Where Did The Money Go? Inside the Big Crypto ICOs of 2017

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n May 2017, with a white paper and a small team of developers mostly located in Belgrade, Serbia, MobileGo raised $53 million in an initial coin offering (ICO). At the time, ICOs were new to the world of finance. Unlike initial public offerings, or IPOs, they required no lawyers, bankers or regulatory approval and were more akin to Kickstarter-style crowdfunding, except funds were raised in cryptocurrency, typically bitcoin or ethereum. 

MobileGo’s goal was to build a cryptocurrency platform for making purchases inside video games and betting on esports, which had become a sizzling-hot trend. The ICO was one of the biggest such deals of the year. But today, few people know where that $53 million is. The startup claims 150 people are working on MobileGo products, but Sergey and Maxim Sholom, the brothers who lead the project, keep company financials private. According to former employees, the Sholoms have moved away from cryptocurrency as a central aspect of their business plan. A spokesperson for MobileGo insists they are still trying to deliver on their original goals. 

Or take the case of Polybius, an Estonian project named after the classical Greek father of cryptography. It raised $32 million through an ICO in the summer of 2017. Its lofty goal was to create a crypto version of the popular personal finance service Mint. “Financial Peace of Mind for the Digital Generation” was its promise. More than a year later, Polybius doesn’t expect to launch the first version of its product until November. Its tokens, trading under the symbol PBLT, have sunk by 84%. That has dragged down its market capitalization (circulating supply of tokens multiplied by market price) to about $6 million, despite the fact that its ICO proceeds, sitting in a series of secure wallets mostly in the form of bitcoin, have since risen to a value of $40 million. 

Since the ICO explosion began in 2017, some 800 ICOs have been offered, raising a total of about $20 billion. MobileGo and Polybius were eagerly oversubscribed when they launched and were among the top ICO offerings of 2017. 

Not all ICO issuers have treated their token holders as shoddily, but because of the lack of controls or disclosure rules in the world of cryptocurrencies, the status of projects and the uses of ICO funding are often anyone’s guess. In an effort to peek inside the operations of newly hatched tokens, Forbes investigated the ten projects that, as of the beginning of September 2018, raised the most money and were at least a year old. 

By speaking with the crypto entrepreneurs, investors and industry analysts, we set out to answer two questions: How far have the largest ICO-funded projects progressed in their plans, and where is the ICO money now? As a starting point, we used recent research on public, digital accounts for ICOs. But those numbers can be deceiving, and the only way to get the full story was to talk to each team. 

As an investor, if you had purchased all 10 of the largest ICOs during the token sale, you would have fared well through the middle of October 2018. A $100,000 investment would now be worth $160,936, compared with $113,722 for the S&P 500. But six of the 10 have negative returns since their ICO, and one has mysteriously vanished. If you had simply sunk your $100,000 into bitcoin, you’d have $264,417. 

If, like most retail investors, you were late to the party and bought ICOs after the coins began trading on leading exchanges, you likely did far worse. Of the 141 largest ICOs in 2017, 86% are trading below their listing price, and 30% have lost almost all their value, according to EY.  

The 10 ICOs we investigated raised $840 million combined. How much do they have left? Surprisingly, they’re still holding the same amount—an estimated $840 million in cash and crypto. That’s because some large projects, like Tezos, were largely funded in bitcoin, which traded at about half its current price at the time of Tezos’ July 2017 ICO. Others shrewdly converted their crypto into fiat currency near the peak of the crypto bull market, locking in huge gains. Three of the 10 projects currently hold more in crypto and cash than what they originally raised. 

That’s one of the most intriguing aspects of these startups. Because they raised funding in crypto, their leaders—most of whom are computer programmers—have been forced to become not just entrepreneurs but asset managers. They’ve had to decide what to do with an extremely volatile asset, meant to keep their business afloat for years. “For a long time, everyone believed everything was going up and to the right,” says crypto investor and CoinShares chief strategy officer Meltem Demirors. “They’re not financial planners or investors—they’re developers and engineers.” 

