​ ​as​ ​a​ ​method​ ​of​ ​defrauding​ ​investors.

The efforts of Coinbase, Coin Center, Union Square Ventures to help regulate the ICO/tokens space
should​ ​not​ ​go​ ​unnoticed​ ​but​ ​it’s​ ​important​ ​to​ ​note​ ​that​ ​regulations​ ​are​ ​influx.

Switzerland

Switzerland's financial watchdog, the Swiss Financial Market Supervisory Authority (“FINMA”) offered the
following​ ​ ​guidance​ ​on​ ​29​ ​September​ ​2017:

“Given the close resemblance, in some respects, between ICOs/token-generating events and
conventional financial-market transactions, one or more aspects of financial market law may
already cover ICO campaigns according to their various models. FINMA is currently looking into
a number of different cases. Moreover, whenever FINMA is notified about ICO procedures that
breach regulatory law or which seek to circumvent financial market law it initiates enforcement
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proceedings.”

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​ ​Bramanathan,​ ​Reuben.​ ​"Introducing​ ​the​ ​Blockchain​ ​Token​ ​Securities​ ​Law​ ​Framework."​ ​The​ ​Coinbase​ ​Blog.​ ​December​ ​12,
2016.​ ​Accessed​ ​November​ ​08,​ ​2017.​ ​https://blog.coinbase.com/2016-12-07-blockchain-token-securities-law-a66ef03c383f.
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​ ​Buhr,​ ​Sarah.​ ​"The​ ​SEC​ ​has​ ​charged​ ​two​ ​initial​ ​coin​ ​offerings​ ​with​ ​defrauding​ ​investors."​ ​TechCrunch.​ ​September​ ​29,​ ​2017.
Accessed​ ​November​ ​09,​ ​2017.
https://techcrunch.com/2017/09/29/the-sec-has-charged-two-initial-coin-offerings-with-defrauding-investors/.
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​ ​FINMA,​ ​Eidgenössische​ ​Finanzmarktaufsicht.​ ​"Swiss​ ​Financial​ ​Market​ ​Supervisory​ ​Authority​ ​FINMA."​ ​FINMA​ ​-​ ​FINMA​ ​is
investigating​ ​ICO​ ​procedures.​ ​Accessed​ ​November​ ​09,​ ​2017.​ ​https://www.finma.ch/en/news/2017/09/20170929-mm-ico/.

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As per WalderWyss, a Swiss Attorney, ICOs registering in Switzerland may need to fulfil the following
FINMA​ ​requirements,​ ​dependent​ ​on​ ​the​ ​profile​ ​of​ ​the​ ​token:
● Anti-money laundering (“AML”) regulation would apply where the creation of a token by
an​ ​ICO​ ​vendor​ ​involves​ ​issuing​ ​a​ ​payment​ ​instrument
● Banking licence application where the startup is accepting public deposits where an
obligation​ ​towards​ ​participants​ ​arises​ ​for​ ​the​ ​ICO​ ​operator
● License to operate as a securities dealer may be required where tokens would qualify as
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securities

AML regulation would have significant impact on ICOs as it requires the issuer to gather and verify
investor​ ​information,​ ​something​ ​which​ ​ICOs​ ​have​ ​only​ ​opted​ ​to​ ​do​ ​on​ ​a​ ​voluntary​ ​basis​ ​until​ ​now.

Singapore

On 1 August 2017, the Monetary Authority of Singapore (“MAS”) clarified its position with regard to digital
currencies,​ ​stating:

“​The offer or issue of digital tokens in Singapore will be regulated by MAS if the digital tokens
constitute products regulated under the Securities and Futures Act (Cap. 289) (SFA)...MAS has
observed that the function of digital tokens has evolved beyond just being a virtual currency. For
example, digital tokens may represent ownership or a security interest over an issuer’s assets or
property. Such tokens may therefore be considered an offer of shares or units in a collective
investment scheme under the SFA. Digital tokens may also represent a debt owed by an issuer
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and​ ​be​ ​considered​ ​a​ ​debenture​ ​under​ ​the​ ​SFA.”

Singapore, like Switzerland, is taking on a proactive role in regulation. However, it is unlikely that
Singapore will impose constraining regulation in the long-term given the economic contribution of ICOs
relative​ ​to​ ​the​ ​size​ ​of​ ​the​ ​economy.

Canada
On 25 August 2017, the Canadian Securities Administrators (“CSA”) clarified its own position with regard
to​ ​digital​ ​currencies,​ ​mirroring​ ​the​ ​US​ ​clarification:

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​ ​"Initial​ ​Coin​ ​Offerings​ ​in​ ​Switzerland."​ ​Publications​ ​–​ ​Walder​ ​Wyss​ ​Attorneys​ ​at​ ​Law​ ​–​ ​Zurich,​ ​Geneva,​ ​Basle,​ ​Berne,
Lausanne,​ ​Lugano.​ ​Accessed​ ​November​ ​25,​ ​2017.​ ​https://www.walderwyss.com/publications/2146.pdf.
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Tan,​ ​Angela.​ ​"MAS​ ​clarifies​ ​regulatory​ ​position​ ​on​ ​offer​ ​of​ ​digital​ ​tokens​ ​in​ ​Singapore."​ ​The​ ​Business​ ​Times.​ ​January​ ​01,
5867.​ ​Accessed​ ​November​ ​09,​ ​2017.
http://www.businesstimes.com.sg/banking-finance/mas-clarifies-regulatory-position-on-offer-of-digital-tokens-in-singapore.

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 “A security includes an “investment contract.” In determining whether a coin/token is an
investment contract, a four-prong test should be applied, being does the coin/token involve: (i) an
investment of money (ii) in a common enterprise (iii) with the expectation of profit (iv) to come
significantly from the efforts of others. Advertisement of a coin or token as a software product is
18
not​ ​relevant​ ​in​ ​determining​ ​whether​ ​a​ ​coin​ ​or​ ​token​ ​constitutes​ ​a​ ​“security”.”

Given the similarities between listed securities regulation, it is unsurprising that Canada and the U.S.
have​ ​consistent​ ​advice​ ​on​ ​ICOs.

UK

On the 12 September 2017,, the UK Financial Conduct Authority (“FCA”) issued the following guidance
on​ ​ICOs:

“​Whether an ICO falls within the FCA’s regulatory boundaries or not can only be decided case by
case...depending on how they are structured, some ICOs may involve regulated investments and
firms​ ​involved​ ​in​ ​an​ ​ICO​ ​may​ ​be​ ​conducting​ ​regulated​ ​activities.
Some ICOs feature parallels with Initial Public Offerings (IPOs), private placement of securities,
crowdfunding or even collective investment schemes. Some tokens may also constitute
19
transferable​ ​securities​ ​and​ ​therefore​ ​may​ ​fall​ ​within​ ​the​ ​prospectus​ ​regime.​”

The comparison drawn between ICOs and IPOs is one that has been misconstrued in the media. Whilst
the elements identified above are consistent in both, many commentators consider ICOs to in fact be a
misnomer,​ ​and​ ​in​ ​turn​ ​prefer​ ​the​ ​term​ ​“token​ ​crowdraising”.

