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Working paper

Success of Initial Coin Offering. The Empirical Evidence from 2016-2019

Since 2013 Initial Coin Offerings (ICO) have allowed companies to attract financing with the help of cryptocurrencies. In August 2017, the total capitalization of the crypto currency market exceeded $150bln. From the 1st quarter of 2015 to November 2017, the volume of funds raised amounted to $3,78bln. Statistics of ICO shows that demand continues to grow with claims of over $15bln raised in the first half of 2018. The first quarter of 2019 ended with $902 million total raised funds and $8.4 million average raised funds. The increasing number of projects financed by ICO (4954 projects during 5 years) as an alternative method to venture capital (VC) or initial coin offering (IPO) is caused by several reasons: the possibility of reselling the received tokens at a higher price after the launch of the project or earlier; the possibility of obtaining the company's services at lower prices; the increased popularity of crypto currencies (e.g. Bitcoin, Ethereum, etc.); the expectation of high profitability; the high speed of transactions (including the speed of attracting initial investments) and anonymity. However, due to difficulties in regulation, the ICO market attracts smaller investments on average (average investments in ICO projects equal to $19 million in comparison with the average size of IPO - $207,2 million) and there exists more chance for manipulation in the market, which leads to the fact that the results relevant to the IPO market cannot be applied directly to ICO. Due to the fact that blockchain technology and cryptocurrencies are new tools in finance, and the data for research has just begun to appear, there is a limited number of academic papers in this area of studies. Moreover, they are devoted mainly to the description of the mechanisms of the ICO, the advantages and risks of ICO, the review of existing ICO and crypto exchanges, legislation. The absence of fundamental works emphasizes the relevance and scientific novelty of the forthcoming research.  The contribution to the existing literature is the identification of factors that affect the successful of ICO. Scientific novelty consists in the formation of the model evaluation of ICO success. Empirical results show that volatility of main cryptocurrencies has significant impact on the success of ICO. The constraints of the platform for Smart Contacts (ERC-20) and dependence on the Ethereum volatility overcome all other factors. Our data contributes with existence literature and shows the insignificance of sector of the project, almost all location region and fluctuation of influence of quality of team. This result may be explained by the uncertainty of the investor about the project (weak signals), absence of the regulation and legal framework. This result is beneficial for owners of companies since it is an argument for decreasing costs for marketing.