Several of the startups remain financially healthy, but they’ve also spent significant money, largely on salaries. Four of the 10 have seen their funds dwindle by at least one third. Status, which raised $95 million in June 2017, has $53 million left. The startup has 98 employees in 24 countries and a high burn rate of $1.3 million a month—a typical rate for an early-stage tech startup is closer to $500,000. 

Oddly, three of the 10 ICO projects have more in cash and crypto on hand than their total market capitalization. To stock investors, this scenario would normally indicate deep value, ripe for the plucking. However, in the bizarre world of cryptocurrencies, where ICOs and crypto projects are often run in an absence of legal contracts, it’s unclear whether token holders have any claim on a startup’s cash. 

Nic Carter, a former Fidelity analyst who cofounded the crypto VC firm Castle Island Ventures, says a large treasury is a target for lawsuits. Angry investors who’ve lost their shirt could try to make the case that a token was sold as an unregistered security and go after the idle currency in court. “2019 will be the year of ICO lawsuits,” Carter predicts. 

TEZOS (XTZ) 

Product: Decentralized cloud computing platform, Ethereum competitor 

Token price*: $1.31 

ICO return*: 228% 

Bitcoin return over same period*: 174% 

ICO end date: 7/14/17 

Funds raised: $232 million 

Funds remaining: $500 million 

Funds per token**: $0.82 

Employees: About 40, funded through grants program 

Project status: Main network launched on 9/17/18, has about 450 “bakers,” or entities running software to validate transactions 

Founded by Arthur and Kathleen Breitman in 2014, Tezos aims to be a decentralized computing platform that applications run on top of, like Ethereum. Early on, the project was plagued by in-fighting between the Breitmans and their former business partner, Johann Gevers. 

The Tezos ICO funds are controlled by the Zug, Switzerland-based Tezos Foundation, a seven-person governing body that doles out money for operational costs like software development, research and marketing. It has only one full-time employee—even the founders don’t have permanent roles. “Arthur and Kathleen are independent community members,” says Ryan Jesperson, president of the Tezos Foundation and the only full-timer. “We’re very serious about decentralization.” 

Tezos was one of the highest-profile ICOs of 2017 and has a cloud of legal uncertainty hanging over it. In a class-action lawsuit, some investors allege that Tezos didn’t follow through on its promises and its currency was sold as an unregistered security. The Tezos Foundation argued that the case should be handled by Swiss courts, but a U.S. judge dismissed the argument in August. The foundation declined to comment on the ongoing lawsuit.

It still holds about $500 million in its treasury, mostly in cryptocurrencies like bitcoin and ether. That’s down from about $1.2 billion in December 2017, when bitcoin peaked. 

Of the 10 ICOs Forbes investigated, Tezos has produced the second-highest return, delivering nearly 230% for investors. The platform launched in September 2018 after months-long delays, and it has about 450 individuals and organizations participating in the network, which involves running software to help validate transactions. 

  

BANCOR (BNT) 

Product: Decentralized exchange for converting one cryptocurrency to another 

Token price: $1.28 

ICO return: -67% 

Bitcoin return over same period: 143% 

ICO end date: 6/12/17 

Funds raised: $153 million 

Funds remaining: At least $75 million (Forbes estimate) 

Funds per token: $1.30 

Employees: 61 

Project status: Main network launched in October 2017 

This Israeli company aims to be a decentralized exchange where people can quickly convert one cryptocurrency into another. The question of whether it’s truly decentralized has been hotly debated, particularly after the company froze customer funds to recover stolen coins. Today, Bancor adheres to a less strict definition of decentralization. “At the time of the token sale, I don’t think they were as candid about how it’s a more marginal process, rather than binary,” says venture capitalist Nic Carter.  

Of the nearly 400,000 ether Bancor raised in its ICO, it allocated 150,000 to a murky “price stability” contract that essentially propped up the coin’s falling price by buying back tokens from those wishing to exit in its early days. Bancor cofounder Galia Benartzi says the goal was to make the ICO more inclusive and to mitigate price volatility. 

Bancor declined to say how much it has left in its treasury, but based on staff size and typical burn rates, Forbes estimates it has at least $75 million. The BNT token is down more than 60% from its ICO. As for Bancor’s platform, which has been live since last fall, traders move a mere $4 million per day on it in different digital currencies, according to crypto analytics site tokenanalyst.io. But its own coin only has an average of 125 daily users, reports Trivial.co. 