Overall, it is unsurprising that the top five registration destinations are reacting with caution. Governments
are working towards protecting less sophisticated investors from the risk of losing money (they may not
even have). Eventually, regulators will catch up with the curve and we expect that the guidance outlined
above​ ​will​ ​be​ ​updated​ ​regularly​ ​during​ ​the​ ​coming​ ​months​ ​and​ ​years.

While the US, Canada, UK, Singapore, and Switzerland are interesting countries to look at when it comes
to​ ​ICOs,​ ​there​ ​are​ ​other​ ​countries​ ​to​ ​take​ ​note​ ​of.

18
​ ​Commission,​ ​Ontario​ ​Securities.​ ​"CSA​ ​Staff​ ​Notice​ ​46-307​ ​Cryptocurrency​ ​Offerings."​ ​Ontario​ ​Securities​ ​Commission.
August​ ​24,​ ​2017.​ ​Accessed​ ​November​ ​09,​ ​2017.
http://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20170824_cryptocurrency-offerings.htm.
19
​ ​"Initial​ ​Coin​ ​Offerings."​ ​FCA.​ ​September​ ​12,​ ​2017.​ ​Accessed​ ​November​ ​09,​ ​2017.
https://www.fca.org.uk/news/statements/initial-coin-offerings.

15
Other​ ​major​ ​international​ ​events​ ​in​ ​2017

There has been a negative ICO response from China and South Korea as both countries banned ICOs in
September 2017. It is unclear if this is a temporary ban, to provide regulators time to create new policies,
or if a downright ban. On the flipside, Japan, Russia, and Australia have a more positive outlook on ICOs.
Japan recognized Bitcoin as a fiat currency, Russia reversed its earlier ruling banning ICOs, and
Australia has made the tax environment less complicated to enable virtual currency transactions. A
timeline​ ​showing​ ​key​ ​events​ ​is​ ​included​ ​in​ ​Appendix​ ​3.

We also note that there are innovative new equity tokens being proposed to accommodate anticipated
regulation.​ ​Most​ ​promising​ ​is​ ​the​ ​Simple​ ​Agreement​ ​for​ ​Future​ ​Token​ ​(SAFT)​:

● The SAFT framework permits accredited investors to purchase SAFT contracts for which they
would then exchange for digital tokens of the project in which they are investing once the project
has created a functional Utility token. They are comparable to Simple Agreement for Future
Equity (SAFE) contracts (warrant like instruments), which are frequently used in the startup
sector funding space. SAFT contracts would be securities, enabling token sales to work within
U.S. securities law and financial regulations. Cooley LLP, a leading Silicon Valley Law firm, is
20
leading​ ​the​ ​proposal​ ​for​ ​SAFTs​ ​to​ ​be​ ​adopted​ ​in​ ​the​ ​U.S.

Crypto​ ​investment​ ​vehicles

Having established the spectrum of choices a startup can make when designing their own ICO, now we
move to analysing the different cryptocurrency investment vehicles available to a VC. To date, given the
dynamic nature of the above regulatory pressures, and the complexity of the asset class, it is
understandable that VCs considering ICOs have yet to choose a single method of investing. We now will
consider what VCs are doing to formalize their ICO investments and what fund structures they’re using.
We​ ​discuss​ ​each​ ​in​ ​detail​ ​below.

20
​ ​Alex​ ​Lielacher​ ​“What​ ​Are​ ​SAFTs​ ​and​ ​Why​ ​Should​ ​Investors​ ​Care?”,​ ​published​ ​October​ ​18,​ ​2017​ ​8:00​ ​-
https://www.bitcoinmarketjournal.com/?s=saft

16
Hedge​ ​Funds

Notable institutional investors have begun using Hedge Funds to invest in ICOs (most notably:
MetaStable, Polychain Capital, and Pantera Capital). CoinTelegraph, a leading tracker of ICO data,
21
estimates that there are as many as 120 hedge funds investing in ICOs, as of September 2017. Of
22
these,​ ​75​ ​were​ ​launched​ ​in​ ​2017 .

Traditional megafund VCs, such as Bessemer, Sequoia, A16Z, USV, are investing via hedge funds as
LPs,​ ​and​ ​all​ ​are​ ​investors​ ​in​ ​MetaStable.

It is key to remember that ICO Hedge Funds attract similar restrictions to traditional Hedge Funds, and
subject to SEC regulations on securities. Similarly, the model follows the same “2 and 20” structure,
charging a management fee of 2% of assets, and a performance fee of 20% of the profits (or for those
23
riskier​ ​funds;​ ​1.5%​ ​management​ ​fee​ ​and​ ​a​ ​25%​ ​performance​ ​fee).

21
​ ​Buck,​ ​Jon.​ ​"Now​ ​More​ ​Than​ ​120​ ​Cryptocurrency​ ​Hedge​ ​Funds."​ ​Cointelegraph.​ ​October​ ​29,​ ​2017.​ ​Accessed​ ​November​ ​09,
2017.​ ​https://cointelegraph.com/news/now-more-than-120-cryptocurrency-hedge-funds.
22
​ ​Over​ ​100​ ​Crypto​ ​Hedge​ ​Funds,​ ​Over​ ​$3B​ ​in​ ​ICOs."​ ​Autonomous​ ​NEXT.​ ​October​ ​23,​ ​2017.​ ​Accessed​ ​October​ ​25,​ ​2017.
https://next.autonomous.com/thoughts//over-100-crypto-hedge-funds-over-3b-in-icos.
23
​ ​"Meet​ ​the​ ​Secretive​ ​Cryptocurrency​ ​Hedge​ ​Fund​ ​That​ ​May​ ​Be​ ​Bitcoin's​ ​Warren​ ​Buffett."​ ​Fortune.​ ​Accessed​ ​November​ ​09,
2017.
http://fortune.com/2017/07/26/bitcoin-cryptocurrency-hedge-fund-sequoia-andreessen-horowitz-metastable/?lipi=urn%3Ali%3A
page%3Ad_flagship3_profile_view_base_recent_activity_details_shares%3BB6O8IA4GT3yrRFiiqhSthw%3D%3D.

17
The major positive of the model is that it permits VCs to gain peace of mind over adherence with
regulations,​ ​which​ ​is​ ​less​ ​secure​ ​via​ ​the​ ​following​ ​routes.

Security​ ​Token​ ​sales

This method involves the incorporation of a token vehicle, ICO (via security token), which would typically
be issued to sophisticated investors. To date, this method has attracted significant traction, most notably
from​ ​Blockchain​ ​Capital​ ​and​ ​SPiCE,​ ​two​ ​VC​ ​firms,​ ​targeting​ ​blockchain​ ​technology​ ​startups.

The​ ​broad​ ​advantages​ ​of​ ​using​ ​blockchain​ ​to​ ​tokenize​ ​investors​ ​interests​ ​include:
● Capital​ ​expansion:​ ​opening​ ​VC-like​ ​investments​ ​to​ ​more​ ​LPs
● Liquidity:​ ​regular,​ ​early​ ​liquidity​ ​events​ ​for​ ​LPs
● Scale:​ ​smart​ ​contracts​ ​governing​ ​multiple​ ​smaller​ ​investors

In line with the discussion in the Token Type section earlier in the report, it is important to note that
self-declaration​ ​as​ ​a​ ​Security​ ​Token​ ​will​ ​attract​ ​regulation.