  

STATUS (SNT) 

Product: Browser for decentralized applications (think Google Chrome for crypto apps), digital wallet and chat app 

Token price: $0.04 

ICO return: -5% 

Bitcoin return over same period: 140% 

ICO end date: 6/21/17 

Funds raised: $95 million 

Funds remaining: $53 million 

Funds per token: $0.02 

Employees: 90 

Project status: Test version of the app launched publicly with digital wallet and chat capability, has less than 1,000 daily users. The token has about 130 daily users. 

Status is an app where people can find crypto applications, store tokens and chat. The company has 98 employees in 24 countries who earn an average salary of $108,000, leading to a high burn rate of $1.3 million a month. It has managed its treasury by leaving virtually all of the funds in ether. Of the $95 million Status raised, it has $53 million left, mostly due to the decline in ether. At one point in early 2018, its cash hoard stood at roughly $375 million. 

Status’ burn rate is worrying, but a bigger problem may be its entire model. “I worry about whether the time is right to have decentralized apps,” says Salil Deshpande, a managing director at Bain Capital Ventures. “Full decentralization is happening a lot slower than we think. A lot of these projects are too early to market, and they’ve already spent too much because they’re getting the timing wrong.” 

The Status token has almost no functioning purpose, and the app is controlled by the company—Status plans to decentralize it later. Why didn’t Status go the traditional VC route? “Status’ token model provides the opportunity to our growing community to not only participate in the network but help shape the direction of the software itself,” says Status COO Nabil Naghdy. 

When will Status release its core products? No telling. “We don’t want to put unnecessary expectations on people,” Naghdy says . 

  

TenX (PAY) 

Product: Debit card that lets you spend crypto 

Token price: $0.55 

ICO return: -28% 

Bitcoin return over same period: 148% 

ICO end date: 6/24/17 

Funds raised: $83 million 

Funds remaining: $104 million 

Funds per token: $0.96 

Employees: 80 

Project status: After the first debit card was recalled, TenX says it’s almost ready to ship the second version to 100,000 customers. 

Singapore-based TenX makes a debit card for spending cryptocurrencies at traditional retailers. The company released a Visa card in 2017 by partnering with payments company WaveCrest. It had “100,000 cards live,” says cofounder and president Julian Hosp. But in January 2018, Visa pulled the plug on its WaveCrest integration, causing cards from TenX and other companies like BitPay to stop working. 

Since then, TenX has been rebuilding its debit card product, Hosp says. It has 80 employees who it pays $84,000 a year on average, leading to a monthly burn rate of about $530,000, or $6.4 million a year. 

On Twitter, cofounder Hosp has been criticized for his Instagram posts showing an extravagant jaunt on a private plane. Says Hosp, “That was a one-time trip for our wedding. And that’s my personal funds, it has nothing to do with the company.” 

In September, TenX released a detailed financial report, claiming its ICO treasury held a total of $104 million, or $21 million more than it originally raised. How did that happen? Hosp shrewdly started converting ether into U.S. dollars in July 2017. He decided the project would keep a 50/50 crypto-fiat split while the market was going up. Currently TenX’s cash per token exceeds its price by almost 50%. Hosp says TenX is a month or two away from shipping new cards. “We’re just waiting for the final go.” 

  

PRESSONE (PRS) 

Product: Aims to be an ad-free digital content platform that lets readers pay through microtransactions 

Token price: $0.05 (but very thinly traded) 

ICO return: Not available 

Bitcoin return over same period: 223% 

ICO end date: 7/15/17 

Funds raised: $82,000,000 

Funds remaining: Unknown 

Employees: Unknown 

Project status: After China’s ICO ban, PressOne reportedly released plans to return funds to investors. But Forbes was unable to confirm the tokens were returned. 

China-based PressOne was created by entrepreneur and crypto investor Li Xiaolai. Its original goal was to build a digital content platform powered by microtransactions. The project raised $82 million, reportedly without even publishing a white paper. 