To adhere with anticipated legislation, security token investment vehicles are staying away from
conventional trading platforms, such as Bittrex, and either developing their own platform (SPiCE) or using
white​ ​label​ ​solutions​ ​(Blackmoon​ ​Crypto,​ ​Polymath).​ ​Elaboration​ ​on​ ​platforms​ ​and​ ​white​ ​labels​ ​follow.

Own​ ​Platform
Blockchain Capital, a long established blockchain investor, tokenized $10 million of its third fund ($50
24
million), selling BCAP tokens to the public (but only accredited investors in the US) . SPiCE VC, has
followed​ ​suit.

As Carlos Domingo, CEO of SPiCE VC describes, developing an owned platform has its advantages,
with​ ​respect​ ​to​ ​evolving​ ​regulation:

“The purpose of the platform is to onboard investors following securities regulations for each
country, depending on each investor’s country of residence. The SPiCE platform will continue
being active after the token sale completion so our new token holders who join the project after
acquiring tokens in the secondary market can register back with us and enjoy the returns of the

24
​ ​Shin,​ ​Laura.​ ​"Crypto​ ​Boom:​ ​15​ ​New​ ​Hedge​ ​Funds​ ​Want​ ​In​ ​On​ ​84,000%​ ​Returns."​ ​Forbes.​ ​October​ ​13,​ ​2017.​ ​Accessed
November​ ​09,
2017.https://www.forbes.com/sites/laurashin/2017/07/12/crypto-boom-15-new-hedge-funds-want-in-on-84000-returns/#215971f
c416a.

18
 SPiCE token directly. The goal [is] to make the entire investment process on a security token
25
completely​ ​automated​ ​and​ ​with​ ​an​ ​outstanding​ ​user​ ​experience.”

Enhanced traceability of funds, verification of investor information permits more oversight on the part of
the VC. Of course, as an investor, it is important to note that unlike most systems, the government has
the​ ​option​ ​to​ ​freeze​ ​an​ ​account,​ ​in​ ​case​ ​of​ ​legal​ ​issues​ ​(e.g.,​ ​theft,​ ​money​ ​laundering).

White​ ​Label​ ​Solutions

Own platform development requires significant in-house development and maintenance, which may
detract would-be VCs from choosing this option. Instead, there are white-label platform providers, such
as Blackmoon Crypto, that will provide VCs access to an investment management platform, where all
26
regulatory​ ​issues​ ​are​ ​managed​ ​centrally. ​ ​Regulatory​ ​issues​ ​managed​ ​by​ ​while​ ​labels​ ​may​ ​include:

● Solicitation​ ​of​ ​information​ ​only​ ​available​ ​in​ ​countries​ ​where​ ​ICOs​ ​are​ ​legal
● Maintaining​ ​marketing​ ​of​ ​securities​ ​private,​ ​and​ ​not​ ​in​ ​the​ ​public​ ​domain.
● Anti-money​ ​laundering​ ​procedures​ ​as​ ​standard
● Distinction​ ​between​ ​professional/accredited​ ​and​ ​retail/non-professional​ ​investors
● Escrow​ ​(bank​ ​account)​ ​for​ ​fiat​ ​investor
● Crypto​ ​wallet​ ​governed​ ​by​ ​3rd​ ​party​ ​for​ ​crypto​ ​investor

Utility​ ​Token​ ​Sales

Some investment funds have sought to tokenize without explicitly referencing regulation, entering a grey
area in Token Type. The general sentiment is that these funds may consider their tokens as utility tokens
rather than security tokens, which in theory would attract less stringent regulation. ICONOMI and TaaS
have​ ​tokenized​ ​their​ ​funds​ ​without​ ​clarifying​ ​legal​ ​status​ ​of​ ​their​ ​token.
Through the lens of what we consider to be inevitable impending regulation of ICOs, the badging of a
fund vehicle as a utility token would not appear to be feasible in the long-term. The approach of
Blockchain​ ​and​ ​SPiCE​ ​appears​ ​more​ ​in​ ​line​ ​with​ ​theoretical​ ​regulation​ ​of​ ​tokenized​ ​funds.

25
​ ​VC,​ ​SPiCE.​ ​“The​ ​SPiCE​ ​VC​ ​platform​ ​and​ ​investment​ ​process​ ​–​ ​SPiCE​ ​VC​ ​–​ ​Medium.”​ ​Medium​,​ ​Medium,​ ​19​ ​Oct.​ ​2017,
medium.com/@spicevc/the-spice-vc-platform-and-investment-process-82c19caa47a5.
26
​ ​VC,​ ​SPiCE.​ ​"Tokenizing​ ​a​ ​VC​ ​fund​ ​for​ ​liquidity:​ ​how​ ​SPiCE​ ​VC​ ​built​ ​on​ ​the​ ​Blockchain​ ​Capital​ ​model."​ ​Medium.​ ​October
20,​ ​2017.​ ​Accessed​ ​November​ ​08,​ ​2017.
https://medium.com/@spicevc/tokenizing-a-vc-fund-for-liquidity-how-spice-vc-built-on-the-blockchain-capital-model-b1331f50
3006.

19
SAFT​ ​-​ ​Simple​ ​Agreement​ ​for​ ​Future​ ​Tokens

The last investment vehicle to discuss, is one introduced earlier in the report. ICOs are beginning to see
direct venture investments, typically via SAFT (Simple Agreement for Future Tokens) agreements. For
example, Filecoin sold tokens to accredited investors and VCs in its $52M August 2017 pre-sale, which
27
saw​ ​participation​ ​from​ ​Sequoia​ ​Capital,​ ​Andreessen​ ​Horowitz​ ​and​ ​Union​ ​Square​ ​Ventures .

For the VC, there are clear advantages to minimising the involvement of a middleman and investing
direct, avoiding paying excessive fees, incurring significant development costs or running the risk of being
on​ ​the​ ​wrong​ ​side​ ​of​ ​future​ ​regulation.

Marketing​ ​and​ ​Communication​ ​of​ ​ICOs

One fundamental feature of ICOs has become the publication of a White Paper to educate would-be
investors on the founder's vision, value proposition and basic product roadmap. Given many ICOs are
raised pre-product development, we hypothesise that the White Paper is vital for successfully securing
funding. To better understand the contribution of a White Paper to a successful ICO, we chose five ICOs
from that reached their pre-ICO funding target and five that didn’t, to identify the common White Paper
features​ ​that​ ​may​ ​impact​ ​ICO​ ​success.

Patterns:
White​ ​Papers​ ​have​ ​a​ ​broadly​ ​consistent​ ​framework:

● Project​ ​scope
● Legal​ ​framework​ ​and​ ​rights​ ​when​ ​buying​ ​a​ ​token
● Security​ ​concerns​ ​of​ ​holding​ ​a​ ​token
● Technical​ ​product​ ​description
● Use​ ​of​ ​issued​ ​token
● How​ ​the​ ​product​ ​leverages​ ​Blockchain

From the 10 selected White Papers, we identified that White Papers seek to establish the credibility of the
idea and product vision. However, as they are static documents, and not dynamic, like a messaging
service, newsletter or blog, we believe they are only one part of the wider communication strategy that
ICOs​ ​pursue.