When the Chinese government issued its ICO ban in September 2017, just weeks after the PressOne ICO ended, the project made plans to return the tokens to investors. But Forbes hasn’t been able to confirm whether the company carried out those plans, making it yet another unsolved crypto mystery. 

A group of developers are apparently still working on PressOne, posting periodic development updates. Although Li Xiaolai was cited as PressOne’s CEO as of April 2018, he recently said he’s making a career change and won’t make any more blockchain investments. He didn’t respond to repeated interview requests from Forbes. 

  

MOBILEGO (MGO) 

Product: Digital currency platform devoted to gaming and esports 

Token price: $0.42 

ICO return: -44% 

Bitcoin return over same period: 180% 

ICO end date: 5/25/17 

Funds raised: $53 million 

Funds remaining: Unknown 

Employees: About 50, down from a peak of about 100 

Project status: Digital wallet completed, but the original goal of a gaming platform is in question. 

Serbia-based MobileGo originally aimed to be a digital currency for gamers, allowing them to bet on esports and pay tournament entrance fees. But it has pivoted away from cryptocurrencies, according to former employees. “I had this feeling the whole time that we were just tools in some greater scheme the Sholoms had in mind,” says an engineer who worked with the company’s leaders, Sergey and Maxim Sholom. A MobileGo spokesperson says the startup is still focused on its original goals and recently partnered with a gaming company that will use its tokens.  

Former employee Jack Kuveke and freelance engineer Samad Sajanlal have written publicly about their experiences working there. MobileGo’s leadership had “repeated failures meeting timetables,” Kuveke has said. Maxim Sholom is “truly incompetent,” according to Sajanlal.  

Forbes was unable to determine the status of the startup’s funding. 

  

SONM (SNM) 

Product: “Fog computing” platform that hosts computer applications—like cloud computing software—across multiple computers in a decentralized architecture. 

Token price: $.06 

ICO return: -66% 

Bitcoin return over same period: 223% 

ICO end date: 7/15/17 

Funds raised: $42 million 

Funds remaining: $18 million 

Funds per token: $0.05 

Employees: 70 

Project status: Live 

Moscow’s Sonm aims to be a decentralized cloud computing platform that hosts applications and competes with the likes of AWS and Dfinity. After raising $42 million in July 2017, it converted a large chunk of its ether into dollars and tried to store it in a traditional bank account. 

But it collected no information on its investors, apart from email addresses. To avoid running afoul of the SEC, Sonm took measures to prevent U.S. residents from investing, like banning IP addresses and clearly stating on its website that U.S. investors couldn’t participate. “That’s really easy to get around,” Nic Carter says. “You just use a VPN.” 

Since Sonm couldn’t pass “Know Your Customer” (KYC) checks, banks initially wouldn’t accept its ICO funds. So Sonm paid most for most of its expenses, including salaries, in Sonm tokens and other crypto. 

Its network launched in June 2018, but it has only 50 to 100 users so far. Funds per token are an estimated $0.05, nearly as high as its trading price of $.06. The startup has 70 employees and is burning cash at a rate of $500,000 to $800,000 a month, says Sonm cofounder Aleksei Antonov. Forbes estimates it has just $18 million of its $42 million left. 

At the current burn rate of $500,000 a month, and with an ambitious goal of disrupting Amazon’s AWS, Sonm’s future is in doubt. “If you’re going to be decentralized, you have to be just as good as Amazon in every other way,” says Bain Capital’s Salil Deshpande. “I just don’t think enough people care enough.” 

  

BRAVE, BASIC ATTENTION TOKEN (BAT) 

Product: Web browser with a built-in ad blocker that allows users to reward content creators directly with crypto 

Token price: $0.24 

ICO return: 580% 

Bitcoin return over same period: 183% 

ICO end date: 5/31/17 

Funds raised: $35 million 

Funds remaining: At least $30 million (Forbes estimate) 

Funds per token: $.03 

Employees: 90 

Project status: Live 

Brave aims to be a faster, more private Web browser with a built-in ad blocker, where users can directly reward content creators. To make money, Brave takes a small cut of those payments. The browser came out in January 2016, and eight months later, it integrated with bitcoin to let users transact in crypto. 