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Dale,​ ​Brady.​ ​"Here’s​ ​How​ ​Filecoin’s​ ​Token​ ​Sale​ ​Won’t​ ​Irk​ ​the​ ​SEC​ ​(Like​ ​The​ ​DAO​ ​Did)."​ ​Observer.​ ​August​ ​03,​ ​2017.
Accessed​ ​November​ ​28,​ ​2017.​ ​http://observer.com/2017/08/filecoin-coinlist-securities-exchange-commission/.

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Hypotheses
Based​ ​on​ ​our​ ​above​ ​market​ ​research,​ ​we​ ​hypothesise​ ​the​ ​following​ ​about​ ​ICO​ ​success​ ​and​ ​failure:

1. ICO​ ​success​ ​is​ ​directly​ ​influenced​ ​by​ ​a​ ​high​ ​level​ ​of​ ​communication​ ​with​ ​potential​ ​investors
2. ICO success is directly influenced by a low level of development complexity, e.g. building on
existing​ ​blockchains​ ​rather​ ​than​ ​new​ ​ones
3. ICO success is directly influenced by the makeup of the founding teams, specifically, in that they
need​ ​to​ ​have​ ​blockchain​ ​experience
4. ICOs registered in one of the top five countries (Switzerland, US, UK, Canada, Singapore), are
more​ ​likely​ ​to​ ​succeed​ ​than​ ​those​ ​from​ ​outwith​ ​these​ ​countries
5. The​ ​shorter​ ​the​ ​ICO​ ​timeframe​ ​(less​ ​than​ ​30​ ​days),​ ​the​ ​more​ ​likely​ ​it​ ​is​ ​to​ ​succeed.

II.​ ​Phase​ ​2

Data​ ​Gathering
We​ ​discuss​ ​our​ ​data​ ​model​ ​approach​ ​and​ ​data​ ​process​ ​in​ ​this​ ​section.

MODEL
From​ ​the​ ​outset,​ ​we​ ​set​ ​out​ ​to​ ​build​ ​two​ ​independent​ ​models.
1. Model 1 uses historical ICO data to identify the significant variables amongst completed ICO. The
objective of the model is to serve as an ICO predictor (a model that can help us predict whether
an​ ​ICO​ ​will​ ​complete​ ​or​ ​fail)
2. Model 2 uses price data, at launch date and 3 months post-launch. The objective of the model is
to​ ​identify​ ​the​ ​significant​ ​variables​ ​of​ ​ICOs​ ​where​ ​there​ ​has​ ​been​ ​a​ ​price​ ​increase​ ​post-launch.

Notes: Model 2 is dependent on Model 1 by default (there is no possible price prediction, if the model 1
predicts​ ​a​ ​given​ ​ICO​ ​to​ ​fail).

Data
For our data process, we chose to use Token data (used for the most comprehensive ICO status
dataset), Token market (used for ICO detail data), CoinMarket (for token return data), Crunchbase (used

21
for ICO founder and founder team data), Novum (used for data cross-reference). As per our research,
these​ ​were​ ​the​ ​most​ ​reliable​ ​and​ ​most​ ​complete​ ​data​ ​sources​ ​publicly​ ​available.

Token​ ​Market

Our​ ​initial​ ​dataset​ ​extracted​ ​from​ ​Token​ ​Market​ ​yielded​ ​434​ ​ICOs.​ ​We​ ​classified:
● 71 Completed ICOs - defined as having met the funding target within the specified time period.
Data​ ​was​ ​crosschecked​ ​with​ ​Token​ ​Data’s​ ​database.
● 28 Failed ICOs - defined as not having met the funding target within specified time. Data was
crosschecked​ ​with​ ​Token​ ​Data’s​ ​database.
● 180​ ​Active​ ​ICOs​ ​-​ ​defined​ ​as​ ​all​ ​live​ ​ICOs​ ​as​ ​at​ ​1​ ​August​ ​2017,​ ​as​ ​per​ ​TokenMarket.com.
● 254​ ​unknown​ ​ICOs​ ​-​ ​defined​ ​as​ ​listed​ ​as​ ​active​ ​on​ ​Token​ ​Market​ ​but​ ​without​ ​an​ ​ICO​ ​date

At the end of this classification we concluded that we would move forward with our analysis, using the
data​ ​from​ ​the​ ​71​ ​completed​ ​and​ ​28​ ​failed​ ​ICOs.

Coin​ ​Market​ ​&​ ​Crunchbase​ ​&​ ​Novum

For our last round of data research, we leveraged Crunchbase to capture information on the ICO
founding team members and used Coin Market to identify the returns on the 99 ICOs. Our goal was to
capture the 1) launch and 2) three-month post launch ICO price and market cap. However, Coin Market

22
did not have all the data for all the ICOs. So, we used Novum data to augment missed data and
cross-check​ ​prior​ ​acquired​ ​data​ ​sets.

Data​ ​Cleaning​ ​and​ ​Grouping

To make sure that our data was consistent, we cross-checked all data sets (e.g. Coin Market and Token
Market​ ​Cap).​ ​Our​ ​data​ ​set​ ​has​ ​33​ ​variables​ ​and​ ​can​ ​be​ ​examined​ ​in​ ​detail​ ​in​ ​our​ ​Appendix​ ​4.

Descriptive​ ​Statistics
Using​ ​data​ ​from​ ​the​ ​ICOs​ ​(completed​ ​or​ ​failed)​ ​that​ ​had​ ​a​ ​prior​ ​launch​ ​date​ ​of​ ​1​ ​August​ ​2017,​ ​we​ ​found:
● ICOs provide an estimated 255% return within 3 months of an ICO launch (with a max return of
2461%​ ​and​ ​minimum​ ​loss​ ​of​ ​90%)
● 48% of the ICOs lost money in the first 3 months post-launch (with an average return of a 43%
loss)
● 52% of the ICOs that made money in the first 3 months post-launch have an average return of
431%

III.​ ​Phase​ ​3

Logistic​ ​Regression​ ​Model

With the dataset built, we created two logistic regression models: The first one to obtain the probability of
whether ICOs will be complete (or not) and the second to identify the significant variables that influence
ICO​ ​price​ ​increases​ ​within​ ​three​ ​months​ ​of​ ​launch,​ ​if​ ​they​ ​have​ ​completed.

Logistic​ ​regression​ ​to​ ​predict​ ​whether​ ​ICO​ ​completed​ ​or​ ​not

Our aim for the first logistic regression model is to predict whether an ICO will be completed or not. We
define success as an ICO reaching its funding target within the specified timeframe. Otherwise, we
consider​ ​the​ ​ICO​ ​as​ ​failed.​ ​Below​ ​we​ ​compare​ ​the​ ​dependent​ ​variables​ ​with​ ​the​ ​target​ ​variables.

Dependent​ ​Variable​ ​Analysis

Based on our research, we identified 33 independent variables. We analysed the 33 independent
variables​ ​in​ ​the​ ​dataset​ ​of​ ​completed​ ​successful​ ​and​ ​failed​ ​ICOs​ ​resulting​ ​in​ ​the​ ​following​ ​insights:
● There​ ​were​ ​71​ ​completed​ ​ICOs​ ​and​ ​28​ ​failed​ ​ICOs​ ​in​ ​our​ ​dataset.

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 ● In terms of unique and complete ICOs by continent, Europe had the most ICOs, followed by
America. However, we find that the number of failed ICOs is lower in Asia compared to Europe
and​ ​America​ ​(15%​ ​vs​ ​35%).
● Completed ICOs by country saw the US dominate, followed by Russia. However, the rate of
failed ICOs is significantly higher in Russia compared to USA (40% vs 29%). Also, we found that
the​ ​highest​ ​rate​ ​of​ ​failed​ ​ICOs​ ​is​ ​in​ ​the​ ​Netherlands​ ​at​ ​50%​ ​out​ ​of​ ​6​ ​companies​ ​in​ ​our​ ​dataset
● Most​ ​ICOs​ ​were​ ​launched​ ​in​ ​2017.
● The shorter the ICO timeframe, the more likely the ICO was to succeed. For example, ICOs that
are planned to last <24 hours, have 83% probability of completing. In contrast, ICOs that are
planned​ ​to​ ​last​ ​>4​ ​weeks,​ ​have​ ​a​ ​64%​ ​probability​ ​of​ ​completing.
● The​ ​majority​ ​of​ ​ ​successful​ ​ICOs​ ​had​ ​less​ ​than​ ​or​ ​equal​ ​to​ ​2​ ​founders.
● Serial​ ​entrepreneurs​ ​are​ ​more​ ​likely​ ​to​ ​have​ ​successful​ ​ICOs.
● ICOs​ ​with​ ​at​ ​least​ ​one​ ​of​ ​the​ ​founder​ ​of​ ​technology​ ​background​ ​are​ ​more​ ​likely​ ​to​ ​succeed.
● ICOs where at least one of the founders has blockchain experience are more likely to succeed.
However, we do not find a significant difference in probability between technology background,
which we define as having previous experience working as a computer programmer, and
blockchain. This is because most of the technology founders in our dataset have an experience
in​ ​the​ ​blockchain.
● A negligible number of ICOs had women founders. There are only 8% female founders in our
dataset.
● 59%​ ​of​ ​completed​ ​ICOs​ ​used​ ​Ethereum​ ​as​ ​a​ ​base.
● ICOs​ ​built​ ​on​ ​Ethereum​ ​blockchain​ ​are​ ​10%​ ​more​ ​likely​ ​to​ ​complete​ ​than​ ​other​ ​blockchains.
● We​ ​also​ ​found​ ​insights​ ​about​ ​how​ ​ICOs​ ​communicate​ ​their​ ​project:
○ ICOs​ ​with​ ​a​ ​blog​ ​explaining​ ​their​ ​idea​ ​are​ ​almost​ ​2x​ ​less​ ​likely​ ​to​ ​fail​ ​(23%​ ​vs​ ​45%).
○ ICOs​ ​with​ ​a​ ​white​ ​paper​ ​are​ ​almost​ ​1.5x​ ​less​ ​likely​ ​to​ ​fail​ ​(27%​ ​vs​ ​40%).
○ ICOs​ ​with​ ​Telegram​ ​are​ ​almost​ ​2x​ ​less​ ​likely​ ​to​ ​fail​ ​(20%​ ​vs​ ​36%).
○ However, ICO with Facebook, Twitter, Slack and Linkedin do not have a significant
difference.

For​ ​more​ ​detailed​ ​information,​ ​please​ ​check​ ​Appendix​ ​5.

Logistic​ ​Regression​ ​Analysis

We ran a multicollinearity analysis, and we found that our variables are independent and no paired
variables have a correlation of more than 0.44, which is a weak correlation (for more info, see Appendix

24
6). Then, we ran a logistic regression on all the dependent variables. Out of those variables, we found
that​ ​having​ ​a​ ​blog​ ​was​ ​the​ ​most​ ​significant​ ​variable​ ​with​ ​less​ ​than​ ​0.05​ ​significant​ ​level.

Figure​ ​1:​ ​Logistic​ ​regression​ ​with​ ​all​ ​dependents​ ​variables

So, we reran our logistic regression model with only the blog variable to make sure that its significance
stayed true. We found that our model’s accuracy rate was 71%. Based on this finding, we propose that
having​ ​a​ ​blog​ ​is​ ​a​ ​leading​ ​indicator​ ​to​ ​determine​ ​whether​ ​an​ ​ICO​ ​would​ ​be​ ​a​ ​success​ ​or​ ​not.

This is interesting, when compared with the white paper variable, which is not significant. As explained
earlier in the report, whitepapers are either neutral or mildly positive, in terms of sentiment (and according
to​ ​the​ ​Google​ ​sentiment​ ​analysis​ ​algorithm).

Blogs, therefore, appear to be more impactful. We hypothesise that this is impact is because they are
regularly​ ​maintained,​ ​whereas​ ​a​ ​whitepaper​ ​is​ ​typically​ ​a​ ​static​ ​document.

25
To expand, we isolated the Blog variable, defined as a regular communication on project development
through blog section in the project website or any other blog website such as Medium, and ran another
logistic​ ​regression.​ ​We​ ​confirm​ ​that​ ​Blog​ ​is​ ​a​ ​significant​ ​variable,​ ​with​ ​a​ ​significant​ ​value​ ​of​ ​0.05.

Figure​ ​2:​ ​Logistic​ ​regression​ ​with​ ​only​ ​blog​ ​variable

Logistic​ ​regression​ ​to​ ​predict​ ​whether​ ​ICO​ ​will​ ​increase​ ​in​ ​price​ ​or​ ​not

Our objective for the second logistic regression model is to identify the significant variables that contribute
to an increase in price within 3 months of ICO or not. Our dataset, in this case, is a subset of the previous
model. Specifically, we only use ICO that were successful. Below we compare the dependent variables
with​ ​the​ ​target​ ​variables.

Dependent​ ​Variable​ ​Analysis

Our​ ​analysis​ ​of​ ​33​ ​independent​ ​variables​ ​resulted​ ​in​ ​the​ ​following​ ​insight:

26
 ● From​ ​99​ ​failed​ ​and​ ​completed​ ​ICOs​ ​in​ ​the​ ​first​ ​model,​ ​we​ ​only​ ​use​ ​71​ ​ICOs​ ​that​ ​were​ ​successful
● In terms of quantity, Europe has the most completed ICOs (36), followed by America (17) and
Asia (11). However, we find that completed ICOs in Asia are more likely to increase in price
within​ ​3​ ​months​ ​compared​ ​to​ ​Europe​ ​and​ ​America​ ​(64%​ ​vs​ ​50%).
● In terms of countries that completed ICOs, we found that a decrease in price ICOs is more likely
in​ ​Russia​ ​compared​ ​to​ ​the​ ​other​ ​places​ ​(67%​ ​vs​ ​46%).
● Completed ICOs that use Ethereum as a base are more likely to increase in price compared to
other​ ​blockchains​ ​(57%​ ​vs​ ​44%).
● No​ ​patterns​ ​were​ ​found​ ​in:
○ How​ ​ICO​ ​communicate​ ​their​ ​ICO
○ Founder’s​ ​background
○ ICO​ ​fundraising​ ​period

For​ ​more​ ​detailed​ ​information,​ ​please​ ​check​ ​Appendix​ ​7.