Over the past year, Brave has used most of its funds to pay salaries for its 90 employees. The startup has also spent money on Facebook and Google ads, and it has grown from 400,000 monthly active users last year to 4.7 million today. Revenue so far is “tiny,” Brave CEO Brendan Eich says. “We’re all about growth.” 

Brave’s lucky ICO investors have seen a six-fold rise in its price, and its funds left per token are $.03, compared with its current trading price of $0.24. Anyone buying Brave in the aftermarket has had flat returns, even though usage of its browser has grown steadily and strongly. 

Venture investor Carter thinks Brave doesn’t need its own token, because it would be easier for readers to transact in a more liquid coin, like ether. “It’s like traveling abroad, having to change your money at the border. That sucks,” Carter says. A spokesperson for Brave says the token is useful for rewarding publishers through a referral program and ensuring price stability. 

According to Carter, the paradox of Brave’s impressive user growth and relatively weak coin price performance illustrates the inherent problems with certain token issuances. “It’s a great case study on why most utility tokens are doomed,” he says. Brave claims that the growth of its app has been mostly on mobile devices, while its token is only available to desktop users. It plans to add the token to its Android and iPhone apps later.  

  

CIVIC (CVC) 

Product: Software that lets you verify your identity without having to store your information in a central database 

Token price: $0.14 

ICO return: 36% 

Bitcoin return over same period: 139% 

ICO end date: 6/22/17 

Funds raised: $33 million 

Funds remaining: At least $20 million (Forbes estimate) 

Funds left per token: $0.06 

Employees: 42 

Project status: Live 

Through mobile and Web app software, Civic aims to let people verify their identities without having their information stored in a central database. It wants to reduce the risk of data breaches and eliminate the need to trust a company to keep your data private. Serial entrepreneur and Civic CEO Vinny Lingham started working on the project in 2015. 

Lingham aggressively sold 80% of the crypto he collected in the few months following the ICO, converting it to U.S. dollars. So far, Civic has spent its funding mostly on salaries—it has 42 employees today. Its product has more than 100,000 downloads, Lingham says. Over a recent 30-day period, the app was used 8,000 times to verify an identity. Many agree that identity verification will be an important use case for the blockchain in the future, but the question is whether Civic will be around when that time comes.  

  

POLYBIUS (PLBT) 

Product: A wallet and app with analytics on your crypto and euro holdings, like a Mint.com for crypto 

Token price: $1.58 

ICO return: -84% 

Bitcoin return over same period: 148% 

S&P 500 return: 14% 

ICO end date: 07/04/17 

Funds raised: $32 million 

Funds remaining: $40 million 

Funds per token: $10.08 

Employees: 13 

Project status: Prototype stage 

 

Polybius, named for a Greek historian, aims to create a portal for crypto investors to store digital assets, trade them and see portfolio analytics. Its token serves little purpose in the ecosystem, other than to distribute a dividend if the company reaches “stable profitability.” 

The Estonian- and Belgian-based startup has been using the ICO proceeds to fund staff salaries for 13 people, user testing, corporate structure consultants and financial auditing. About 85% of its ICO money is still in crypto, currently holding roughly $26 million in bitcoin, $5 million in ether and $150,000 in stable coin tether. 

Because Polybius collected more of its ICO funds in bitcoin than ether, it has fared well financially since the ICO. After 16 months, it has about $8 million more in its treasury than when it started. Meanwhile, its coin has performed terribly—it’s down 84%. 

Polybius hasn’t yet released a product. CEO Anton Altement says that if Polybius actually makes money, it will create a dividend pool, offering 20% of the funds to token holders and 80% to the founders. 

* Token price as of 10/19/18, according to CoinMarketCap. ICO and bitcoin returns compare ICO end date to 10/19/18. 

** Funds left divided by the total circulating token supply. Comparing this metric to token price gives a sense of how richly valued a startup is relative to its cash holdings. In Tezos’ case, its cash represents about 60% of its total market cap ($.82 / $1.39 = 59%). Since it has a total market cap of $744 million, investors are valuing its non-cash assets at about $300 million ($744 million * 40% = $298 million). 

Reach Jeff Kauflin at [email protected]. Cover image by Nick DeSantis.

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