Logistic​ ​Regression​ ​Analysis

We ran a logistic regression on all the dependent variables with a target variable to establish whether
ICOs​ ​increased​ ​in​ ​price​ ​or​ ​not​ ​within​ ​3​ ​months​ ​post-ICO​ ​or​ ​not.

Figure​ ​3:​ ​Logistic​ ​regression​ ​with​ ​all​ ​dependent​ ​variable

27
Out of those variables, we found that founder blockchain experience was the most significant variable.
Our​ ​model’s​ ​accuracy​ ​rate​ ​is​ ​62%,​ ​which​ ​we​ ​consider​ ​to​ ​be​ ​robust​ ​for​ ​a​ ​single​ ​variable.

Figure​ ​4:​ ​Logistic​ ​regression​ ​with​ ​only​ ​founder​ ​with​ ​Blockchain​ ​expertise​ ​variable

Based on this finding, we proved one of our earlier hypothesis that having at least one of the founders
with​ ​blockchain​ ​expertise​ ​to​ ​be​ ​a​ ​good​ ​indication​ ​whether​ ​ICO​ ​will​ ​result​ ​in​ ​price​ ​post-ICO.

Moreover, we define founder blockchain expertise by searching founders background, and if one of the
founders had an experience in a blockchain project prior to the ICO project, we would classify them as
having an experience. We did a Google Search, article, and LinkedIn search to learn more about the
founders.​ ​This​ ​variable​ ​is​ ​binary.

Sentiment​ ​Analysis​ ​and​ ​White​ ​Paper​ ​Data​ ​Points

To expand on our hypothesis that communication increases the likelihood of a successful ICO, we used
Google’s Sentiment Analysis Cloud to evaluate common sentiment across white papers. The results were
weak, showing that common sentiment across white papers was either neutral or moderately positive.
This, coupled with the results of our logistic regression (that showed white papers to be insignificant
determinant factors), leads us to believe that Whitepapers, whilst necessary to educate an investor
initially,​ ​do​ ​not​ ​influence​ ​in​ ​the​ ​success​ ​or​ ​failure​ ​of​ ​an​ ​ICO,​ ​in​ ​the​ ​same​ ​way​ ​a​ ​blog​ ​does.

28
PROJECT​ ​CONCLUSION​ ​&​ ​RECOMMENDATIONS
Referring​ ​back​ ​to​ ​our​ ​initial​ ​hypotheses,​ ​we​ ​can​ ​conclude​ ​the​ ​following​ ​from​ ​our​ ​regression​ ​analysis.

1. Hypothesis​: ICO success is directly influenced by a high level of communication with potential
investors

Finding​: It appears that ICO with a strong a business and marketing team create a hype and
constant communication about the project would result in a completed ICO. In our analysis,
having a blog on the project proved to be a significant factor. However, the influence of
communication​ ​diminishes​ ​post-launch.

2. Hypothesis​: ICO success is directly influenced by a low level of development complexity, e.g.
building​ ​on​ ​existing​ ​blockchains​ ​rather​ ​than​ ​new​ ​ones​.

Finding​: Whilst we found that there was correlation between success and the use of existing
blockchains,​ ​such​ ​as​ ​Ethereum,​ ​we​ ​did​ ​not​ ​find​ ​this​ ​to​ ​be​ ​a​ ​significant​ ​factor.

3. Hypothesis​: ICO success is directly influenced by the makeup of the founding teams,
specifically,​ ​in​ ​that​ ​they​ ​need​ ​to​ ​have​ ​blockchain​ ​experience.

Finding​: We found that having a founder with blockchain experience was a significant
determinant​ ​of​ ​ICO​ ​success.

4. Hypothesis​: ICOs registered in one of the top five countries (Switzerland, US, UK, Canada,
Singapore),​ ​are​ ​more​ ​likely​ ​to​ ​succeed​ ​than​ ​those​ ​from​ ​outwith​ ​these​ ​countries.

Finding​: Whilst we found that certain geographies are more likely to yield successful ICOs, we
did​ ​not​ ​find​ ​this​ ​to​ ​be​ ​a​ ​significant​ ​factor.

5. Hypothesis​:​ ​The​ ​shorter​ ​the​ ​ICO​ ​timeframe​ ​(less​ ​than​ ​30​ ​days),​ ​the​ ​more​ ​likely​ ​it​ ​is​ ​to​ ​succeed.

Finding: ​Whilst we found that ICO timeframes within less than 24 hours were more likely to
succeed,​ ​we​ ​did​ ​not​ ​find​ ​this​ ​to​ ​be​ ​a​ ​significant​ ​factor.

29
ICO​ ​success​ ​factors

Our regressions indicate two principal significant determinant factors of ICO success: (1) a founding team
with​ ​blockchain​ ​experience​ ​and​ ​(2)​ ​the​ ​maintenance​ ​of​ ​a​ ​company​ ​blog.

Our Model 1 indicated that having a blog on the project is a significant contributing factor to successful
ICOs. With Model 2, we found that blockchain experience in the founding team was a significant factor.
Specifically, “at least one of the founders with blockchain background” was a significant variable. From
our regression analysis, we concluded that an ICO with a strong a business/marketing team that
disseminated consistent communication and produced media hype would result in a completed ICO.
However, once the ICO concluded, the primary determinants of any price increase depended on the
quality of the project. This led us to conclude that having the founding team with a blockchain background
is​ ​important.

Implications​ ​of​ ​our​ ​ICO​ ​Findings​ ​to​ ​VC​ ​Funds

The​ ​implications​ ​of​ ​our​ ​ICO​ ​findings​ ​to​ ​VC​ ​funds​ ​include:

ICOs will take away investment opportunities from VC funds. ICOs establish themselves as a
competitive way to fund their startup, with no dilution to the founder and a perception of less ongoing
requirements reporting to those VCs. ICOs are an alternative source of fundraising that is appealing and
a founder may decide to pursue an ICO rather than to raise money from VC. However, blockchain
technology it is not appropriate for every project, and as the public becomes more educated, ICOs will
have​ ​to​ ​work​ ​harder​ ​to​ ​be​ ​seen​ ​as​ ​a​ ​viable​ ​investment.

VCs are attracted to ICO and must re-establish their value proposition. ​Investors are attracted to
ICOs for the instant liquidity it can provide, contrary to the traditional VC fund which takes multiple years
before returns are estimable. VCs are now working to re-establish their value proposition to both startups
and LPs, in the face of what is a sizeable threat. It is important to remember that the value of a good VC
comes from the guidance, advice, connections and operational experience of scaling a business, which
an ICO does not clearly provide (unless the startup invests some of the proceeds in directly acquiring
these​ ​intangible​ ​assets).

30
The​ ​implications​ ​of​ ​our​ ​ICO​ ​findings​ ​to​ ​VC​ ​funds,​ ​on​ ​a​ ​national​ ​and​ ​global​ ​level​ ​include:

Location, location, location. ​Our data analysis concludes that the ICOs location makes a difference in
where an ICO is launched. For example, US is the main ICO location in our data set and the rate of
completed ICOs is 71%. The second best is Russia, with a rate of ICO completion at 60%. Of course, the
difference​ ​could​ ​be​ ​attributable​ ​to​ ​regulation​ ​of​ ​the​ ​ICO​ ​location​ ​and​ ​the​ ​ecosystem.

ICOs are a global phenomenon. ICOs are not limited by region, as illustrated by the global
governmental attention it has attracted. ICOs are not limited by borders, are decentralised by definition
and teams are highly mobile. In that respect ICOs affect every VC, in theory. However, the reality is that
traditionally strong VC geographies may suffer or have more opportunity than others, as projects that
would have historically followed the Seed-Series funding route decide to pursue ICOs and circumvent
VCs. This may lead to less new VC firm creation, or even, a migration away from traditional VCs towards
new​ ​ICO​ ​funding​ ​vehicles.

The​ ​implications​ ​of​ ​our​ ​ICO​ ​findings​ ​to​ ​VC​ ​funds,​ ​on​ ​best​ ​practices:

Consistent Visibility. ​Based on our data analysis we conclude that communication from the ICO team
and that team’s visibility are best practices. As previously mentioned, we found that having a blog is a
significant factor in determining whether an ICO would complete or not. We hypothesize that the main
reason is the constant communication and the transparency in the process is well received in by the
market/public.

Thorough Due Diligence. ​Our research leads us to conclude that VCs must be very defined in their
investment thesis, very applied in their diligence of the technology underpinning ICOs and very prudent in
their structuring of an investment vehicle, to stay on the right side of what we consider to be inevitable
regulation.

The​ ​implications​ ​of​ ​our​ ​ICO​ ​findings​ ​to​ ​VC​ ​funds,​ ​on​ ​emerging​ ​issues​ ​and​ ​trends:

ICO scams are an emerging issue that will lead to more conservative investments. ​Because of the
surging number of ICO scams, investors may become more conservative in their ICO investments. 2017
was the year of ICOs, many emerged, some were successes but a lot of scams were revealed too. Tezos
for example is now being sued for fraud and misinformation and it’s only one of the examples as many
still are being revealed. We therefore suspect that the keen interest may diminish as investors become
more​ ​weary.

31
National and global ICO regulation trends and ICO reactions are surfacing. ​We believe that the
common trend of regulators beginning to clarify their position on ICOs is unlikely to lead to a common
approach to regulation globally. As such, it is probable that there will timing differences between
regulation, that will provoke movement in capital and talent. For example, should the SEC crack down
prospectively on ICOs, it is probable that new ICOs will register in other jurisdictions more favourable.
This could lead to a domino effect around the world, where capital migrates to the least regulated
jurisdiction, or separately, or jointly, it could provoke a maturity in ICOs as a viable asset class in heavier
regulated markets. One thing is certain, there is significant tax revenue to be recouped by governments
pursuing​ ​ICOs​ ​as​ ​securities,​ ​and​ ​therefore​ ​it​ ​is​ ​highly​ ​appealing​ ​to​ ​regulate.

Recommendations​ ​for​ ​Further​ ​Action

Invest​ ​in​ ​ICOs​ ​with​ ​caution.

Capitalize​ ​on​ ​our​ ​findings​ ​but​ ​first​ ​do​ ​this:

Consider all research with a grain of salt​, before jumping in to capitalize on our findings. Past
performance is not necessarily an indicator of future performance. ICOs are dynamic. Follow the
evolution of the market closely and keep in mind that what you observe is likely to be geographically
dependent.

Invest with eyes wide open​. Touching on the Mangrove VC report acknowledged in the body of the
report, a VC investing in every single ICO is estimated to have gained a return of 13.2x initial investment.
VCs are in the business of making financial returns for their LPs and therefore can capitalise on a new
method​ ​of​ ​funding​ ​to​ ​generate​ ​returns.

Take​ ​these​ ​actions​ ​before​ ​implementing​ ​our​ ​findings:

Do due diligence on ICO regulation. In such a moving environment, VCs must seek legal advice and
understand the risk from new regulation into current, future but also past investments. Regulations can
be,​ ​after​ ​all,​ ​retroactive,​ ​which​ ​would​ ​have​ ​implications​ ​for​ ​yesterday's​ ​investors..

Do due diligence on tech backgrounds of the ICO team and the underlying tech behind the ICO
startup. ​There are differing levels of development complexity, and not all ICOs are equally viable, or
achievable in their plans. This is not to say that all are scams, as blockchain technology is nascent and all

32
founders must be ambitious to attract investment, but investors must do individual due diligence on the
tech​ ​behind​ ​every​ ​ICO.

Continue​ ​to​ ​do​ ​your​ ​research​ ​on​ ​a​ ​daily​ ​basis:

Establish a daily ICO research regimen. We believe that due to the complexity of the technology, the
pace of change within the asset class, and the uncertainty around regulation, any potential investor must
be continuous, consistent and careful in its monitoring of developments touching ICOs. Even in the short
timeframe we have spent writing this report, there have been multiple scandals, reversals of previous
regulation, establishment of new regulation, creation of new fund vehicles and hundreds of new ICOs
with new use cases. This is an extremely dynamic area of investment, and requires constant and daily
study​ ​from​ ​investors.

Get​ ​additional​ ​resources:

Get acquainted with ICO databases. ​Currently, Crunchbase provide a reference database for VCs to
look at company funding details and founders. However, there is nothing equivalent for ICOs. Until a
single, unified, source of information is established, VCs must be comfortable with aggregating and
verifying​ ​data​ ​from​ ​disparate​ ​sources.

Hire blockchain experts to augment your team’s ICO understanding. Once a VC has educated itself
on blockchain, acquired or consulted with blockchain domain experts, it may begin to consider pursuing
an ICO focussed fund. Should the VC decide to create an ICO fund, fund structure should err on the side
of caution with regard to regulation, establishing in a more established financial centre with clear and
transparent​ ​treatment​ ​of​ ​ICOs.

Hire good lawyers that have experience in the ICO domain. ​We wish to highlight that legal advice is
of utmost importance when considering investment in ICOs, with regard to use case, token type,
technology, blockchain type, registration country, regulation and investment vehicle. This resource is
likely to be external to a VC but given the dynamic nature of the asset class, it is clear that strong legal
competency​ ​within​ ​the​ ​VC​ ​firm​ ​would​ ​also​ ​be​ ​extremely​ ​beneficial.

Keep​ ​unresolved​ ​issues​ ​in​ ​mind:

Keep in mind that at this point in time, nothing is yet resolved in the ICO domain. As of yet, there is no set
standard​ ​until​ ​national​ ​and​ ​ ​global​ ​ICO​ ​regulation​ ​reaches​ ​maturity.

33
And​ ​finally,​ ​adjust​ ​your​ ​modus​ ​operandi:

Make a clear decision on if, when, and how you will invest in ICO. ​Decide whether to 1) raise money
traditionally, 2) release your own tokens, 3) a combination of 1 and 2, or 4) invest with third parties (e.g.
Hedge​ ​Funds).

Make a clear decision on the level of risk you want to take because ICOs are a complete gamble
today. VCs must consider what level of risk, control and management they are willing to pursue as this
will assist in their decision over investment vehicle type. The fund type will dramatically change the way
they engage, operate and appraise investments. Direct investors, pursuing SAFTs or security token funds
will have undoubtedly higher levels of control and engagement with management, whereas passive
investors, via Hedge Funds would outsource the control to third parties. In both cases, this may affect the
makeup of the firm, the talent base it seeks to attract and the skillsets it needs to add value to its
investments​ ​and​ ​its​ ​investors.

Implementation​ ​Owners

Actions​ ​required​ ​by​ ​VC​ ​partners:

Educate yourself. ​VC partners must educate themselves and educate limited partners on ICOs with
emphasis​ ​on​ ​the​ ​underlying​ ​technology.

Decide what level of external support is needed and go get it. Partners at a VC firm must assess the
level of blockchain knowledge within the team and decide what level of external counsel is required. In
the majority of cases, the VC will need to hire new resources to cover blockchain investments, as
technical due diligence is key to avoiding fraudulent projects. The establishment of a separate fund is
also key, as the liquidity afforded in ICO investments is much greater, and earlier than traditional VC
investments.

Actions​ ​required​ ​by​ ​limited​ ​partners:

Assess risk tolerance. A VC will need to check the risk profile of their limited partners, as the returns
and risk in this class of assets are not the same as for VC investments. Risk in ICOs is significantly
higher.

34
Place​ ​emphasis​ ​on​ ​these​ ​partnerships​ ​and​ ​activities:

Communicate with regulators and lawyers. ​The key actors in the ICO arena are regulators, who stand
to impact the market more than anyone else. Implementation of a new Fund must be done in consort with
regulators,​ ​to​ ​assume​ ​best​ ​practices​ ​ahead​ ​of​ ​regulation.

Make friends with data. As noted above, there is no single, unified, reputable source of ICO data. VCs
must therefore build relationships with existing database owners to aggregate and verify data
themselves.

35
GLOSSARY
For a better understanding of blockchain technology and terms, we recommend reading CB Insights’
report​ ​on​ ​the​ ​topic:​ ​https://www.cbinsights.com/research/what-is-blockchain-technology/

36
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APPENDICES
Appendix​ ​1:​ ​ICO​ ​Ecosystem

Appendix 2: ICOs by Category 2017YTD, as extracted from

Coinschedule.com

40
Appendix 3: Key ICO-related Regulatory Moments as per Smith
28
and​ ​Crown

28
​ ​"Index."​ ​Smith​ ​Crown.​ ​Accessed​ ​November​ ​09,​ ​2017.​ ​https://www.smithandcrown.com/index/.

41
Appendix​ ​4:​ ​Variable​ ​Details

Variable Source Comment

ICO​ ​general​ ​information

Name ICO​ ​name

Token​ ​Market,
Crowdsale_open Beginning​ ​date​ ​when​ ​ICO​ ​started
Token​ ​data

Token​ ​Market,
Crowdsale_close End​ ​date​ ​when​ ​ICO​ ​started
Token​ ​data

Crowdsale_period Calculation,​ ​End​ ​-​ ​beginning​ ​ICO​ ​date

Initial_Price Coin​ ​MarketCap The​ ​token​ ​initial​ ​price​ ​on​ ​the​ ​day​ ​of​ ​ICO

3Months_PostPrice Coin​ ​MarketCap The​ ​token​ ​price​ ​90​ ​day​ ​post​ ​ICO

Return Calculation,​ ​3Months_PostPrice/Initial_Price

Category Novum​ ​Insight Project​ ​category

Token​ ​Market,
Location ICO​ ​location
Novum​ ​Insight

Token Market, Novum

Continent ICO​ ​location​ ​in​ ​continent
Insight

Token Market, Novum

Technology What​ ​Blockchain​ ​base​ ​their​ ​use
Insight

Communication​ ​variables:

Website Token​ ​Market Does the ICO has website for the project.
Binary​ ​variable

42
Blog Token​ ​Market Does​ ​the​ ​ICO​ ​has​ ​blog.​ ​Binary​ ​variable

Whitepaper Token​ ​Market Does​ ​the​ ​ICO​ ​has​ ​whitepaper.​ ​Binary​ ​variable

Facebook Token​ ​Market Does the ICO has facebook page. Binary
variable

Twitter Token​ ​Market Does​ ​the​ ​ICO​ ​has​ ​twitter.​ ​Binary​ ​variable

Linkedin Token​ ​Market Does the ICO has Linkedin presence. Binary
variable

Slack Token​ ​Market Does​ ​the​ ​ICO​ ​has​ ​Slack.​ ​Binary​ ​variable

Telegram Token​ ​Market Does​ ​the​ ​ICO​ ​has​ ​Telegram.​ ​Binary​ ​variable

Github Token​ ​Market Does the ICO has page in Github. Binary
variable

Founder​ ​variables:

Total​ ​#​ ​of​ ​Founders Token Market, Linkedin, Total​ ​number​ ​of​ ​founders
Google

#​ ​Female​ ​Founders Token Market, Linkedin, Total​ ​number​ ​of​ ​female​ ​founders
Google

Founder_Serial_Entrepre Token Market, Linkedin, At least one of the founder is a serial

neur Google entrepreneurs

Founder_Background_T Token Market, Linkedin, At least one of the founder has a background
ech Google in​ ​technology

Founder_Blockhain_Exp Token Market, Linkedin, At least one of the founder was in Blockchain
ertise Google project

Technology​ ​proxy​ ​variables

Git​ ​-​ ​Starred​ ​by Token​ ​Market,​ ​Github Total number of user started the project in
Github

43
Git​ ​-​ ​Watchings Token​ ​Market,​ ​Github Total number of user watchings the project in
Github

Git​ ​-​ ​Contributors Token​ ​Market,​ ​Github Total​ ​number​ ​of​ ​project​ ​contributors​ ​in​ ​Github

Git​ ​-​ ​Forks Token​ ​Market,​ ​Github Total number of copy repository project in
Github

Git​ ​-​ ​Commits Token​ ​Market,​ ​Github Total​ ​number​ ​of​ ​project​ ​revision​ ​in​ ​Github

Git​ ​-​ ​Open​ ​Issue Token​ ​Market,​ ​Github Total number of open issue in project in
Github

Sentiment_Magnitude Google​ ​Cloud,​ ​Whitepaper The​ ​magnitude​ ​of​ ​sentiment

Sentiment_Score Google​ ​Cloud,​ ​Whitepaper The emotional state of the document

(positive,​ ​negative​ ​or​ ​neutral)

Appendix 5: Detailed findings on logistic regression to determine

whether​ ​ICO​ ​would​ ​be​ ​a​ ​success​ ​or​ ​not

44
45
46
Appendix​ ​6:​ ​Dependent​ ​variables​ ​correlation

47
Appendix 7: Detailed findings on logistic regression to determine
whether​ ​successful​ ​ICO​ ​would​ ​increase​ ​in​ ​price​ ​or​ ​not

48
49
50